Diageo Disappointed by November Sales


Dear Client:

Ivan Menezes (president of Diageo North America) told analysts and investors that November “was weaker than we and I think the rest of the industry anticipated” despite posting modest growth in sales to retailers, according to a WSJ article written by David Kesmodel. Sales at the on-premise were down even compared to weak November and December results last year. However, Ivan remains “cautiously confident” heading into Christmas and New Year’s. “It's more subdued than we would have expected going into the selling season,” he said according to the article.

As a result, Diageo lowered its expectations for U.S. sales in December. The overall spirits category rose about 1% by volume at the off-premise, and Ivan remarked that Diageo continues to increase its volume share despite the tough environment. He expects spirits volumes will rise about 1-2% in retail outlets in the first half of Diageo’s fiscal year ending December 31. Meanwhile, on-premise sales remain “weak,” so total volume growth “will be very modest,” he said.

Like other spirits companies, Diageo has ramped up investment in premixed cocktails such as Smirnoff Tuscan Lemonade to tap into at-home consumption trends. It’s also focused more marketing efforts on mid-priced brands such as Smirnoff, Jose Cuervo and Captain Morgan as consumers increasingly trade down from super-premium brands. Based on IRI scan data, dollar sales of Smirnoff have jumped 7% and volume grew 13% in the 13 weeks to November 29.


Deutsche Bank today downgraded shares of Diageo from Buy to Hold, claiming that the group struggles with "modest volume growth, trading down, some destocking and a collective cut to industry A&P spend” despite being “an outperformer in a challenging industry.” Deutsche analysts believe the spirits industry has “cut A&P too aggressively to protect profitability and that the effect of this will be to dampen and delay any macro-driven recovery.” As of mid-afternoon trading, Diageo shares were up 0.15% to $68.56.


Restaurants won’t see much recovery until the second half of 2010, according to a forecast by The NPD Group, a market research company. High unemployment, low consumer confidence, tightened credit, lower grocery store prices, and other factors have taken their toll on consumers and their ability to increase spending, resulting in fewer visits to restaurants and related dollar growth.

In the quarter ending September 2009, traffic declined -4% across all restaurant segments. Visits to quick service/fast food restaurants (QSR), which represents the largest share of the industry, declined by -4 percent, casual dining was down -5 percent, and midscale visits were down -4 percent. Consumer spending for total restaurants declined by -2 percent.

Luckily there are signs that consumer confidence is improving. They continue to worry about the future of their jobs and falling incomes, but a recent NPD foodservice survey found that consumers believe the economy is beginning to improve or, at the very least, is not going to get any worse. “Consumers have been hurt worse financially in this recession,” says Bonnie Riggs, NPD’s restaurant industry analyst and author of the report Restaurant Industry…What To Expect When Economic Recovery Begins. “It’s just going to take awhile before they feel comfortable spending again.”


Top officials of the Mecklenburg County Alcoholic Beverage Control Board in North Carolina will repay Diageo $9,000 after the spirits company took them out to a pricey dinner last month, according to the Charlotte Observer. State officials reportedly caught wind of the dinner and conducted an investigation. They have the ability to remove local board members and employees who violate state laws against accepting gifts. The chairman of the local ABC told the paper that “we shouldn't have done it. We made a mistake.” He said that the dinner for 28 people may have appeared improper and that the board will revise its policies to ensure that guidelines about accepting gifts are clear in the future.

Parks Helms, who attended the dinner with his wife, is paying $1,000. He was the only board member in attendance. Among the staff, chief Calvin McDougal, who was accompanied by his wife, is paying $4,000. Both men are covering the tab for staffers for whom repayment would be a financial hardship. Other staff must pay $330 each.

“I am pleased to learn the Mecklenburg ABC is taking steps to ensure that this situation is not repeated in the future,” State ABC Commission chair Jonathan Williams said in a prepared statement, “and also has taken action to address some of the specific questions surrounding the propriety of receiving a gift of this nature.” He said the investigation is ongoing and that he couldn't comment further.

Recall that North Carolina is a partial control state and the ABC commission runs the central warehouse through which local stores buy their spirits. They also oversee all liquor law violations. In a statement by the Mecklenburg board, they suggested that Diageo wouldn’t gain anything by paying the bill: “The Mecklenburg County ABC system has no business relation[sic] with Diageo other than selling its products in ABC stores in Mecklenburg County.”


Restaurant operators and tasting room and bar owners, are you listening? New research from Germany suggests blue or red lit rooms make white wine taste better than rooms with green or white background lighting. Drinkers in red or blue lit rooms ranked Riesling higher and were more willing to pay top dollar.

"The extreme lighting conditions found in some bars can undoubtedly influence the way a wine tastes,” said Dr. Daniel Oberfeld-Twistel of the Johannes Gutenberg University. It’s not yet clear why certain colors influence taste but researchers believe it has something to do with the mood they put consumers in.


MARANI BRANDS SIGNS SOUTHERN IN NEVADA. Marani Brands says it has switched to Southern Wine & Spirits in Nevada. Southern also distributes Marani in Pennsylvania and California. "This change in distributors was an important milestone for our company. Nevada is a very difficult market to penetrate without the strength of a strong distributor. Distribution is the key to success in each market of expansion, and we believe that forging this new relationship with the strongest spirit distributor in the nation in Nevada will have a significant impact on Marani's penetration of the Nevada market,” said chief Margrit Eyraud in a statement.

SOUTHERN NAMES NEW EVP OF WINERY RELATIONS. Southern says that Ted Simpkins, s vp and managing director of Southern Wine & Spirits of California effective January 1, 2010, will assume the additional role of evp, winery relations of California's wine districts.

Until tomorrow, Megan

“For myself I am an optimist - it does not seem to be much use being anything else.”
Sir Winston Churchill

--------- Sell Day Calendar ----------
Today's Sell Day: 11
Sell days this month: 22
Sell days this month last year: 22
This month ends on a: Thur.
This month last year ended on a: Thur.
YTD sell days Over/Under: 0

Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2009 Wine & Spirits Daily, all rights reserved. May quote with attribution.

Follow me on Twitter http://twitter.com/WineSpiritDaily

Go back to listing Go to next article Go to previous article


Top Secret News Hotline:

Got wine and spirits news for WSD?

Submit Anonymously
twitter facebook