Diageo profit warning knocks European drinks markets

By Jo Gilbert

Published: 13 November, 2023

Diageo has issued an unexpected trading statement to warn that this year’s revenue and profit will be significantly lower than the group previously expected – a blow which has had a serious knock-on effect for the European drinks sector.

Diageo reported a “materially weaker” performance outlook in its Latin America and Caribbean (LAC) region on Friday (10 November), as it warned of a sudden downturn in demand for its spirits there.

Organic net sales in the region are now expected to fall by more than 20% in the year’s first half. As a result, Diageo shares tumbled by as much as 16% – the biggest single-day fall for the Smirnoff, Seedlip and Johnnie Walker producer for decades. At the same time, shares in French rival Pernod Ricard fell 5.1% and Gruppo Campari by 4%.

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There are reports that more than £15 billion was wiped from the market value of Europe’s biggest producers as a result of the performance slump.

Diageo’s presence in the LAC region accounted for nearly 11% of group sales last year, with organic net sales up 20%. However, macroeconomic headwinds have led to lower consumption and consumer downtrading, with organic net sales now expected to correct that 20% rise, by falling 20% in the first half of this year, compared to market forecasts of 2% growth.

The ripple effect is a blow to the drinks market at a time when businesses are battling intense competition for shelf space amid supply chain issues and cost of living pressures.

“We are performing well compared to the industry, but the industry is under pressure,” Debra Crew, Diageo’s newest CEO said.

“Unfortunately, macroeconomic pressures have worsened and that caused lower consumption and more downtrading to what the team had expected. Higher interest rates and inflation are seeing customers destocking.

“As soon as the team saw this, they raised the issue. We’re putting together the right steps to manage this.”

Crew took the top job in June following the death of long-standing Diageo CEO Sir Ivan Menezes, who passed away following a brief illness.

Crew insisted the slump was due to “an isolated issue in Latin America”, with positive momentum appearing to have continued in the group’s other regions.

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