UK based drinks giant Diageo has told shareholders that it is cutting spend deemed to be ineffective in the current climate, as the switch to home drinking.
According to a release issued last week, the company told investors that it was putting together a series of measures designed to shore up a business hit hard by the closure of bars and pubs. On a financial level, it will halt its share buyback program to conserve cash, though it will go ahead with the payment of a dividend due this month to investors.
On an operational level, Diageo said that “in the short term,” it would be reducing discretionary expenditure and reallocating. For marketing this means “stopping A&P spend that will not be effective in the current environment,” though it has not fleshed out the specifics of that measure.
But the company’s strong on-trade presence has caused problems in a world where going out for a beer is no longer an option. It's a problem felt across the pub industry, as many establishments are now stuck with thousands of un-sellable pints, according to the FT.
In the US, the release continues, the on-trade accounts for around a fifth of net sales.
In Europe, sales in bars account for half of net sales, meaning an extremely big blow and a core shift in how it advertises its brands.
“In both of these regions, we have seen some pick-up in the off-trade channel (retail stores) in recent weeks, although it is unclear whether this will be sustained.”
Some solace comes from signs of China’s gradual re-opening, though drinks are hardly flowing in celebration as the country emerges not so much into freedoms of the past, but a new and strange reality.
Meanwhile, in India, which recently went into nationwide lockdown, the company has had to pause production operation through United Spirits for an initial period. In Africa a continent with several of Diageo’s key consumption markets and a handful of major producers has also seen lockdown pausing activities.
“During this challenging time, our top priority is to safeguard the health and well-being of our people, while taking necessary action to protect our business”, said CEO Ivan Menezes in a statement.
“I am confident in Diageo’s long-term strategy and our ability to move quickly in this difficult environment. We will continue to execute with discipline and invest prudently to ensure we are strongly positioned for a recovery in consumer demand.”
Sourced from Diageo, Financial Times; additional content by WARC staff
