Earlier today, Diageo announced a 6.5% increase in the company’s full-year results for fiscal 2023. Speaking exclusively to Global Drinks Intel, Diageo CFO Lavanya Chandrashekar talks US trends, the rise of India – and why Tequila still has plenty of headroom for growth.
Global Drinks Intel: We seem to have been in an uncertain trading environment recently, with cost pressures, price increases, macroeconomics and geopolitics – you name it! How do you deal with that?
Lavanya Chandrashekar, Diageo CFO: Our focus is to stay as close to the consumer as possible, to be agile and adapt to the changing environment. The good news is that we’ve built the capability to do this over a long period of time, through investment in digital technology and relationships with core communities who influence our business, like our bartender community. That really helps us to stay close to the consumer.
GDI: Many people’s eyes will be drawn to trends in the US, and the decline for spirits. What’s your view of trading conditions at the moment?
LC: We expected that the US spirits category growth rate would come back to pre-pandemic rates of mid-single-digit growth, right the way back to mid-’21 and our capital markets day. It’s what we were expecting, and our medium-term guidance was structured around that expectation. If you look at Nielsen and NABCA data, which is where the US market category growth share data comes from, you see that the category has come back down to that mid-single-digit level.
The other thing that we also see in our shipment numbers is the lapping of the inventory replenishment of the supply chain that happened in fiscal ’22, when there was strong demand growth and supply constraints.
We were running on fumes there for quite a while. At our prelims two years ago, we were talking about shortages of bottles, glass, liquid. In fiscal ’22 the supply chain really came back. That pipeline which was empty has been replenished, and fiscal ’23 saw the lapping of that ‘re-pipelining’.
GDI: Tequila is still showing strong growth, but is there a feeling that it’s beginning to moderate now? And is it time to internationalise that part of the business?
LC: In the US, Tequila penetration is still significantly less than that of the larger penetrated categories like whisky or vodka. So there’s still quite a lot of room for growth. As the Tequila business gets bigger, the growth numbers look smaller just because the base is getting bigger.
It’s a very versatile liquid, and the brands are strong and growing well. The appeal of Tequila is quite universal. More than 50% of Tequila consumers are women, and it shows up in every occasion from the brunch occasion with the Paloma or Tequila Sunrise, all the way to the slow sipping occasion after dinner with the 1942 or Don Julio Rosado.
There’s a real opportunity to grow, and we are expanding Tequila internationally, in all of the big cities around the world. The consumer is so interconnected now – there has been a leap in demand for Tequila, so we are expanding it and seeing good success.
GDI: Turning to Asia, China seems to be coming back very slowly, but India is forging ahead. Has there been a shift there?
LC: In China the impact of Covid was quite substantial, and we felt that in the second half of the year. We have two businesses in China – Scotch has done well, with 15% growth. But the baijiu business was quite significantly impacted in the second half because it’s mostly consumed in the on-trade banqueting occasions.
We do expect that to come back. We are seeing in this last quarter, April-May-June that trade start to recover as consumers go back to the on-trade.
India is a whisky-loving market, right? It’s a whisky market, unlike a lot of other emerging markets. Johnnie Walker is a really strong brand in India with very, very high equity. Johnnie Walker sales in India were up +34%, and Johnnie Walker Black Label +54%. This is a business where the consumer is extremely vibrant, and feels very confident about the future.
GDI: It must make you wonder what might happen if the UK and India sign a free trade agreement, and some of those tariffs come down?
LC: Yes, we’re very hopeful that we will get to an FTA between the UK and India – it will certainly be very beneficial for sure for the Scotch business.
GDI: Any thoughts on when that might happen?
LC: I’m not going to comment on that, but I hope that we get to a good outcome as soon as possible!
