Locked down drinkers in the UK started buying booze online and baking with Baileys but that wasn’t enough to stop profits tumbling at the Guinness and Smirnoff owner Diageo, as Covid-19 forced the closure of pubs and bars.
Operating profit at the global drinks firm fell by 47% to £2.1bn in the year to the end of June, with most of the damage done in the final three months as countries across the world imposed strict lockdown rules.
Sales were down 9% to £11.7bn for the year but plunged 23% in the quarter most affected by the closure of the restaurants, clubs, pubs and bars that sell Diageo’s drinks.
As a result the company, which also owns Johnnie Walker, was forced to write down the value of its brands by £1.3bn.
The company’s UK chief Dayalan Nayager said Britons enduring lockdown have proved to be particularly keen on gin and spirits for DIY cocktails, with Google searches for cocktail shakers up more than sixfold.
Diageo’s UK arm also saw a 7.5% uplift in sales of Baileys after capitalising on the trend for home baking by promoting recipes that use the cream liqueur.
The Diageo chief executive, Ivan Menezes, said the company had worked hard to sell more drinks directly to customers in the home including through internet retailers such as Amazon.
Menezes said online sales still only make up a “low single-digit percentage” of Diageo’s revenues but had doubled in size between the third and fourth quarter of the year.
While sales fell by more than 30% in every other region, revenues in North America declined by just 1%, with tequila sales up markedly. Menezes put this down to the fact that only 20% of Diageo’s sales in the US are from bars, restaurants and other hospitality venues.
The firm’s North American operations have also benefited from strong growth in premium spirits, which deliver higher revenues.
The Diageo boss said he hoped Donald Trump would rethink a 25% tariff on single malt Scotch, imposed last year as part of a trade row with the EU, and avoid imposing any more levies.
Menezes said: “We’re working very hard with the US, the UK and Europe to scale back, to de-escalate the tariff threat on spirits.
“I think at a time like this, when the hospitality industry – one in 10 jobs in the world – needs to recover, penalising the alcohol industry is only going to hurt small businesses right across the world.”
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