Diageo’s Latin America hangover hits FY24 results
Diageo’s FY24 sales were dragged down by its Latin America and Caribbean region (LAC): where reported net sales declined 15% and organic net sales declined 21%.
For Diageo, the problem is two-fold: exceptional performances during the COVID years led the firm to overestimate and ship large quantities of inventory in the first half of fiscal 23, which did not ultimately pull through to the consumer. The second problem is an ongoing shift from consumers away from premium spirits in the region.
Having sounded the alarm with a profit warning in November (and again with its interim results in January), Diageo’s CEO says the company has taken all the right actions on inventory and brought this back in line with where it should be.
But the second problem – that of a weaker consumer environment – is a more complex challenge.
Taking action on inventory
Releasing its FY24 results on Tuesday, Diageo reported its spirit net sales in Latin America and Caribbean declined 23%, with poor sales for Scotch (particularly Buchanan’s, Johnnie Walker Black Label and Johnnie Walker Red Label) and a double-digit decline for tequila Don Julio in Mexico.
Latin America and Caribbean make up nearly 10% of Diageo’s annual sales. That’s a small segment when compared to the North American division (nearly 40%) or Europe (24%) – but a problem nonetheless.
In January, Diageo outlined its action plan for LAC: focused on expanding inventory visibility in the region and incentivizing top distributors to report sell-out information. This gives the company better position to forecast future requirements.
In this week’s earnings call, CEO Debra Crew assured investors that – while sales may still be impacted – the company’s division is in a better place.
Diageo’s FY2024 (year ended June 30, 2024) saw reported net sales come in at $20bn, down 1.4% on the previous year.
“Since January, we have worked with our wholesaler and customer partners to manage inventories and ended fiscal 24 with levels more appropriate for the current consumer environment,” she said.
“In Brazil, our largest market in the region, the category improved in the second half of the year compared to the first half, and we gained market share.
“Inventory levels have dramatically reduced to more appropriate levels in Mexico, our second largest LAC market. However, this market continues to face persistent challenges with a highly competitive environment and consumer downtrading in tequila and scotch.
"Consequently, we have initiated a comprehensive review of this market to return to share growth, and I will update you in due course.
- Diageo's net sales in Brazil declined 18%, primarily due to a double-digit decline in scotch. In the second half of fiscal 24, Brazil gained share of spirits as consumer demand stabilized.
- Mexico net sales declined 30%, primarily driven by strong double-digit declines in tequila, led by Don Julio and scotch. There was downtrading with consumers shifting towards local spirits and the operating environment remained highly competitive, particularly in tequila.
- Central America and Caribbean (CCA) net sales declined 25%, primarily due to a strong double-digit decline in scotch from increased competition from local spirits. In the second half of fiscal 24, the market gained share of spirits.
- Andean (Colombia and Venezuela) net sales declined 17%, primarily driven by scotch due to weakening consumer demand which - like CAC - resulted in consumers shifting towards local spirits from international spirits.
- South LAC (Argentina, Bolivia, Chile, Ecuador, Paraguay, Peru and Uruguay) net sales declined 9%, driven by scotch. The market delivered share gains in the second half of the fiscal year.
“Going forward, we know the importance of staying vigilant and we continue to work diligently to keep improving our visibility into the distribution channels across LAC with the aim to deliver better insights earlier.
"And I believe we have the necessary processes, data, leadership, incentives and sellout culture across the region to more closely align future performance with consumer demand.”
Will LATAM bounce back?
The important thing to remember, said Crew, is the unpredictability of the market at the moment.
With inventory issues on the mend, the company could expect to see sales bounce back. Some markets have indeed started to follow this trajectory: but the company won’t depend on a cyclical return to growth.
“The consumer environment is quite volatile, so you would expect our performance to more align with that consumer environment, versus what we just cycled,” said Crew.
