Super premium spirits drive 20% sales growth for Diageo

Diageo has revealed its interim results, with organic net sales growth of 20% and volume growth of 9%, driven by recovery of the on-premie and demand in the off-premise for super premium brands.

On a reported basis, net sales grew globally by 15.8% to reach £8 billion (US$10.7billion).

The drinks giant saw organic net sales of 27% in Europe, 13% in North America, 23% in Africa, and 13% in Asia Pacific, particularly in China and India.

The company noted that sales continued to recover in Asia Pacific, “although performance was impacted by on-trade restrictions and reduced tourism”.

More than 70% of Diageo’s net sales growth was in the super premium category. Scotch grew 27% and drove around one-third of Diageo’s net sales growth. Johnnie Walker grew 31%, ahead of scotch, with particularly strong growth of Johnnie Walker Black Label and super deluxe variants.

Diageo’s tequila portfolio grew by 56%, accounting for 9% of the company’s overall net sales. The company credited the result to the strong performance of Casamigos and Don Julio in the US, where both brands gained significant share of the US spirits market and the tequila category.

Gin saw a 21% rise in organic net sales, with brands Tanqueray and Gordon’s both experiencing a double-digit boost. Tanqueray grew by 28%, with Tanqueray No. Ten increasing by 33%, led by partnerships with American actor Stanley Tucci and House of Gucci.

Beer grew 22%, and Guinness was up 27%, with strong growth in Ireland, Great Britain and Africa as the on-trade continued to recover.

“I am very pleased with our financial results, which build on our growth momentum in fiscal 21,” said CEO Ivan Menezes.

“We delivered strong organic net sales growth across all regions and operating margin expansion. This performance demonstrates our world-class brand building capability, supply chain excellence and agile culture, and reflects the strength of our portfolio across geographies, categories and price tiers.

“In the off-trade channel, where consumer demand has remained resilient, we have gained or held market share across the majority of our measured markets. We also benefitted from the continued recovery of the on-trade channel, particularly in Europe and North America.

“Strong sales volume growth and continued premiumisation drove an improvement in organic operating margin during the half. This was achieved while increasing our investment in marketing to gain share and support innovation, particularly in North America and Greater China. In addition, our focus on revenue growth management and productivity savings are helping to mitigate the impact of cost inflation.

“Strong cash flow generation is enabling re-investment in sustainable long-term growth. We are expanding our production capacity, enhancing our digital capabilities, investing in talent and progressing with our ambitious 10-year sustainability plan.

“We have made a strong start to fiscal 22. While we expect near-term volatility to remain, including potential impacts from COVID-19, global supply chain constraints and rising cost inflation, I am confident in our ability to successfully navigate these disruptions through the remainder of the year. Over the medium-term, from fiscal 23 to fiscal 25, we continue to expect organic net sales to consistently grow within a range of 5% to 7% and organic operating profit to grow sustainably within a range of 6% to 9%.”

Diageo puts its money on tequila for future growth

Menzes noted that the recovery across spirits, beer, wine and cider has been strongest in spirits and premium spirits and said tequila was growing faster than the spirits industry.

“The category’s appeal across demographics is significant,” he said. “It has crossed over. The multicultural growth is very strong. It cuts across age segments. It cuts across gender. It cuts across dayparts, the occasions and the nature of drinks. It’s not just shots and margaritas as it used to be many years ago.

“We see it for the next five to 10 years growing faster than the spirits industry, so taking a bigger share of total spirits.

“The international growth in tequila is just starting. It’s very small. But we do see at the high-end bars around the world that bartenders are excited about it. I expect that to be a slow build. It’s not going to explode. So in total, we do feel positive about the long-term growth trends for tequila. And that, in part, is also guiding the investments we’re making in Mexico around agave and distilling capacity.”

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