Spirits in off-trade still growing, Diageo says

Spirits in the UK off-trade are continuing to see growth, Diageo’s European boss said, but on-trade beer sales continue to suffer.

Reflecting on the company’s half yearly results announced yesterday, John Kennedy, Diageo’s President Europe, said off-trade sales had been strong in the UK.

“We’ve seen volume and value growth of 3% – but it is beer in the on-trade that continues to be weak,” he told db.

“There’s a good trade up element to premium and luxury spirits and these are growing disproportionately in the of-trade – for example single malt grew 40% over Christmas, so that is very positive.”

He said the retail scene in the UK remained positive despite the seismic changes in the landscape and price deflation within the grocery sector, which was unlikely to change. “It is difficult to get the price increase through as there is price deflation in food and drink and that doesn’t look like it is going away soon, but there are increases in volume and a mix of factors as people trade up to higher quality products then you are seeing that.”

“There have been customers doing some major resets, but what we find is that total fixture sales actually increase when there’s a focus on a core portfolio. So seeing that with some of our major customers a benefit because of it. And because our brands are strong, we tend to be well represented at the fixture.”

Overall, there were strong sales of Cîroc overall and the launch of Haig Club boosted sales of reserve spirits in the UK. Ready-to-drinks also saw sales up 7%, while innovation drove nearly 11% of new sales in the UK.

Turning a corner

Speaking at a press conference following the release of its first half results, Ivan Menenez noted the company’s improvement had come off a broad base and meant it was progressing towards its target of mid-single figure growth by 2017. “We feel confident the company is well positioned to do it – the strategy is clear, and we are performing in markets that are more choppy and volatile,” he said.

“I feel good about the momentum in this half and the outlook for the company,” he added.

The growth in Europe was particularly “encouraging”, he said, after seeing it decline for “many years” –  it had recovered to somewhere between flat and 1%, Kennedy added, and the company was in its third year of share growth. This, he noted “felt sustainable” largely due to Diageo doubling its retail coverage in all countries in Europe and gearing up its luxury unit.

Menezes said he was also pleased with results in the American markets, which despite being “a game of two halves” was “on-track” – largely due to Diageo changing its replenishment model. “H2 will be in strong growth,” he asserted, adding that the company’s marketing had also shifted and was now working better, while also responding faster to innovation. “We now have a supply chain that can react quicker,” he said.

India was set to be a key growth area of the business, Menezes said and he was very optimistic about growth “It is a growth runway and with USB we have a marketing leading company in place,” he said. Key brands Royal Challagne dn MacDowells had been renovated, while the myriad regional brands in the portfolio would continue to play a role in the value section and in regional sales. But they would not get any marketing support, he added. “They play the role of scale and area also a ladder up the price points, which is a real advantage.”

Other emerging markets had taken a bigger hit due to volatility. However, they shared a younger population, growing middle class and urbanization, which helped prompt people to drink better brands. “We are aiming to build share and become more agile and disciplined,” he said.