Diageo Aims to Stem Europe Sales Decline This Year, Morgan Says

Diageo Plc (DGE), the world’s biggest distiller, said it expects to stem a decline in sales at its European unit this year even as tough economic conditions in western Europe restrain spending.

“We’ve got enough confidence from the first quarter to suggest we’ll do better” than a 3 percent decline in so-called organic sales in the last fiscal year, Andrew Morgan, head of Diageo’s European unit, said today in a telephone interview. Still, “there’s enough uncertainty out there for me not to talk with any confidence about getting close to flat” sales.

Budget cuts in countries including Greece and Spain led to weaker European consumption of Diageo drinks including Smirnoff vodka in the last fiscal year. Organic sales in the region rose 6 percent in the first quarter of the new year due to “some one-off factors” as well as growth in Russia and eastern Europe, Diageo said Oct. 19. The gain was 2 percent to 3 percent without the one-time factors, Morgan said, while repeating that growth wouldn’t continue at the same pace in the second quarter.

Diageo will focus on planning and communication with customers to help drive sales, and will continue to introduce new products to aid profitability, Morgan said in a company presentation today. The distiller has started selling The John Walker, a $3,000-a-bottle whisky created by its Johnnie Walker unit, in high-end Russian hotels as it aims to sell more expensive drinks. It’s also offering its White Horse Scotch whisky in smaller pack sizes to make the drink more affordable in economically straitened countries such as Spain.

‘Growth Number’

“In fiscal 2013, we’ll be looking to get into a growth number,” Morgan said, referring to organic sales in Europe. Reaction to measures taken by European leaders to stem the region’s debt crisis will “take a couple of weeks to play out,” making any forecasts for growth difficult, he said.

Diageo also aims to stem declining profitability. The distiller is “taking the profit line more into account this year than we did last year,” Morgan said, adding that it’s a priority for the European unit, albeit “not a bias to profit” compared with sales.

The company reorganized its western European operations to improve profitability by using a single regional marketing platform and sharing ideas across countries, identifying ineffective advertising campaigns and reallocating spending to drive sales, he said. “Western Europe is organized as a single market,” Morgan said, compared with Russia and Turkey, which are managed more individually.

Diageo, which completed its $2.1 billion acquisition of Mey Alkollu Ickiler Sanayi & Ticaret AS in August, started selling its brands through the Turkish maker of Yeni Raki last week, Morgan said. The inclusion of Mey Icki will lead to about 20 percent of total sales in the region coming from Russia, Turkey and eastern Europe. Diageo is looking to expand further into faster-growing emerging markets as stagnant economies and low consumer confidence stint growth in Europe and the U.S.

To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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