Diageo’s Premium Spirits Update

Diageo over the last few years have been refocusing their aim towards premium spirits as consumers have gradually been making the move from beer to spirits such as gin, Scotch and more recently spiced rum.

However, with Fevertree’s UK sales slowing over Christmas and the value crashing £629m recently as the negative sales reports triggered a mass selloff, questions will arise about whether that trend has run its course. Diageo of course is both global and more diversified than just Fevertree, with particular exposure to whisky rather than gin, but it’s got a similar target demographic. Fevertree have blamed the poor performance over the festive period on consumer ‘belt-tightening’ and expect turbulent times to continue into early 2020, a stark contrast from the 40% growth experienced in 2018. Despite the stuttering performance in the UK the US push is expected to provide a ‘very significant’ source of sales and offer the platform for further growth beyond 2020.

With the possible ending of the ‘ginaissance’ Diageo could turn their focus to the ever-growing market of Scotch whisky but the other major headwind for them is increasing global trade tensions. The group exports Scotch whisky around the world and has invested heavily in Asia and been growing its US bourbon business. Alcohol has been one of the areas targeted with additional tariffs in recent trade clashes, so investors will be keen to hear Diageo has weathered the storm so far.