Specialist
Former senior executive at Diageo plc
Agenda
- US spirits industry trends, including category dynamics, on-premise recovery and potential slowdown of premiumisation amid inflationary pressures
- Diageo (LON: DGE) US portfolio overview across mezcal and tequila, vodka and rum, noting RTD (ready-to-drink) spirits potential and core portfolio growth
- Competitive landscape review, including positioning vs Pernod Ricard (PAR: RI), Bacardi, Brown-Forman (NYSE: BF.A) and Beam Suntory
- Company outlook – market share positioning, margin expansion potential and robustness of portfolio amid a potential recession
Questions
1.
What key consumer behaviour trends are you seeing in the US spirits market?
2.
How sustainable are the consumer behaviour trends amid the current inflationary environment?
3.
How might the inflationary environment impact volumes and pricing?
4.
Have the economic conditions impacted how much people in the US are buying? Perhaps the frequency at which people are consuming spirits is lower, but their perception of needing to drink premium is still there.
5.
Are any categories disproportionately exposed to this inflationary environment? You noted some brands might be more exposed because of the consumers that they tend to attract. Are there any differences across categories?
6.
Are certain spirit categories more exposed to or insulated from inflationary impacts to the bottom line?
7.
Has on-premise normalised to pre-pandemic levels?
8.
Could you share an overview of Diageo’s portfolio, assessing its brands and price positioning across scotch, American whiskey and tequila and mezcal?
9.
You said you wouldn’t be surprised if Diageo made further purchases to strengthen its presence in the mezcal and tequila category. What would be the rationale behind those purchases? Is there a particular gap in its portfolio, or does it need a more affordable price tier?
10.
Diageo is a little bit over-indexed in vodka, which is experiencing a slowdown, particularly with the rise of tequila. How should Diageo approach this category in its portfolio to position it towards growth?
11.
The premium vodka category is in decline, but somehow Tito’s continues its rise. What has Tito’s managed to unlock in the vodka category that Diageo hasn’t?
12.
Smirnoff isn’t performing very well in the US, as we noted. How can Diageo reposition the brand towards growth and stem the market share losses?
13.
I understand Captain Morgan is having similar problems to the Smirnoff brand. Could you frame Diageo’s presence and performance in the rum category? What problems has Captain Morgan faced and how can it be repositioned?
14.
Diageo’s net sales of spirits-based RTD [ready-to-drink] increased 18% in FY22, which ended 30 June. How big can the RTD category become and how is Diageo positioned, particularly given its main brand there is Smirnoff?
15.
Where do you see RTD stabilising, having noted it’s a growing category? I believe it accounted for about 4% of Diageo’s net sales in FY22. Where do you see that reaching?
16.
Are there any obvious portfolio gaps that Diageo needs to address and fill?
17.
How does Diageo approach innovation? How would you rate its brand-building ability? It seems the company is perhaps too reliant on M&A at times. Is this something that needs to change?
18.
What are Diageo’s strengths and weaknesses vs competitors such as Pernod Ricard, Constellation Brands, Brown-Forman and Suntory?
19.
How well-placed is Diageo to take market share over the next few years?
20.
What’s your mid-term growth outlook for the US spirits market? What do you see driving that growth?
21.
Do you think Diageo has a robust portfolio that allows for downgrading in the event of a recession?
22.
Do you think Diageo has any room for margin expansion, be it through cutting further costs or any other means?
23.
You mentioned margins are already quite hefty. Do you think they are sustainable for Diageo and other companies longer term?
