Diageo says U.S. spirits grow in recession

CHICAGO (Reuters) - Diageo DGE.L, the world's biggest alcoholic drinks group, expects the U.S. spirits industry to increase sales volumes through the current downturn while the company looks to outperform all its major competitors.

The London-based maker of Johnnie Walker whisky, Smirnoff vodka and Guinness beer said growth of the U.S. industry has slowed, especially toward the end of 2008, but it still expects positive industry growth through 2009.

“We see growth continuing even in this difficult environment and expect industry growth staying in the range of 0-1 percent for sales volumes,” Ivan Menezes, head of Diageo’s North American region, said in an interview on Tuesday during the Reuters Food and Agriculture Summit in Chicago.

“Although the U.S. has slowed we still expect to outperform all our major competitors,” he added.

With the group facing slowing worldwide consumer demand in 2009, Chief Executive Paul Walsh in February cut the company’s target for operating profit growth for the year to end-June 2009 to 4-6 percent from 7-9 percent previously.

Diageo’s Menezes said the premium U.S. spirits market for products such as Smirnoff and Captain Morgan rum, selling at around $10-15 a bottle, was holding up well and this area accounted for 50 percent of the group’s U.S. spirits sales.

Although the lower end of the market for products such as Popov vodka and Gordon’s gin had returned to growth, he did not believe there was a wholesale shift toward trading down to cheaper products across the market.

“The consumer shift is toward strong brands with strong credentials and strong heritage,” he said, adding that current market trends were not dramatic and largely reflected a slight decline in bar trade and a pickup in drinking at home.

He said U.S. spirit industry growth had slowed from levels in recent years of 2-3 percent to between 1-1/2 and 2 percent in 2008. Destocking between Thanksgiving and Christmas saw growth by the end of 2008 in the range of 0-1 percent, he added.

The group expects destocking will continue in the first six months of 2009, but it is in a strong position covering all areas of the market from value to ultra premium products.

“We expect the market to stay tough for a while, but we see this as an opportunity to emerge stronger,” he said, adding that the group was adjusting its marketing message to focus more on the rise in drinking at home and was looking aggressively for innovative new spirit products.

Reporting by David Jones; editing by Matthew Lewis