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LONDON. – Diageo, one of the world’s biggest drinks makers, has reported its first drop in sales since the pandemic, as cash-strapped consumers cut back on spending.
The maker of Johnnie Walker whisky, Casamigos tequila and Guinness beer is the latest consumer business to report a hit to sales as inflation and high interest rates take a bite out of household budgets. On Monday, McDonald’s said global sales fell for the first time since 2020 as fewer customers visited the fast-food chain’s restaurants.
That followed similar reports from Starbucks, Burger King and Wendy’s (WEN).
“The consumer environment continues to be challenging,” Diageo CEO Debra Crew said in a video posted to the company’s website on Tuesday.
“Consumers remain cautious and interest rates are high therefore retailers are likely to remain cautious too.”
Over the 12 months to the end of June, Diageo’s sales fell 1.4% to US$20.3 billion, driven by a “materially weaker” performance in Latin America and the Caribbean, according to Crew.
Sales of Johnnie Walker fell by 2% globally and by 10% in North America, the company’s largest region.
Overall sales in North America also declined, led by a 22% drop at Casamigos, co-founded by actor George Clooney, which Diageo paid $700 million for in 2017.
Shares in the company – which boasts almost 40% of the global Scotch whisky market – tumbled as much as 11% in London on Tuesday, before paring losses to trade 6% lower.
Crew said that the “challenging” consumer environment was persisting into the company’s new fiscal year, but that alcohol nonetheless remained an “attractive sector with a long runway for growth.”
She said Diageo had taken several steps to improve its growth prospects, including improving productivity and deepening its understanding of what customers want.
“We believe demographic trends, rising incomes in the developing world, spirits gaining share from beer and wine, and long-term premiumisation will drive attractive underlying growth in our industry,” she added.
Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said that although Diageo’s latest set of earnings showed revenue and profit “heading in the wrong direction,” the company’s underlying business remained strong.
“Investors should remember that Diageo has a world-class portfolio of brands,” he wrote in a note, pointing to Smirnoff and Tanqueray gin, among others.
“That’s helped Diageo hold or grow its market share in over 75% of the regions it operates in, despite the current challenges for the wider industry.” – CNN
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