Diageo intends to invest “strongly” in marketing in 2023, while working to strengthen the efficiency of its spend.
The business, which owns brands such as Guinness, Baileys and Johnnie Walker, ramped up its organic marketing investment by 6.8% to £1.58bn in the six months to 31 December, reflecting what Diageo describes as “strong, consistent investment” in its brands. At the same time, the drinks giant has continued to focus on effectiveness and has made progress on making its spend work harder.
“We have significantly increased our advertising and promotional investment and continue to transform its effectiveness,” CEO Ivan Menezes told investors today (26 January).
He credited analytics tool Catalyst and Sensor, which are designed to optimise marketing spend across the business’s portfolio and channels.
The business is now working with CreativeX to test the effectiveness of Diageo’s advertising before it is deployed, taking into account different platforms’ algorithms. The tool has recently been deployed in the UK market, and it has been credited with ensuring content is “perfectly optimised to deliver engagement”.
In the UK, the tool helped reduce the cost per 1000 digital ad views over the first half of the year by 50% compared to the same period the year prior.
Yet, while Diageo is seeing improvements on the efficiency of its marketing spend, the business is not pulling back on the money it is reinvesting. Diageo reinvested 16.7% of its net sales value into its advertising and promotions over the six month period. By comparison, in the same period in 2019, before the Covid-19 pandemic, it reinvested 15.3% of net sales.
The company now expects its marketing investment to grow ahead of sales growth over the second half of its financial year.
Continued commitment to premiumisation
Reaffirming its commitment to invest in premiumisation, “strategic pricing”, marketing and innovation, the drinks giant says it will use its “deep understanding of consumers” to quickly adapt to changing trends and behaviours.
Diageo notched up net sales of £9.4bn in the first half, an increase of 18.4%, which it attributes to its diversified footprint, “advantaged portfolio”, strong brands and push for premiumisation. Operating profit rose 15.2% to £3.2bn, with price increases and supply productivity savings offsetting the impact of cost inflation.
In Europe, marketing spend increased by 3% with a focus on key spirits brands, while in North America investment grew 2% to support sales growth in tequila and Canadian whisky. Within the Asia Pacific region, marketing investment grew 9% over the six month period, focusing on scotch sales across South East Asia, Greater China and India.
To support premiumisation, in Africa marketing spend grew by 8%, while in Latin America and the Caribbean investment increased by 29%, ahead of organic net sales growth.
Overall growth was delivered across most categories, primarily scotch, tequila and beer, while ‘premium-plus’ brands contributed 57% of reported net sales and drove 65% of organic net sales growth.
According to Menezes, Diageo is 36% larger than it was pre-Covid. Sales growth has been supported by the company’s continued focus on “premiumising” its portfolio, bolstered by global premiumisation trends and demand for its ‘super-premium-plus’ brands, he explains.
Stating that winning “quality market share” is the key focus, Menezes praised the fact Diageo has gained or held share in 75% of total net sales value in its measured markets. The Diageo CEO says he remains confident in the resilience of the business to navigate the current macroeconomic volatility.
“We have delivered targeted price increases across all regions, enabled by our expertise in revenue growth management and supported by strong consumer demand for our brands,” he adds.
“This, combined with our culture of everyday efficiency, has allowed us to increase our investments. We are investing in world-class brand building, digital and data capabilities and our ambitious 2030 sustainability plan to create a stronger and more resilient business for the long term.”