What happened?
Diageo presented at the CAGNY (Consumer Analyst Group of New York) conference, we attended virtually and summarise our key takeaways below.
BNPP Exane View:
Diageo remains confident that the current pressure being faced by the spirits industry in the US is cyclical and reflects pressure on consumer income. When consumer wallets recover, Diageo expects to see stronger growth. The presentation highlighted the strengths of the Diageo portfolio (particularly Tequila) and the re-shaping of its financial priorities under the new CFO, in-line with the same messages given with the recent H125 results. We did though note that Diageo will launch Casamigos into canned RTD Margaritas which appears to mark a shift in its RTD strategy / ambitions with a premium brand being extended into the format.
Debra Crew (CEO)
. Portfolio: 13 billon dollar brands; #3 in total beverage alcohol and #1 in international spirits
. Premium: 62% of FY24 sales were in premium above in FY24 (vs. industry 35%). Super-premium plus price tiers growing at early 1.5x the rate of total spirits.
. Cyclical pressure: the debate around alcohol / spirits is not new, heard before in previous cycles in 2004 and 2014. The current pressure being faced by the industry is cyclical and driven by pressure on consumer wallets.
. US consumer wallets: macro headline numbers and sentiment are improving in the US but grocery baskets are costing 20% more for 11% less vs 2020 in 2024 due to inflation. This is putting pressure on discretionary spend by consumer spend on alcohol as % of total has held up which is reassuring. Diageo is confident that as wallets recover, it will see stronger growth across its portfolio.
. US TBA: Nov-24 vs. Nov-22 US TBA and core spirits volumes are -5.7% and -4.6% below but US spirits has taken +40bp of TBA share over this period. Household penetration of core spirits has increased in 12m to Nov-24 vs. 12m to Nov-22 (all other alc. sub-categories declined).
....
