Diageo attributes soaring profits to marketing spend boost and premiumisation strategy

Diageo says its premiumisation strategy is paying off, as its high-end brands contributed to 71% of organic net sales over the year.

Diageo is hailing the success of its continued investment in marketing, as net sales rose 21.4% to hit £15.5bn for the year to 30 June.

The drinks giant increased its organic marketing investment by 24.7% ahead of organic net sales growth, while its organic operating margin rose 121 basis points. Diageo spent £2.72bn on marketing across the year, up 25% from £2.16bn in 2021.

The company saw operating profits rise 18.2% to £4.4bn, while organic volume rose 10.3% over the period, with growth attributed to the continued recovery of the on-trade business, resilient consumer demand in the off-trade and market share gains.

This, Diageo explained, was underpinned by the “favourable industry trend” of spirits claiming a larger share of the total market. Spirits gained nine points of market share during the period.

Growth was broad-based, although particularly strong within the scotch, tequila and beer segments. ‘Premium plus’ brands such as Johnnie Walker, Don Julio and Tanqueray contributed 57% of reported net sales and drove 71% of organic net sales growth. The brand’s price/mix growth was 11.1 percentage points, reflecting a “strong performance” in Diageo’s ‘super premium plus’ brands and price increases across all regions.

Three ways Diageo plans to use marketing to grow market share

The company is aiming to grow its total beverage alcohol share by 50% by 2030. This would mean an increase from 4% of the total beverage alcohol market in 2020 to 6% by 2030. The company claims that during the past year it gained more share than any of its peers and twice as much as its largest international spirits competitor. More than one-third of this share growth came from Diageo’s super premium plus portfolio.

During the period the company acquired flavoured tequila brand 21Seeds and Mezcal Unión, a premium artisanal mezcal brand. Diageo also invested £1.1bn in its production capacity, sustainability, digital capabilities and consumer experiences.

In North America, marketing investment rose 24% over the year to 30 June, ahead of net sales growth, while in Europe Diageo ramped up its marketing spend by 26% to support on-trade recovery and off-trade share momentum.

We are staying close to our consumers and our digital tools and data capabilities enable us to quickly understand trends and execute with precision.

Ivan Menezes, Diageo

Across its African business, Diageo increased marketing spend by 22%, focusing on ecommerce and new routes to reach consumers. In the Asia Pacific region, the company’s investment in marketing investment rose by 16%, mainly driven by Greater China and categories such as Chinese white spirits and scotch. Marketing spend also shot up across Latin America and the Caribbean, 49% ahead of net sales growth.

The business says it will continue to use its “deep understanding of consumers” to quickly adapt to changes in trends and behaviours, while “investing strongly” in marketing and innovation. Diageo does, however, expect to rely on its “strategic pricing” approach in 2023.

Describing himself as “very pleased” with the results, chief executive Ivan Menezes believes Diageo will remain resilient in the face of macroeconomic pressures.

“We believe we have an advantaged portfolio with extraordinary brands across geographies, categories and price points,” he added. “We continue to actively shape our portfolio to fast-growing categories through innovation and acquisitions. We are staying close to our consumers and our digital tools and data capabilities enable us to quickly understand trends and execute with precision.”

He also highlighted the performance of scotch brand Johnnie Walker, which had a “record year” and topped 21 million cases for the first time, and saw double-digit growth.