Diageo, the world’s biggest spirits maker, raised a toast on Thursday to celebrate its sparkling sales.
What does this mean?
Plenty of folk spent the pandemic mixing their own cocktails at home, but that doesn’t mean they went teetotal when restrictions lifted. Quite the opposite: the current cost-of-living crisis seems to be another excuse for a regular liquid pick-me-up. And while the economic slowdown has some trading down for cheaper foods, drinkers actually seem to be quaffing swankier stuff: after all, it was Diageo’s most expensive booze that customers really thirsted for, and sales of the firm’s priciest offerings grew by double-digit percentages in each region. In fact, premium brands made up 65% of the company’s organic sales growth. All in all then, those sophisticated sippers helped the maker of Johnnie Walker whisky and Captain Morgan rum top up net sales by a hardy 9% in the second half of 2022, outstripping analysts’ expectations.
Why should I care?
For markets: Investors stayed sober.
Investors didn’t feel like joining Diageo’s celebrations, and not just because of Dry January. For one, sales slowed down in North America – a worrying sign given that the region brings in about half the firm’s overall profit. And for another, most of the firm’s growth was simply down to price rises, meaning the amount of drink Diageo sold was actually pretty underwhelming. That meant stone-cold-sober investors looked past share buybacks and a dividend bump, and sent shares down 6%.
Zooming out: On the rocks.
British tonic maker Fevertree was also shaken in the US last year, adding insult to injury after its sales dropped in the UK, its biggest market. The maker of high-end spirit mixers warned that the cost of glass bottles is bubbling over, and that could keep its profit underwhelmingly flat this year. Unsurprisingly, that news wasn’t the tonic investors needed: shares dropped a whole 15%.
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