Diageo: most ‘challenging times ever’ for drinks industry

The drinks company revealed in results for the year ending 30 June 2020 that UK net sales declined by 4%, hit by the closure of the on-trade and the cancellation of sports events. In Europe overall net sales were down 12%. 

Diageo, which has brands in its portfolio including Johnnie Walker, Smirnoff, Baileys, Ketel One, Tanqueray and Guinness, is the latest drinks company to report being impacted by the onslaught of the pandemic. 

Heineken claims COVID-19 effects remain​ ‘volatile’ and ‘uncertain’.

Irn-Bru owner A G Barr has already revealed a sales hit due to COVID-19​ and Nichols revealed the virus had ripped into out of home​ and export sales.

Beer sales impacted​

Diageo revealed that in Europe, beer sales were particularly impacted, declining 20%. Growth of scotch in the first half was offset by declines in Continental Europe and France in the second half due to on-trade closures. Rum grew 3%, driven by Captain Morgan. Vodka declined 12%, driven mainly by Smirnoff in Continental Europe while gin declined 9%, driven by declines of Gordon's and Tanqueray mainly in Continental Europe. 

In the UK Diageo revealed that Guinness had been heavily hit by the closure of pubs and restaurants in the UK and it took the decision to support customers and maintain product quality through a keg return scheme in GB.

Continued growth in rum and liqueurs was offset by declines in beer, scotch and vodka. 

“In Great Britain (GB), net sales declined by 4%. Our solid first half results were offset by the impact of on-trade closures from March, despite an increase in off-trade sales,” ​Nayager said.

“The impact was further amplified by the cancellation of significant sporting and cultural events, such as the Guinness Six Nations Rugby Championship matches.​

Innovation​

“Investment and focus on e-commerce was upweighted as partnerships were strengthened on activities to drive consumer engagement and sales.​

“Innovation remained a key focus too, with Gordon’s launching a series of new flavours including: ‘Gordon’s Sicilian Lemon’, ‘Gordon’s Mediterranean Orange’ and ‘Gordon’s White Peach’, following in the footsteps of Gordon’s Premium Pink Distilled Gin. Smirnoff brought the new range of ‘Smirnoff Seltzers’ from the US to GB, in-line with consumer demand for ready-to-drink beverages​.”

Diageo overall reported net sales (£11.8bn) down 8.7% driven by organic declines. Reported operating profit (£2.1bn) declined 47.1%, driven mainly by exceptional operating items and organic net sales.

In March, the company pledged £1m to support bartenders’ wages and pledged more than ten million bottles of hand sanitiser to support frontline health care workers across 20 countries.