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Diageo Scotch & whiskey global sales rebound from sluggish growth one year ago

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Mary Ellen Shoup

By Mary Ellen Shoup+

Last updated on 27-Jan-2017 at 17:46 GMT2017-01-27T17:46:37Z

Diageo's Scotch growth for the second half of 2016 was fueled by the Johnnie Walker brand, CEO Ivan Menezes said during the company's interim 2017 earnings call. ©iStock/MIHAI ANDRITOIU
Diageo's Scotch growth for the second half of 2016 was fueled by the Johnnie Walker brand, CEO Ivan Menezes said during the company's interim 2017 earnings call. ©iStock/MIHAI ANDRITOIU

Diageo reported a strong sales gain for the second half of 2016 due to rising global demand for Scotch and whiskey following increased marketing efforts in the US.

The spirits company posted a 4.4% increase in earnings bringing in $1.9bn (£1.5bn)  for the last six months ending Dec. 31, 2016, compared to $1.78bn (£1.4) for the same period in 2015, the company announced in its earnings report.

Diageo’s Scotch brands account for more than 25% of the company’s sales and grew 6% during the six-month period, an improvement over the previous year’s 1% sales gain of its Scotch portfolio.

The company has seen favorable growth of its whiskey and Scotch products in key markets including North America, Europe, India, and in mainland China where the company saw 7% sales growth for its Scotch brands.

“The improvement of our Scotch performance is broad-based,” Diageo CEO, Ivan Menezes, said during an interim 2017 earnings conference call.

“Growth in Scotch and US spirits have driven over 50% of our organic net sales growth. When you include our performance in Europe, this number goes to almost 70%.”

The growth was led primarily by Johnnie Walker with 6% sales growth and Buchanan’s up 24% compared to the same period the year prior.

North America shows highest growth

Menezes credited the increased marketing efforts in North America for the company’s strong sales performance of its whiskey products in that market.

The increased emphasis on targeted marketing campaigns is an initiative Diageo will continue to invest in through partnerships with online retailers who will in turn provide them with data on consumer search results.

“The last year has seen a lot of change in our North American marketing approach and team to focus on the recruitment of millennial and multicultural consumers. Digital spend will be up fivefold this year and spend on multicultural will increase by a factor of four,” he said.

The company’s Crown Royal and Bulleit brands delivered the strongest growth, with the latter growing at a rate of nearly four times faster than the rest of the whiskey category reaching sales of a million cases.

Diageo also launched a nationwide marketing campaign for its Buchanan’s Scotch whisky targeting US Latino consumers.

India is an ‘attractive long-term opportunity’

Despite being challenged by demonetization, sales of spirits in India showed resilience with net sales increasing 4% during the six-month period, largely driven by product re-launches of Diageo whiskey products.

“McDowell's No.1 Whiskey and our Signature brand continue to see the benefit from product re-launch last fiscal year, with McDowell’s No.1 up 17% this half and Signature growing 35%. Scotch grew 11%, with Johnnie Walker up 23% and a strong performance by VAT 69 and Black and White,” Diageo CFO, Kathryn Mikells, said during the earnings call.

“India remains an attractive long-term opportunity and we’ve been making good progress in accelerating growth,” she added.

Flat beer growth lends spirits an opportunity in Africa

In contrast, the beer category which accounts for 16% of Diageo’s sales, registered a net sales decline of 1% in Africa, impacted by the significant tax increase on bottled beer in Kenya. Europe, Diageo’s second largest beer market, also posted flat growth with Guinness growing low-single-digit driven by innovation. 

However, Mikells said this presents an opportunity to drive growth of its mainstream spirits in Africa by incorporating distilling infrastructure into the continent’s current brewing footprint.

“Consumers in Africa are becoming increasingly curious about new and interesting drinks and spirits is rapidly becoming part of their repertoire,” she added. 

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