E-Malt.com News article: 4260

United Kingdom: Drinks group Diageo said volumes of Guinness bounced 2% in the UK during the final six months of 2004 thanks to a major TV advertising campaign and new packaging for its beer cans. A price hike in April failed to quell the renewed enthusiasm for the stout and helped push UK sales up 6%, while the decline in sales of Guinness in Ireland also slowed. Guinness has struggled to retain the loyalty of drinkers in the face of a barrage of new products in recent years such as alcopops and the growing appeal of wine, UTV posted on February 2005.

However, Diageo confirmed that these trends are changing and that brands with a strong consumer appeal such as Smirnoff vodka and Baileys Irish cream were the current success stories. Baileys volumes rose 6% as drinkers stocked up over Christmas when the brand was used by UK retailers to bring more customers through their doors.

In contrast, the drop-off in demand for alcopops has been so fast - 18% for ready-to-drink Smirnoff products in six months - that Diageo has slashed the amount it spends on marketing them in half.

Details emerged as Diageo reported a 4% hike in sales of its top brands despite tough conditions in Europe caused by higher taxes and regulation. The improvement was driven by a strong performance in North America where Diageo captured a greater share of the markets for spirits, wine and beer and was able to cut costs. Pre-tax profits before exceptional items totalled £1.24 billion - lower than the £1.3 billion a year earlier but in line with market expectations.

However, the impact of currency swings on its results was underlined by the fact that turnover would have been £303 million higher than the £4.98 billion reported if exchange rates had been constant in the final six months of 2004. Chief executive Paul Walsh said the company maintained its record of improving profitability and growing sales before accounting for the impact of acquisitions. He said: "We have made a good start to the year and we can maintain our full year guidance of 6% organic operating profit growth."

Diageo trades in some 180 countries around the world and makes brands including Baileys, J&B, Jose Cuervo, Captain Morgan, Tanqueray, and Beaulieu Vineyard and Sterling Vineyards wines. It employs 24,000 people globally and 5,000 people in the UK.

The company said higher taxes and regulation, health-related legislation and weak economic conditions provided the backdrop for its European performance. Volumes in Ireland fell 3% as the trend for drinkers to stay at home was accelerated by the introduction of a smoking ban in pubs and bars in March.

Cool summer weather and promotional activity enabled the company to slow the rate of decline in sales of Guinness in Ireland to 1%, although some analysts were expecting the brand to return to growth in its home market. Retailers and bar owners stocking up on brands ahead of a hike in duties and prices contributed to volumes rising 1% in Spain despite a declining spirits market. In the US, Diageo said volumes were 5% higher than the same period of 2003, outstripping the 2% growth of the overall market.


19 February, 2005