Millennials’ shifting tastes are boosting sales of whiskey and tequila
Young people in America are said to be drinking less alcohol overall, but a shift in their tastes has helped the world’s largest spirits company
February 1, 2019
Millennials have been blamed for the demise of everything from movies to dinner dates to golf. But now the much-slighted generation is getting credit for something unexpected: saving hard liquor.
Smirnoff vodka and Bulleit whiskey maker Diageo said it has received a boost from American millennials.
While young people in America are said to be drinking less alcohol overall, a shift in their tastes has helped the world’s largest spirits company DGE, -0.64% beat half-year earnings and sales forecasts. In addition to showing a tapering in alcohol consumption among millennials, research has shown that demand for lager has dipped.
U.S. drinkers have been switching to spirits from beer and wine, lifting sales at the drinks giant, which also makes Ketel One vodka and Casamigos, the tequila brand co-founded by actor George Clooney and acquired in 2017 by Diageo.
Data from U.S. trade group the Beer Institute shows drinkers chose beer just 49.7% of the time in 2017, down from 60.8% in the mid-’90s, the Wall Street Journal has reported.
But Diageo’s chief executive, Ivan Menezes, said Diageo, whose beer brands include Guinness and Harp, had fared well during the shift in consumer behavior. “What we are seeing is a positive trend in the U.S., with spirits growing faster than beer and wine,” he said. “We have a much bigger share in the spirits that younger Americans are drinking.
“Generally per capita spending is down, but the shift to spirits and premium brands is strong, which [is] really positive for us.”
North America accounts for 34% of Diageo’s net sales and contributed net sales growth of 6% over the period.
Scotch grew 10%, while vodka sales were flat, an improvement from a year earlier, with the launch of Ketel One Botanical offsetting net sales declines in Smirnoff and Ciroc vodka.
The latter, along with Captain Morgan rum, which saw net sales decline 9%, were the weakest Diageo brands in the U.S.
According to an analyst note from Bank of America Merrill Lynch: “Diageo finally closed the gap with the industry,” with 4.7% growth in U.S. spirits, “helped by vodka stabilizing, Johnnie Walker growing 10%, tequila up strong double digits and the sale of the tail brands to Sazerac.
“Another positive highlight was the 13% growth [in Diageo’s beer operations], led by a recovery in Guinness as well as very strong performance of [ready-to-drink products], especially the Smirnoff Ice Hard Seltzers and Smashed.”
Globally pretax profit rose to £2.6 billion from £2.2 billion for the six months ending Dec. 31 on sales of £10.3 billion, up from £9.9 billion. Organic net sales rose 7.5% to £6.91 billion, ahead of the 5.5% rise analysts had predicted.
The shares rose 4.67% on signs the restructuring by CEO Menezes, which saw the sale of noncore Diageo brands, had gained traction. The market also cheered plans for a £660 million share buyback and a planned 5% increase in Diageo‘s dividend.
“Diageo is in good shape,” read a note from broker Exane, and “has arguably never been better managed.”
The drinks giant shrugged off concerns that an economic slowdown in China would dent sales as strong demand for Scotch and Chinese white spirits helped organic net sales grow 20% in China.
Menezes also brushed away concerns surrounding the uncertainty of Britain’s departure from the E.U.
Earlier in the day, consumer-goods giant Unilever UNA, +1.00% ULVR, +1.79%UN, -0.63% UL, -0.75% said it had been stockpiling Ben & Jerry’s and Magnum ice creams in case of supply-chain problems.
Menezes said there would be no change to the way the London-headquartered Diageo stocks its products: ‘We don’t see a material impact to the company, but we definitely want to see a deal,” as opposed to a so-called no-deal Brexit. “Our trade in Europe will be tariff-free due to [World Trade Organization] rules. Longer term, there are potential upside opportunities in terms of new trade deals and the return of duty-free [for Europe].’