Liquor company Diageo is the latest to be hit by high inflation and increasing sobriety
The alcohol company says it's a tough consumer environment. That's true, but trends are also pointing away from booze.
Diageo, the company that sells Johnnie Walker whisky and Casamigos tequila, could probably use a drink right now.
The booze company reported its worst quarter since the start of the pandemic. It reported organic net sales dropped 0.6% in the full year to June 30, marking the first decline since 2020. Diageo's stock dipped more than 5% on Tuesday, reaching a four-year low.
Like many companies in the business of selling products to the average joe, they attribute the weakness in sales to a more strained consumers. Inflation and high interest rates are weighing on consumers, forcing them to make tough choices about where they direct their precious cash.
"When the consumer environment improves, we will return to growth," Debra Ann Crew, CEO of Diageo, told analysts.
While its not the only company reporting that consumers pulling back, alcohol tends to stay resilient in times of economic stress. It's also true that consumers are generally drinking less than they used to.
Within the contracting alcohol market, consumers are drinking less beer and more liquor, including ready-to-drink cocktails. For Diageo, Guinness and canned cocktails (Crown Royal whisky cola, for example) were strong, while Casamigos tequila sales dipped.
It's also selling more non-alcoholic Guinness, as consumers look more and more to zero-proof brews.
Diageo’s sales decline was also regional: dragged down by North America (2.5%) and Latin America (21.2%) and propped up by Europe, Africa, and Asia. Overall, the amount the company sold by volume is its lowest point since 2014 excluding 2020.
While it’s true that consumer trends are against it, Diageo’s peers aren’t all suffering. Constellation Brands, which sells Modelo beer and Svedka vodka, grew its sales and profit by 6% and 23%, respectively.
A big driver of that is Modelo, which has in the past couple years become the most popular beer in the US. But it also saw growth in spirit sales by 8%.
In its earnings report, Diageo acknowledged that it is behind its peers, but it is "gaining momentum in a cautionary consumer environment."
