• Text size      
  • Send this article to a friend
  • Print this article

Falling whisky sales in China rock Diageo

DIAGEO chief executive Ivan Menezes has insisted that falls in whisky volumes are a "temporary phenomenon" as its flagship Scotch brand Johnnie Walker suffered its first sales reverse for four years.

TAXING: Diageo has had a tough time in China as sales fell 23% due to a government anti-extravagance push. Picture: Getty
TAXING: Diageo has had a tough time in China as sales fell 23% due to a government anti-extravagance push. Picture: Getty

The company set out a £200 million cost-cutting plan after investors, spooked by falling sales in China sent its shares plunging 4.7%.

The London-headquartered group also said it is carrying out assessments on the potential impact of Scottish independence.

Diageo's Scotch whisky sales rose 2% in the six months to the end of December but declined 4% in volume terms.

Mr Menezes, who took the helm at Diageo in July, said of the volume fall: "We see it very much as a temporary phenomenon."

Mr Menezes said that Diageo, which has 29 distilleries in Scotland, took a "deliberate decision" to maintain pricing and ride out destocking in tough markets in Latin America and South East Asia, insisting that demand from end consumers remains "robust".

Johnnie Walker was down 1% in net sales terms while volumes were off 3%.

Mr Menezes said: "Our confidence in the consumer opportunity for Johnnie Walker in emerging and developed markets continues to be strong."

He said there would be no alteration to its expansion plans in Scotland, which include a new malt distillery at Teaninich in the Highlands, as it seeks to lay down stock in anticipation of future demand from emerging markets.

"We have major investment plans for Scotch that we will continue to do," Mr Menezes said.

He noted that in North America, where Johnnie Walker has benefited from a marketing drive and the launch of several new variants, sales were up 13% on the same period last year.

Meanwhile, in China demand for its most expensive whiskies continues to soar with sales of Johnnie Walker Blue up 21% year-on-year.

Diageo said its first television advert for Johnnie Walker Red in the UK for 50 years had helped to double sales in its home market.

Meanwhile "our malts are on fire," Mr Menezes said, with net sales growth of 22%. The recently launched Talisker Storm whipped up sales of the Talisker brand by 44%. The Singleton and Lagavulin contributed net sales growth of 28% and 22% respectively.

Net sales of J&B declined 9%, as the Spanish economy struggles.

Buchanan's net sales increased despite a 20% volume decline due to price increases in Venezuela to offset high inflation.

Windsor, down 7% in volume and 1% in sales, was credited with an improved performance in its primary market of Korea.

Mr Menezes said the company is "very active" in considering the implications of this year's independence referendum. "We are clearly assessing all the implications of various scenarios here," he said.

"We are not engaged in picking sides," he added. But Diageo is seeking reassurance on areas such as European Union membership, currency and industry regulations.

Diageo, which gets 42% of its sales from emerging markets, said total sales rose a weaker-than-expected 1.8% in the first half of its financial year. With growth having been 2.2% in the first quarter, analysts estimate that it slowed to 1.6% in the final three months.

Underlying operating profit was £2.060 billion against £2.001bn for the same period last year.

Diageo had a particularly torrid time in China where sales plunged 23% as a government anti-extravagance campaign hit sales of white spirit, including Shuijingfang in which Diageo has a majority stake.

Mr Menezes would not be drawn on how many jobs would be lost as part of his £200m cost-cutting drive that will see a layer of regional management stripped out.

"In the last six months it has become apparent that the organisation is not structured to deliver out performance ambition."

He added: "We need a more decentralised and agile business while retaining the benefits of scale."

Diageo's shares closed down 90p at 1820p.

Contextual targeting label: 
Business

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

209426