Diageo has released its 2020 preliminary results, which reveal profits were significantly impacted by COVID-19 in the second half of FY20, and revealed how it intends to reverse sales declines.
Reported net sales (£11.8 billion) were down 8.7% driven by organic declines. Reported operating profit (£2.1 billion) declined 47.1%, driven mainly by exceptional operating items and organic net sales.
Organic net sales were down 8.4%, with growth in North America more than offset by sales declines in all other regions. Organic volumes were down 11.2%.
CEO Ivan Menezes said: “Fiscal 20 was a year of two halves: after good, consistent performance in the first half of fiscal 20, the outbreak of COVID-19 presented significant challenges for our business, impacting the full year performance. Through these challenging times we have acted quickly to protect our people and our business, and to support our customers, partners and communities.
“The actions we have taken to strengthen Diageo over the last six years provide a solid foundation to respond to the impacts of the pandemic. We are now a more agile, efficient and effective business.
“We have taken decisive action through the second half of fiscal 20, tightly managing our costs, reducing discretionary expenditure and reallocating resources across the group. We are further enhancing our data analytics and technology tools to rapidly respond to local consumer and customer shifts triggered by the pandemic. We have strengthened liquidity, giving us flexibility to continue to invest effectively in the business for the long term.
“While the trajectory of the recovery is uncertain, with volatility expected to continue into fiscal 21, I am confident in our strategy, the resilience of our business and am very proud of the way our people have responded. We are well-positioned to emerge stronger.”
How Diageo is adapting its business
Menezes said Diageo is using our consumer insights to understand shifts in consumer motivations and behaviours in this fast-changing environment.
One of the biggest trends it has embraced is the booming popularity of at-home cocktail making.
“Our brands have stayed connected with consumers and responded to new occasions – such as wanting to enjoy bar quality drinks at home,” Menzes said.
“We have entertained and inspired consumers with cocktail recipes, new serves and ways to enjoy our brands with food.
“We rapidly responded to increased demand for home delivery. In the US and LAC we partnered with customers on ‘cocktail to go’ programs.”
Menezes added during an analysts’ call that Diageo sees the whole space of ready-to-serve cocktails and premix as “very attractive”.
“And so we’re doubling down on being much more ambitious on our goals there.
“Younger Americans in the 21-plus are consuming much more spirits. And in the time of lockdown cocktails at home have only gone up. And so I see the long-term trend here in terms of premium spirits brands continuing.”
Menezes also shared examples of how consumer insights are driving the company’s marketing responses.
“When lockdowns drove an increase in baking, we quickly switched on existing Baileys assets,” he said. “We participated in these social conversations and helped people create indulgent adult treats.
“When the Dalgona coffee, originally from Korea, took the internet by storm – the Baileys team quickly created their own version.
“The results were extremely positive. In the three months through June, global engagement with Baileys content increased by an average of 26% compared to pre-COVID-19 levels.”
Johnnie Walker also launched ‘Kitchen Sink Drinks’ – a platform that invited people to submit ingredients they had at home to the brand’s bartenders, who showed them how to mix them into cocktails. The program generated 58 million social media impressions.
Additionally, Diageo has ramped up its e-commerce presence, which it says offers an “exciting opportunity for growth”.
“Changes in shopping behaviour, increased awareness and regulatory relaxation in response to COVID-19 have rapidly accelerated the growth in this channel,” Menezes said.
“We are leveraging our established capabilities, while increasing our investment and redeploying resources to meet increased demand. We are ensuring our brands show up brilliantly online and investing in marketing to drive increased awareness and visibility.
“We are working with existing partners and rapidly adding new ones. We are also leveraging our own digital channels such as Malts.com in the UK and TheBar.com in Brazil. Consumers are increasing their use of digital channels to discover and learn about our brands and products.”
Menezes added that while the pace of growth in e-commerce is likely to slow as the on-trade channel recovers, he expects online demand for Diageo products to continue to increase.
Whisky takes a hit
Menezes said FY20 had been a “challenging year” for Diageo’s scotch portfolio, with sales declines of 17%.
“Our first half performance was flat,” he explained. “This was due to specific market challenges impacting Johnnie Walker in particular. It was also the effect of lapping last year’s highly successful innovation of “White Walker by Johnnie Walker”.
“In the second half, scotch was disproportionately impacted by COVID-19. This reflects the greater exposure to emerging markets and Travel Retail, which together accounted for over two-thirds of our scotch net sales in fiscal 19.
“We quickly adapted our assets to create relevance and increase visibility in the at-home occasion.
“In this environment, we have a lot of work to do to drive a recovery in scotch performance. Our focus is on winning in the off-trade, recovering the lost volume from Travel Retail and partnering with customers as the on-trade reopens.”
He added that a new serve strategy, the Johnnie Walker highball collection, launched partnership with the world’s leading bartenders in key cities globally, had been successful during shutdown.
“These long-mixed serves can also be made at home and we adapted our assets during COVID-19.
“In fiscal 21, we are celebrating Johnnie Walker’s 200th anniversary,” Menezes said. “We are starting with the Johnnie Walker Icons 200th, a new range of limited-edition pack designs, which will be available in more than 80 countries.”
Launching in October, domestic prices for the collection haven’t been announced. However, in the US the John Walker & Son Celebratory Blend will retail for US$75, the Johnnie Walker Blue Label Legendary Eight will retail for US$350, and the John Walker & Son Bicentenary Blend will retail for US$1000.