For a generation battling unflattering views on its attention span, Gen Z has been having an extended moment with Ireland’s most valuable brand.
Global sales of Guinness grew by a double-digit percentage for the eighth consecutive half in the six months to December, its owner, drinks giant Diageo, says, helped by viral TikTok videos of drinkers “splitting the G” – gulping until the horizon between the stout and the creamy top lines up with the middle of the letter G on a branded glass – plus an army of “Guinn-fluencers” from singers Ed Sheeran and Niall Horan to celebrity Kim Kardashian, and headlines of London pubs rationing the black stuff before Christmas.
Elsewhere in Diageo’s stable, the Don Julio top-shelf tequila brand recorded 23 per cent sales growth in the US in the same six months, the first half of the group’s financial year, while its new Crown Royal blackberry-flavoured whiskey has also been going down well in its most important market.
They haven’t, however, saved Diageo’s stock from slumping more than 20 per cent so far this year, making it the third-worst performer on the FTSE 100 index. And leaving it hovering little over the £20 (€24) mark – its lowest level in more than eight years.
Mexico-brewed Don Julio and its Crown Royal and other Canadian whiskeys are in the crosshairs as US president Donald Trump prepares to impose 25 per cent tariffs from next Wednesday on imports from his country’s closest neighbours.
Goodbody Stockbrokers analyst Fintan Ryan has estimated it could result in up to an annualised $600 million (€554 million) financial hit on the group – excluding any mitigations or pass through of costs to customers.
Diageo made an attempt last year to sell its Pimm’s, its quintessentially British drink, but failed to find a buyer.
Uncertainty over the potential impact of tit-for-tat tariffs contributed to Diageo scrapping its key target for organic sales to grow by 5-7 per cent.
But it’s not the only reason. Having gone all-in on the “premium” trend in western spirits markets – the idea that consumers would be prepared to pay more for high-end drinks – under previous chief executive Ivan Menezes, his successor, Debra Crew, took over in July 2023 just as a Covid-era surge in spirits sales was running out of steam.
Notwithstanding the strong performance of tequila in the US in the first half, sales of its Johnnie Walker Scotch and Captain Morgan rum both slid 13 per cent.
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Its vodka brands, including Smirnoff, dropped 10 per cent as it faced increased competition from makers of premixed canned cocktails. While Diageo seems to be becoming more interested in the ready-to-drink segment, it is behind the pace in this trend.
The question facing Crew and investors is whether the pullback in spirits sales is a post-Covid adjustment to normalisation – or the beginnings of a more fundamental shift among consumers. European spirits sales are also slowing.
“There is growing evidence that consumers are becoming more concerned about the health consequences of even moderate alcohol consumption,” Deutsche Numis analysts said in a recent report. “Notably, younger consumers appear to have the greatest concerns.”
With Diageo’s stock now trading at about a 20 per cent discount to its 10-year average, there are growing whispers in the City it may attract interest from activist investors.
Cyclical issues are also at play. Consumer confidence on both sides of the Atlantic is at a low ebb, recent economic data shows, at a time when drinks wholesalers are sitting on fairly high inventories.
With Diageo’s stock now trading at about a 20 per cent discount to its 10-year average, relative to earnings, there are growing whispers in the City that it may attract interest from activist investors.
There is little scope for returning a wedge of cash to shareholders – a popular go-to for activists – with Diageo’s stretched balance sheet, following a period of heightened investment.
Its $21.1 billion of net borrowings was marginally beyond the outer limit of its target of maintaining a ratio of between 2.5 and three times earnings before interest, tax, depreciation and amortisation (Ebitda) at the end of December.
Asset sales are another activists’ playbook staple. Diageo made an attempt last year to sell Pimm’s, its quintessentially British drink, but failed to find a buyer. It has also been trying to offload Cîroc Vodka, a brand once backed by musician Sean ‘Diddy’ Combs, who is awaiting a trial for alleged sex crimes.
Crew was quick to deny reports in January that it was looking to sell Guinness – which Bloomberg valued at the time at more than $10 billion – and its 34 per cent stake in Moët Hennessy, the drinks division of luxury group LVMH. A sale of Guinness would have been a questionable move, given that it is one of the few growth stories in the group – and a major cash cow.
But some analysts believe Crew and her new chief financial officer, Nik Jhangiani, who joined last September from Coca-Cola Europacific Partners, must surely be looking at other disposal options to reinvigorate the group and, potentially, free up cash for more attractive deals.
It has the feel of a company that needs to make a big strategic move to tempt investors to stock up again – or risk attracting a meddling shareholder on to its register that would seek to force its hand.
