More than £15 billion was wiped from the market value of Europe’s biggest drinks makers today after Diageo warned of a sudden slump in demand for its spirits.
The Gordon’s and Smirnoff owner said sales Latin America were expected to drop by more than 20% year-on-year, causing the firm to slash its profits forecasts.
The unexpected news sent Diageo shares tumbling as much as 16%, the biggest single-day fall for the London-based firm for more than 30 years, prompting shares in French rival Pernod Ricard to fall 5.1% and Italian business Davide Campari to sink 4%.
Diageo CEO Debra Crew, who only stepped into the role in June following the sudden death of her long-serving predecessor Ivan Menezes, said the surprise sales fall was the result of the struggling economy in the region.
“Unfortunately macroeconomic pressures have worsened and that caused lower consumption and more downtrading to what the team had expected. Higher interest rates and inflation is seeing customers destocking.
“As soon as the team saw this they raised the issue. We’re putting together the right steps to manage this.”
Diageo said it now expected sales and profits growth to decline for the latter months of 2023, as it fought to keep prices low to avoid a further fall in demand.
Scotch was Diageo’s biggest seller in the region, Crew said, adding that higher-end whiskies were seeing the biggest drop-off in demand as cash-strapped customers traded down to cheaper options.
Scotch is Diageo’s biggest drinks category worldwide, with over 100 different whisky brands in its portfolio including Johnnie Walker, Talisker and Haig Club. The Latin America and Caribbean region accounts for nearly 11% of the firm’s total net sales.
Crew sought to calm investor nerves with the promise that the sales slip was “an isolated issue in Latin America,” adding that Diageo was still gaining market share, other than in Mexico.
“We are performing well compared to the industry in most markets but the industry is under pressure and that is specific to spirits,” she said.
The downbeat forecasts come in stark contrast to Diageo’s previous market update in August, in which it boasted of “strong performance” and signalled an acceleration in profits growth.
AJ Bell investment director Russ Mould said: “There has been a premiumisation trend among consumers in many parts of the world whereby people have been happy to spend more to get what they perceive to be a higher quality product. Diageo rode this tailwind with great success.
“This shift in drinking habits is now being tested by a gloomier economic environment. Some people are trading down to cheaper products or are drinking less often, which means perceived ‘luxury’ companies like Diageo are finding life harder.
“The idea that luxury goods companies are immune to an economic downturn isn’t stacking up. LVMH, Estee Lauder, Ralph Lauren and Watches of Switzerland have all talked about a slowdown in growth at various points this year, so perhaps Diageo falling into the same pit shouldn’t have been a surprise.”
Diageo’s share slump will likely come as a blow to retail investors, for whom the spirit-maker’s stock is a popular pick.
The firm is the third biggest stock in the portfolio of fund manager Nick Train’s Finsbury Growth and Income Trust, representing around 10% of the fund according to its September factsheet. Finsbury shares fell more than 2%.
