Strange times in the alcohol and beverage industry. First Buffalo Trace announces an expansion, then Brown-Forman removes its cooperage, now, Diageo, the UK powerhouse, one of, if not the global leader in alcoholic beverage sales, has recently encountered several challenges impacting its financial performance and market position. In the fiscal year ending June 30, 2024, the company reported a slight decline in organic net sales, marking a 0.6% decrease compared to the previous year. This downturn was primarily attributed to weakened demand in key markets, notably Latin America and the Caribbean, where sales plummeted by 15%. In North America, Diageo’s largest market, net sales experienced a 2% decline, reflecting a cautious consumer environment and the aftereffects of prior inventory replenishments.
Diageo produces of some world’s best known brands, sounding more like a Who’s who : Baileys, Bulleit, Captain Morgan, Cardhu, Cîroc, Gordon’s, J&B, Johnnie Walker, Lagavulin, Oban, Pimm’s, Singleton, Smirnoff Vodka, Talisker, Tanqueray, Zacapa Rum and some others not currently on our site, like Don Julio and Guinness Stout.
The company’s premiumisation strategy, focusing on high-end brands like Don Julio tequila and Bulleit bourbon, as well as promoting ultra-premium blends of Johnnie Walker and other premium whiskies, faces headwinds as consumers began opting for more affordable alternatives amid economic uncertainties. This shift led to a 5% drop in Diageo’s tequila segment in the U.S., with the Casamigos brand experiencing a significant 22% decline.
Compounding these issues, potential U.S. tariffs on imports from Mexico and Canada have introduced further uncertainty. Diageo estimates that a 25% tariff could result in a $200 million hit to its operating profit, given its substantial reliance on products like Casamigos tequila and Crown Royal Canadian whisky. As well as the well-documented reaction by the Canadians (Jack Daniel’s hits out at Canada pulling US alcohol).
In response to these challenges, Diageo has revised its growth outlook, abandoning its previous target of 5% to 7% organic sales growth. The company is now focusing on cost management and strategic brand evaluations to navigate the current market landscape. The company is exploring mitigation strategies, including adjusting inventory levels and considering price increases. Despite these hurdles, Diageo remains committed to its long-term vision, leveraging its diverse portfolio and global presence to adapt to evolving consumer preferences and economic conditions.
References :
https://www.bbc.com/news/articles/cn0422zzpw8o
https://www.ft.com/content/6ba0cf1a-31dc-4809-993b-456e0efd8af9
https://fortune.com/europe/2025/02/04/tariffs-don-julio-tequila-guinness-diageo/
