Americans Drinking More Tequila at Home Buoys Diageo

Americans drinking more Don Julio tequila and other spirits at home during the pandemic outweighed a slump in sales at bars, helping liquor giant


DEO -4.24%

PLC report a rise in half-year organic sales.

The company, whose other brands include Tanqueray gin and Smirnoff vodka, said it shifted marketing dollars to encourage sales in U.S. liquor stores and online, helping it sell more booze overall. Diageo said sales in its largest market were also buoyed by a continuing shift among drinkers from beer and wine to spirits, and by a rush from distributors to restock.

Net spirits sales in the U.S. grew 15% in the last six months of 2020 on an organic basis, which strips out currency movements, driven by an 80% jump in tequila net sales as Don Julio and Casamigos were embraced by drinkers staying in. Tequila now accounts for 7% of Diageo’s global net sales, up from 1% five years ago.

Diageo said consumers in the U.S.—following the early days of lockdown when they stocked up on large bottles of booze—have been reaching for pricier liquor as they look to replicate a bar experience at home.

The company reported a 12% rise in U.S. sales for Baileys, which Chief Executive

Ivan Menezes

said reflected the company’s efforts to market the drink as a year-round treat rather than just a winter dessert liquor. It pushed the brand as a baking ingredient for banana bread during lockdown and launched a seasonal apple pie variant to cater to the home baking trend.

Overall, the world’s largest global spirits company said net profit fell to £1.58 billion, equivalent to $2.16 billion, for the six months to Dec. 31 from £1.87 billion a year earlier as results were hit by a weakening U.S. dollar. Net sales dropped to £6.87 billion from £7.2 billion. On an organic basis net sales edged up 1% as the jump in U.S. sales was largely offset by declines elsewhere.

Sales in Europe and Turkey fell 10% and in Asia Pacific dropped 3%. Diageo said consumers in Latin America and some other emerging markets were trading down to cheaper brands amid the economic fallout from Covid-19, prompting it to push more affordable products such as a spicy tamarind Smirnoff.

Scotch, which usually sells strongly in airports and emerging markets, suffered with organic sales dropping 8%. Diageo’s flagship beer brand Guinness, which is largely drunk in bars and at sports events, also slumped, dragging down overall beer sales by 11%.

However, the pandemic has opened up new opportunities to sell spirits online, which Mr. Menezes described as a small but rapidly growing area for the industry.

In the U.S., states have been changing rules to allow alcohol for click-and-collect or home delivery through the pandemic, with some like Ohio making these permanent.

Diageo and others in the alcohol industry are lobbying for more U.S. states to follow suit. The industry is also pushing for a temporary relaxation of home delivery in India—a huge whiskey market—to become permanent.

Diageo has set up virtual brand stores on Amazon and more broadly says it is working to make its brands easier to find and buy online. The company is also selling cocktail kits, making more sales on its direct-to-consumer sites and offering guidance to bars and restaurants about online menus and takeaway cocktails.

Low-alcohol and nonalcoholic drinks have performed strongly through the pandemic with industry tracker IWSR describing the category as having moved from stigmatized to aspirational as people concerned with health and wellness look to relax at home. To capitalize on this accelerating trend, Diageo launched a lower-alcohol variant of Captain Morgan rum in Europe—citing a growing occasion around early evening drinking—and a nonalcoholic version of Gordon’s gin.

“Changes in how consumers are purchasing alcohol are creating new and fast-evolving opportunities,” said Mr. Menezes.

The London-based company didn’t offer financial guidance for the full year, citing ongoing volatility, but warned that the British pound has continued to strengthen against the dollar and other currencies, which could hit results in the second half.

Write to Saabira Chaudhuri at [email protected]

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