Diageo sales slowed by ‘weak’ markets

Diageo has reported a slow down in sales caused by weak emerging markets in the final six months of 2013, but said it was confident it had absorbed the impact by reducing inventory in some of its most challenging markets.

Ivan Menezes, chief executive of Diageo.

The drinks company, responsible for brands including Johnnie Walker whisky and Guinness, said net sales had grown by 1.8% in the first half, much slower than previous growth of 2.2% in Q1.

Total emerging market net sales rose by 1.3% and north American sales were up by 4.6%, but Western Europe saw a drop in sales by 1%.

Within its portfolio, super and ultra premium brands grew strongly, with reserve brands up 18.5%.

Beer was the only category to decline, down 2.6%, with weakness in Nigeria and Ireland.

Ivan Menezes, who took over as chief executive of Diageo six months ago, said the company had fared well in a period which saw a “more challenging emerging market environment.”

Increased sales in the US and “improved” performance in Western Europe, he said, allowed the company to “absorb” current challenges in some of our emerging markets.

He said: “We reacted quickly to the changing emerging market environment, reducing inventory levels in several key markets, which led to a weaker Q2, and tightly managing our cost base to deliver improved operating margins in line with our expectations.

“We continued to invest in the business increasing marketing spend ahead of net sales growth and keeping our strong focus on innovation and route to consumer improvements.

“In the first half the organisation has aligned behind the six key performance drivers which I identified when I was appointed CEO; premium core brands, reserve, innovation, route to consumer, cost and talent.

“This clarity of focus at a market level enables me to take the changes I have already made to the operating model to the next level.

Menezes said that detailed plans would be laid out over the next two months in a bid to “simplify our processes and de-layer our organisation” to create a more “agile, accountable and effective organisation”.

As part of this plan, the company aims to deliver cost saving of £200m by the end of the financial year in 2017 to fund future growth and investment.