Diageo sees a strong future for direct-to-consumer sales

29 July, 2021

Diageo expects direct-to-consumer sales to grow rapidly and emerge as an important part of the business in the years ahead.

The spirits giant has just beaten analysts’ expectations by posting 16% organic net profit growth for the year to June 30.

That was partially driven by surging ecommerce sales, which now account for around 5% of Diageo’s global business. It has enjoyed success with major third-party platforms such as Amazon and Drizly, but it starting to ramp up its focus on direct-to-consumer sales too.

At today’s earnings call, chief executive Ivan Menezes told Drinks International: “We do see the consumer behaviour shift towards shopping online as very sustained. It will continue to grow. Alcohol has typically been underpenetrated [online]. Throughout the lockdown and the pandemic period, the penetration for alcohol online shopping has gone up significantly.

“We have leading positions on third-party platforms like Amazon in Europe, Tmall in China and Drizly in the U.S. We’re doing very well on those platforms.

“We have introduced nine new direct-to-consumer platforms around the world. We do tend to lead in that space. It’s still relatively small for Diageo, but we expect it to grow fast and it will become a more important piece of our business.

“We have an asset called TheBar.com in the UK and Brazil. We have platforms at the top end of our single malts portfolio.

“This is an area where Diageo will do more. I expect it to become a bigger part of our business over time.”

Dayalan Nayager, managing director of Diageo Great Britain, added that “the prominence will stay” for ecommerce sales as the world emerges from the Covid-19 pandemic, because “consumer buying habits have shifted”.

In May, Diageo announced the resumption of its return of capital programme, which will eventually return £4.5 billion to shareholders by 2024 via share buybacks or special dividends.

The company’s share price has increased by more than 25% over the past year, and it is up by 1.8% today.

It has managed to strike an effective balance between rewarding shareholders and investing in marketing and acquisitions. In the past year, it bought Aviation Gin and hard seltzer brand Lone River Ranch Water.

Menezes pledged to continue investing in strategic acquisitions in future, but said the company is more focused on identifying brands with vast potential as opposed to trying to plug gaps in the portfolio.

“We clearly want to add more brands if we find the right acquisitions at the top end of the business, like we did Casamigos, Don Julio and Aviation Gin,” he said. “It’s more the quality of the brand than a portfolio gap we are trying to fill.

“It’s not that easy to find available brands that have a good runway for growth, but you can expect us to be adding more to the business. We’ve got the financial capacity, the appetite and the discipline to go after quality brands with a good runway for growth.”

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