Diageo seeks to evade grocery price wars

Diageo has said a decline in UK sales of its spirits brands in the last half of 2011 was the result of a reduction of its active involvement in deep supermarket promotions. 

Andrew Morgan, president for Europe at the Smirnoff and Bell’s producer, said that UK sales value dropped 2% in the six months to December 31 against the previous year.

“That’s off a lower volume because we’ve been improving the quality of those sales,” said Morgan, “in terms of less debt and frequency of the discounts, particularly in the grocery channel.

“We’re relying much more on the brand equities that we’ve got, and in particular Smirnoff had a really strong half, without us getting into some of the deep discounting that’s been a feature of the grocery channel in the past.”

Although backing off from participation in deep discounts, Diageo brands haven’t been completely immune from them. Asda had a £7 offer on bottles of Baileys in November, while Gordon’s and Smirnoff featured in pre-Christmas £11 deals in Tesco and the Co-op.

Smirnoff and Baileys were among brands featured in a two-for-£22 deal in Sainsbury’s.

Morgan added that Diageo would “pretty much hold the current level of marketing [across Europe] as a percentage of sales” unless there was a dramatic change in market conditions.

But he warned that “things are absolutely not getting easier for us in many parts of Europe”, including the UK.

“We would have hoped to be looking now at more improvement in UK consumer spend than we are actually doing,” Morgan added.

Diageo reported group volume growth of 3% in the half-year, with organic operating profits up 9%.

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