Tequila organic net sales were down 7% for Diageo owing to ongoing issues in Latin America.

Diageo has reported a resilient FY24 performance, noting its improved market share despite a volatile operating environment, for the year ended 30 June 2024.

Reported net sales of $20.3bn marked a year-on-year decline of 1.4%, which Diageo attributed to to an unfavourable foreign exchange impact and organic net sales decline, partially offset by hyperinflation adjustments.

“Fiscal 24 was a challenging year for both our industry and Diageo as we navigated a volatile operating environment across the globe. Group organic net sales declined 0.6%, and the main driver was materially weaker performance in LAC, our Latin America and Caribbean region,” noted Debra Crew, CEO of Diageo.

Latin America destocking

These comments, made in the presentation of its FY24 results, relate specifically to Diageo’s previous overstocking in Latin America, with Crew noting: “That’s where we have done significant destocking, working with the wholesalers and customers in the region.

“It is still a deteriorating situation, so versus having some big bounce back, we’re just calling out that it really is about the consumer situation there.”

Removing from the picture its Latin America and Caribbean (LAC) operations, organic net sales grew 1.8%, though while reported operating profit grew 8.2%, its organic operating profit declined 4.8%, primarily due to the $302m decline in LAC operating profit, and a $142m decline in North America, its two largest markets besides Africa.

Organic operating profit declined 4.8%, primarily due to the $302m decline in LAC operating profit.

To put the LAC slide in perspective, organic operating profit declined by $304m, of which $302m was solely attributable to challenges in the region, particularly a downtrading in Mexico of its whisky and tequila assortment.

“Excluding LAC, organic net sales grew 1.8%, driven by resilient growth in our Africa, Asia Pacific and Europe regions. This offset the decline in North America, which was attributable to a cautious consumer environment and the impact of lapping inventory replenishment in the prior year,” noted Crew.

Positive outlook

Despite the obvious challenges faced in LAC, Crew was keen to emphasise Diageo’s historic resilience, and its continued focus on premiumisation: “If you look at our largest region in the US, more than 100% of the growth of the category’s still coming from the super-premium and above price segments. So premiumisation does continue to be a tailwind for us and these numbers,” said Crew.

“Diageo is a resilient business, benefitting from its global reach and unrivalled brand portfolio. With iconic brands that have been enjoyed for decades, Diageo takes a long-term view, and will continue to invest in our brands, people and diversified footprint to deliver sustainable long-term growth and generate shareholder value,” added Crew.

Diego remained steady in its pursuit of premiumisation across its spirits assortment.

Crew also pointed out certain smaller destocking issues across its Asia Pacific business: “In APAC, our SJF business, they were quite low going into the last fiscal, just not really knowing when we were going to emerge out of COVID.

Then they restocked at the beginning in the first half of our fiscal 23, the back half of the calendar year of 23. And so, we are going to have to lap that this year. We’re going to have to lap that restocking in China, in APAC.”

Lavanya Chandrashekar, Chief Financial Officer for Diageo, noted the strong performance in other markets: “Premiumisation continues to be a tailwind for the category and for our business.

What’s driving the growth of the value here in fiscal 24 has really been the growth of the very strong performance of beer in Africa and other whiskey in India, which other whiskey in India grew almost double digits. So that’s what’s driving the growth of value tier.”

Individual spirits performance

When delving into its overall category performance(s), there was good news to be had.

While scotch and tequila saw a marked decline (tequila organic net sales were down 7%), Diageo nonetheless gained category share of scotch in 9 out of 10 of its largest measured scotch markets – including the US.

Guinness also delivered 15% organic net sales growth, and Chinese white spirits contributed organic net sales growth of 27%.

Crew also reiterated the future gains to be had courtesy of Diageo’s investment strategy: “The strategic investments that we made in the second half of the year will of course carry over into the first half. We talked about the digital investments that we’re making and some of the route to market investments that we’ve made as well. So that continues.”

These investment to which Crew refers have included: the sale of its shareholding in Guinness Nigeria PLC, alongside a long-term partnership with Tolaram to accelerate the growth of Guinness in Nigeria; the sale of Windsor in October 2023; the July 2024 announcements of the sale of Safari, a fruit flavoured liqueur brand, and Pampero rum; and several acquisitions, from Don Papa Rum to Gordon’s Gin.

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