Categorized | News, Spirits

Drink Giant Diageo Banks on The Cocktail Hour


THE global alcohol company Diageo will use a new portfolio of premium spirit brands and the rising popularity of cocktails to boost its earnings in Australia after the introduction of the alcopops tax and shifting consumer tastes slashed local profits by 25 per cent.

The company has released Bundaberg Red, an extra-smooth liquor, to attract new drinkers to rum while building on the popularity of its Bundy label. Diageo will also pursue similar growth ventures to tempt drinkers back to other spirits.

The managing director, Tim Salt, said ready-to-drink (RTD) cocktail mixes were proving popular as people liked the convenience of the product. He said this would help improve sales in RTDs, which account for half of Diageo’s sales in Australia and New Zealand.

Diageo Australia, which owns brands such as Bundaberg Rum, Smirnoff, Johnnie Walker, Baileys Irish Cream, Guinness and Kilkenny, posted a net profit of $36.7 million for the 12 months to June 30, down from a profit of $48.49 million in 2007-08.

Revenue for the period was down by $44.5 million, or 8 per cent, to $520.3 million.

Mr Salt said Diageo Australia’s 2008-09 results reflected 10 months of the Federal Government’s alcopops tax and the impact that it had had on the RTD and spirits markets.

”What you are seeing, there [are] two things working in different directions: RTD sales going down around mid-20 per cent and then as a result of that people moving out of RTDs and moving into bottled spirits,” he said.

Diageo Australia generated growth of 15 to 16 per cent in bottled spirit sales after the alcopops tax came in, but the gains were not enough to offset the dip in RTD sales.

Last month Bacardi Lion, a joint venture between international spirits house Bacardi Martini and brewer Lion Nathan, also had its earnings shaken by the new tax.

Mr Salt said consumers were switching back to RTDs, with that segment of Diageo’s business returning to high growth rates of about 10 per cent and sales growth of bottled spirits retreating to low single-digit figures. ”From our perspective the good news is RTDs are back in growth and we are still seeing some slight growth in bottled spirits,” he said.

He said the key driver in RTDs and spirits would be new brands that revolve around Diageo’s current brand portfolio, such as Bundaberg Red and Bundaberg Reserve. This would encourage people to try spirits, many for the first time.

Mr Salt said a new variety of ready-to-serve drinks based on its popular brands, such as Smirnoff, were proving popular. ”It fits in with one of the trends that we are seeing, which is that people are starting to drink a little more at home and through the cocktail we are allowing them to have a cocktail occasion at home.”

He said the ”cocktail culture” was not big in Australia but was an emerging trend that Diageo’s portfolio was well placed to exploit.

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Monday, January 22, 12:16 am

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