Diageo’s share price surged yesterday after the drinks giant revealed ambitious plans to achieve a 50% increase in total beverage alcohol (TBA) market share value by 2030.
It currently has a 4% share of the market, which it aims to grow to 6% by 2030. The company ended FY 2021 with one of the highest growth rates in its history, driven by strong at-home demand in the US and the re-opening of bars and restaurants in Europe.
Rapid consumer shift to premium brands and increased brand investments also led the company to announce it expects organic net sales growth of at least 16% in the first half of FY 2022, with organic operating profit growth to be ahead of sales growth.
Shares in the company rose as much as 3.4% during morning trading following the announcement.
Diageo Capital Markets Day
Diageo outlined its drivers of competitive advantage for sustainable long-term growth and provided medium-term guidance ahead of its historical growth rates at its biennial Capital Markets Day in London yesterday.
Its new medium-term guidance is that it expects organic net sales growth in a range of 5% to 7% and organic operating profit growth in a range of 6% to 9% for FY23 to FY25.
Chief executive Ivan Menezes (above) said: “Since our last Capital Markets Day, we have continued to invest in our brands, sharpened our focus on accelerating growth and quickly responded to shifts in consumer behaviour. We have also launched ‘Society 2030: Spirit of Progress’, our ten-year sustainability action plan, building on our strong track record of doing business the right way, from grain to glass.
“Our culture of everyday efficiency is embedded in our business and we continue to challenge ourselves to achieve more. In fiscal 21, despite the challenges created by COVID-19, we delivered strong organic net sales growth, drove an improvement in organic operating margin and delivered strong cash flows, while continuing to invest in long-term sustainable growth.
“We believe our sales growth trajectory has accelerated, underpinned by the strength of our advantaged position across geographies, categories and price tiers.”
CFO Lavanya Chandrashekar added: “Our focus on everyday efficiency enables us to continue to increase investment in our brands and strategic growth initiatives, while underpinning organic operating margin improvement.
“This self-sustaining growth model gives us confidence that we can accelerate our organic net sales growth within a range of 5% to 7% for fiscal 23 to fiscal 25. This compares to growth of 4% to 6% in fiscal 2017 to fiscal 2019.”
“As we announced in our AGM statement, we have made a strong start to fiscal 22. We are delivering organic net sales growth across all regions, as we benefit from resilience in the off-trade and continued recovery in the on-trade. This is benefitting organic operating margin, despite rising inflationary pressures, which are partly due to supply chain constraints. We expect the strong growth momentum in the first half of fiscal 22 to continue through the remainder of the fiscal year. However, in the second half of fiscal 22 we will be lapping a tougher comparator.”
Diageo to build first Chinese single malt whisky distillery
Earlier this month, Diageo broke ground on the site of its first malt whisky distillery in China.
Located in Eryuan County in Yunnan Province, the Diageo Eryuan Malt Whisky Distillery will produce Diageo’s first China-origin, single malt whisky. Details of the US$75 million investment were officially unveiled at a special ceremony attended by provincial and local government officials, industry representatives, and the local community.
“China is the world’s largest beverage alcohol market and the demand for whisky is growing rapidly among middle-class consumers who are keen to further discover and enjoy fine whiskies”, said Sam Fischer, President, Diageo Asia Pacific and Global Travel. “Today we celebrate another significant step forward, and one which builds upon our local insights and combines those with Diageo’s global whisky expertise in order to delight the next generation of Chinese whisky consumers.”
At more than 2100 meters above sea level, the site of the 66,000 square meter distillery was selected for its temperate climate, rich natural biodiversity, and access to natural spring water that is a source of the second largest highland lake, Erhai Lake, in Yunnan.
Fischer added: “The natural surroundings and the Eryuan landscape will allow us to craft a world-class, China-origin, single malt whisky that will capture the imagination of premium whisky lovers in China.”
The site will feature an immersive and interactive visitor centre that will attract whisky enthusiasts, boost the local cultural tourism industry and contribute to the company’s plans to drive market share growth. Construction is expected to begin in early 2022.