Pint Of Plain Moves To Premium Tipple
Diageo has mostly a spirits focus but the UK drinks giant hasn’t forgotten about its beer brand Guinness. In the year to June 2022, the beer category accounted for 16% of Diageo’s net sales, or c.€2.9bn. The beer segment also includes Smirnoff-branded seltzers and Smirnoff Ice, as well as regional beer brands such as Malta Guinness, Senator and Serengeti, as well as a number of lagers and ales in Ireland. However, Guinness is by far the main beer focus for Diageo, which is intent on positioning the stout as a premium tipple.
As one might expect, Diageo’s beer sales in Ireland from FY21 to FY22 grew by 71% as the prior year comparison saw the on-trade prohibited from trading for much of the period. Globally, Guinness volume increased by 16% year-on-year in FY22 and the sales value increase was 32%, indicating that the price of a pint has been jacked up. This is also evidenced by the Consumer Price Index, which shows that alcohol price inflation in the year to August 2022 was 8.0%.
The view from the Diageo boardroom is that ‘premiumisation’ is the right place to be in the global drinks market. This thinking revolves around the idea that in the future consumers will ‘drink better, not more’. ‘Better’ means selecting a brand that is heavily supported with marketing and advertising.
Diageo consistently invests c.18% of net sales in marketing, though the group recoups that spend from the price it charges for its drinks. Diageo’s operating profit margin in FY22 was 28.5%. By contrast Unilever, the grocery products giant also selling into the mass market, has to make do with an operating margin of 15.2%.
“We believe that investing in our brands, even in periods of volatility, is the right way to grow their longterm equity and our business,” Diageo shareholders are told in the annual report. “Our iconic global brand Guinness is well positioned for the key growth trends within the beer category as a premium, flavourful and differentiated beer.”
Part of the Guinness brand-building is two new Guinness visitor experiences that are due to open in Chicago and London in 2023. Diageo says the investment cost for the Guinness microbrewery and culture hub in Covent Garden will be €85m.
With confidence in the future of the black stuff, all other beer brewing is being relocated from St James’s Gate to a new brewery planned for Newbridge, which should be on stream in 2024. Having returned €4.6bn to shareholders in dividends and share buyback in FY22, Diageo could fund the €200m Kildare project from its own resources, However, two state agencies – IDA Ireland and Enterprise Ireland – are chipping in unspecified financial assistance from taxpayers for the brewery project.