Man cannot live by beer alone, and the Grog Group certainly can’t survive off the back of big rises in sales of its legendary Guinness products – even if the big gainer was no-alcohol Guinness (which seems a contradiction in terms).
Over the decades, men of a certain bent have loudly proclaimed they could live by their favorite beer alone (while sneaking in a burger and chips), but these days it’s getting harder as inflation and growing pressure on consumer wallets flatten demand for even the highest-profile grogs, like Johnny Walker whiskey and Smirnoff vodka.
And so it is for global grog giant, Diageo, whose shares fell 5% on Tuesday in London after it reported weak sales growth and lower earnings, and the CEO all but threw out the company’s carefully planned growth targets.
It seems growing consumer moves away from big-name grog brands towards cheaper alternatives is having a debilitating impact on all those carefully assembled ad campaigns and point-of-sale promotions – all those marketing millions just wasted as consumers ignore them.
It’s a similar message from McDonald’s, which saw global sales slide in the June quarter, despite heavy advertising of its new $5 food offer in June, while Starbucks, another global consumer giant, saw its worldwide sales fall for the third quarter in a row in the three months to June.
Diageo was no better. It said group sales for the twelve months to 30 June declined 0.6%, with North American sales down 2.5% and Latin American and Caribbean dropping a nasty 21.1%.
Beer sales, meanwhile, were up 18% globally thanks mostly to the Guinness brand enjoying a strong year – and, notably, the popularity of its alcohol-free versions. Sales were strong in the UK and Ireland, as were sales of its home-pouring technology, which allows people to buy bigger containers of Guinness and pour at home.
Diageo lifted its marketing spend by 4%, with the money pouring into its tequila, beer, and Johnnie Walker brands, all of which battled for growth.
Despite that extra spending, sales of spirits declined 1% across Diageo’s European markets. Strong growth in raki (in Turkey) and Baileys was more than offset by the falling popularity of its scotch, gin, and rum brands.
In North America, sales declined 2% as consumers cut back on drinking tequila, sales of which fell by 5%. The company’s Casamigos brand saw a 22% fall in sales, but its stablemate Don Julio grew by 22%. Sales of vodka fell 8% in North America.
“[It] was a challenging year for both our industry and Diageo with continued macroeconomic and geopolitical volatility. We focused on taking the actions needed to ensure Diageo is well-positioned for growth as the consumer environment improves,” CEO Debra Crew said in a statement with the results.
She admitted that it was “hard to call” when Diageo would be able to meet its medium-term sales target, adding that this was affected by factors such as high inflation and consumer confidence.