Diageo to slow down deals – and develop tequila

Diageo saw sales of its flagship Scotch whisky brands soar by 11%  Picture: PA
Diageo saw sales of its flagship Scotch whisky brands soar by 11% Picture: PA
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DRINKS giant Diageo is expected to slow down its acquisition strategy following a recent buying spree, saying it wants to develop its own tequila brand after ending talks to buy a stake in Jose Cuervo.

Chief executive Paul Walsh outlined the shift in focus in response to questions about the surprise pull-out last year.

“An organic play is the best entry into the tequila category for us. The main thrust of our attention will be the creation of our brand, not dissimilar to what we have done with Ciroc,” he said.

Walsh was referring to the premium vodka the company launched in 2003 and which grew 62 per cent in the last financial year.

Diageo revealed yesterday that, in the six months to December, its whisky sales rose 11 per cent, with Scotch whisky

accounting for 81 per cent of the category’s growth.

Johnnie Walker sales climbed 14 per cent, Crown Royal 12 per cent, Buchanan’s 30 per cent, and Bushmills whiskey 17 per cent.

However, J&B saw sales fall 18 per cent as it battled tough southern European markets, notably Greece and Spain.

However, Walsh said Diageo was insulated against tough trading in the southern eurozone by 42 per cent of its sales coming from growing economies in Africa, Asia and Latin America. Another third of sales are from a recovering US market where price increases had stuck, he added.

Johnnie Walker sales in Africa surged a third in the last six months as the company targeted 13 key cities in ten countries to introduce ten million consumers to Scotch in the past two years.

Diageo also opened a deluxe marketing house in Beijing to target high-net-worth Chinese in the latest period, three times the size of the group’s existing Shanghai outlet. The company has already announced a £1bn investment programme in Scotch capacity north of the Border. Walsh said he expected that trade arrangements with India would eventually be freed up, and that could lead to more investment in the category.

Diageo’s group sales rose 5 per cent to £6.03 billion from £5.75bn, while underlying group operating profits advanced 9 per cent to £2.02bn from £1.86bn. The interim dividend is hoisted 9 per cent to 18.10p from 16.60p.

The company had no news on the progress of the regulatory probe into its $2.1bn (£1.3bn) acquisition of a majority stake in India’s biggest spirits company United Spirits.

Elsewhere, Diageo’s sales fell 19 per cent in southern Europe, but were up 10 per cent in Africa, 18 per cent in Latin America, 6 per cent in Asia Pacific and 5 per cent in North America.

Net sales in what the company called a “tough competitive environment” in Britain trod water, although there was double-digit growth in Belgium, Holland and Luxembourg.

Walsh, who it is believed will step down from the helm at Diageo next year, has said he is targeting half its growth from emerging markets by 2015.

Phil Carroll, a drinks analyst at Shore Capital, said he remained positive on Diageo’s geographically diversified strategy and its latest “resilient” performance.