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Diageo has reported a rise in annual sales after the world’s biggest distiller said customers were opting for pricier spirits, in a sign of resilient demand despite the cost of living crisis.
The maker of Johnnie Walker, Tanqueray and Guinness reported net sales of £17.1bn in the year to the end of June, up 6.5 per cent on a like for like basis, while operating profits rose 5.1 per cent to £4.6bn.
Brands in the group’s premium categories made up 63 per cent of Diageo’s sales, 7 percentage points higher than before the pandemic, as consumers continued to trade up to higher-shelf spirits beyond the pandemic cocktail boom.
Analysts have been watching food and drinks companies for signs that shoppers are pushing back on price increases following months of surging inflation, either by trading down or buying less. On Monday, the brewer Heineken cut its annual profit forecast after drinkers resisted rising prices.
Diageo said sales volumes were down 7.4 per cent, with a like for like decline of 0.8 per cent, but reported a 7.3 per cent increase in its price mix measure — the majority of which was driven by price hikes. The company said price increases “more than offset the absolute cost inflation impact on gross margin”.
During lockdowns, consumers developed a taste for upmarket drinks and making cocktails at home. This was followed by a period of post-pandemic partying, but at-home drinking habits have also stuck around.
Diageo’s shares were up 1.1 per cent on Tuesday morning.
The results are the first for Diageo with new chief executive Debra Crew in place, who took over earlier than scheduled after the recent death of Sir Ivan Menezes. “I expect operating environment challenges to persist, with continued cost pressure and ongoing geopolitical and macroeconomic uncertainty,” she said.
Lavanya Chandrashekar, chief financial officer, said Guinness had its best year yet, with net sales increasing 20 per cent in Europe and 9 per cent globally. In the UK and Ireland, it was the best-selling beer by volume, while non-alcoholic Guinness was the most popular zero per cent beer purchased in supermarkets and other retailers in the UK.
“Guinness brought new consumers into the fold this year. They realised you can enjoy a pint of Guinness at home, not just at the Irish pub,” she said.
Scotch was another high point for the spirits giant, with more women and young people choosing whisky, particularly in Latin America, said Chandrashekar.
In the US however, where demand for premium spirits has been lagging since the at-home drinking boom began to subside, sales in rum, vodka and some whiskey brands declined compared with the previous year.
Global tequila net sales growth slowed in the second half of the fiscal year, down to 19 per cent for the full year compare with 28 per cent in the six months to December 2022.
Since 2019, tequila has contributed to half of Diageo’s US spirits growth, but demand for the spirit has been falling. According to Nielsen, growth in tequila sales slowed to low-single digits after three years with 15 per cent growth compound annual growth.