Diageo switches off direct supply to UK wholesalers

Spirits giant Diageo will end direct supply to businesses in the UK which do not order a minimum of £2 million in stock per year.

Diageo has informed operators of its plans to switch off direct supply to wholesalers which fail to order £2m of stock per year from 1 April.

The drinks giant, which owns over 200 brands including Guinness, Smirnoff and Johnnie Walker, informed operators this month via a letter also seen by The Grocer and Better Retailing.

In the letter sent to wholesalers, the company described the decision as a “transformation of our route to market strategy”.

The letter from Diageo GB managing director Nuno Teles said: “As a valued customer, we are writing to inform you that following a review of Diageo Great Britain’s wholesale and independent free trade business, we are implementing a transformation of our route to market strategy.

“In pursuit of continually improving the way we do business, we have reviewed our current ways of working and after careful consideration have decided to change the criteria which wholesalers must meet to be directly supplied by Diageo.”

According to Better Retailing, the criteria for wholesalers to receive supply from April includes:

• Meeting a minimum order quantity of £2m annually
• The wholesaler must own or have full control of all its warehouses where Diageo products are stored and delivered from
• Firms must be able to ensure legal compliance and have appropriate policies to “protect against damage to Diageo’s reputation”
• Evidence must also be provided by the wholesaler that it can build a long term relationship with Diageo

The letter continues: “We understand these changes may impact your business and we are committed to making the transition as seamless as possible. Your Diageo account manager will be in touch to suggest suitable alternative options for the supply.”

Only around 10 of the UK’s largest wholesalers will qualify for direct supply under the new rules, The Grocer has calculated.

Response from wholesalers

In response to Diageo’s letter, wholesalers have raised concerns that the decision will limit retailer choice and reduce on-trade and retail distribution, as well as raising prices for retailers as well as end consumers. There are also growing concerns that other suppliers could do the same.

In a statement supplied to the drinks business, a Diageo Spokesperson commented: “Following a strategic review of Diageo GB’s wholesale and independent business, we are implementing a transformation of our route to market strategy.

“We have seen significant changes in how the industry is structured and operated, and as a result we have updated our criteria which wholesalers must meet to be directly supplied by Diageo, as well as our wholesale trade terms. This will promote efficiencies, encourage sharing of data which will drive insight-led decisions and help enable Diageo to better service the independent operator.”

Diageo’s latest trading update

Diageo’s shares fell by 13% after it issued an unscheduled trading update in November which warned that growth in operating profits would slow in the first half of the 2024 financial year because of a sales slump in Latin America and the Caribbean, a region where it derives 11% of its net sales.

Diageo said that “organic operating profit growth for the first half of fiscal 24 will decline compared to the first half of fiscal 23”.

“Macroeconomic pressures have worsened and that caused lower consumption and really more consumer downtrading than what the team was expecting,” said chief executive Debra Crew of the Latin American slump.

However, Diageo said it expects conditions to improve and sales and profit growth to pick up in the second half of its financial year, which began in January.

At the time, the drinks giant said it expected to see improved sales in the North America and Africa markets during the first half of fiscal 2024.

In Europe, “growth continues to be strong despite geopolitical tensions escalating in the Middle East, where we are a leading spirits company”, Diageo’s statement said.

As for Asia Pacific, Diageo continues to see “good growth, despite slower than expected recovery in China.”

In its trading update, the company conveyed that it expects there to be “continued, albeit moderating, cost inflation, which will be partially offset by pricing actions.”