Diageo: Southern Europe grief to continue in 2014

Spirit brands should not expect a turnaround of fortune in Southern Europe in 2014, as the economy continues to provide a challenging trading environment.

Diageo, like many spirits companies, are finding Western Europe a challenging region

With continued economic uncertainty and high unemployment rates in some Southern European countries, spirit brands have been warned that depleted volumes in the region would likely continue throughout the next year.

John Kennedy, president of Diageo Western Europe warned that the “underlying trend across Europe doesn’t look like it’s changing dramatically”.

Speaking at a presentation of Diageo’s full-year financial results for 2012/13, he said: “We’re looking at countries that are still in the midst of incredible challenges and some of them are seeing 25% unemployment and are very wary consumers.

“We’re not seeing any significant change in any of the major countries, so don’t expect a dramatic change in 2014. We think there will be some moderation and eventually a recovery but were not going to wait for it”.

Asked what Diageo’s plans are for improving performance in the region, he added: “We ‘re making some moves now that we think can improve the trajectory as we go forward and what we’re seeing is when we do make moves and real investments we’re getting results. For example, our Reserve Brands portfolio grew double digits for the second year in a row. We made a major intervention on innovation – our line of new products has driven a level of growth we haven’t seen in a number of years in Europe and that’s promising for the future as well.”

Diageo’s reported net sales declined in Western Europe by 5% during the year, with sales in Southern Europe and Ireland dropping by 11%, and those in France by 8%. Southern Europe now accounts for just 3% of Diageo’s entire business, down from a previous high of 9% a few years ago.

Volumes of Johnnie Walker declined by 2% and Baileys by 4%, while J&B dropped a staggering 18%.

The group has however seen momentum grow for its Captain Morgan brand, particularly in Britain and Germany, which drove a 17% volume increase in the area, making it the only strategic Diageo spirit brand to grow.

Kennedy added that Diageo would continue to make inroads in the region by investing in marketing.

“Going forward we’ll increase our media investment across Europe, Southern Europe and Northern Europe, which is our most effective spend by over 30%,” he said.

Diageo identified Western Europe’s strongest economies as Germany, Austria and Benelux, which delivered double-digit sales growth, as well as the UK where innovation and the Reserve Brands offset a poor performance from Guinness.