Diageo, the renowned seller of Guinness, experienced a drop in its net sales in the latter half of 2023. Despite a surge in beer sales driven by a high demand for Guinness in Europe and Africa, this growth was overshadowed by a significant decrease in expensive spirits sales in the Latin America and Caribbean segment.
Sales Setback in Latin America and Caribbean
Diageo’s net sales decreased by 1.4% to $11 billion during this period. The Latin America and Caribbean segment, which contributes 10% of the company’s revenue, faced a substantial decline of 23.5% in sales. A slowdown in the region’s economy prompted customers to switch from spirits to beer, adversely affecting Diageo’s performance in this market.
Impact on Share Prices
Diageo’s shares fell by 3% on Tuesday, continuing a downward trend that had led to a 19% decrease in their value over the past year.
Shifting Consumer Spending Patterns
Diageo attributes the decline in Latin America’s spirits sales to soaring inflation and higher interest rates, resulting in a change in consumer spending habits. This shift led to widespread “downtrading” in major markets like Brazil, following a period of boom during the COVID-19 pandemic.
Economic Slowdown in Latin America
Latin America experienced a significant economic slowdown due to rising interest rates and falling commodity prices. As a result, growth rates dropped from 4.1% in 2022 to 2.3% in 2023, according to data from the International Monetary Fund.
Overstocked Inventory and Decreased Profits
The change in consumer spending patterns led to a buildup of stock among Diageo’s wholesale customers. Consequently, high street shops that purchase stock from these wholesalers found themselves overstocked and unable to sell spirits to customers. This situation ultimately resulted in an 11% drop in Diageo’s operating profits, amounting to $3.31 billion.
In light of these results, Debra Crew, the CEO of Diageo, expressed dissatisfaction during a presentation to investors, stating, “Let me be clear — we are not satisfied with these results.”
Diageo Seeks More Information from Drinks Sellers as Sales Grow in Key Markets
Diageo, the London-based beverage company, has announced plans to gather more information from high street drinks sellers who purchase goods from its direct wholesale customers. The company acknowledges that it currently has limited visibility over this part of its distribution network.
Outside of Latin America and the Caribbean, Diageo experienced organic net sales growth of 2.5% in the final six months of 2023. This was driven by higher sales in its Europe (+3.4%), Asia-Pacific (+5.9%), and Africa (+9.3%) businesses. However, sales in its largest North American segment saw a slight decline of 1.5%.
In Europe, which contributes to 26% of Diageo’s revenues, the sales of Guinness in Britain and Ireland played a key role in driving a 24% increase in sales of the iconic stout across the continent. This surge resulted in a global sales growth of 14% for Guinness, marking the sixth consecutive half-year period of double-digit growth for the popular beverage.
In Asia, which accounts for 24% of Diageo’s revenues, strong sales of the company’s “super premium” spirits, including Scotch whiskies and Chinese liquors, led to an 18% uptick in sales in Greater China and a 9% increase in sales in India.
Despite being Diageo’s smallest market, contributing only 10% of firm-wide revenues, the African business reported a noteworthy 9% increase in sales. This growth was attributed to higher sales of Ugandan Senator lager and non-alcoholic Malta Guinness. Diageo anticipates further growth in Africa during the first six months of 2024, despite prevailing macroeconomic challenges.
