Jump in online and shop sales helps Diageo offset Covid impact

Drinkers opening expensive bottles of spirits at home helped the Guinness and Smirnoff maker Diageo to weather the coronavirus pandemic, offsetting the closure of pubs, bars and restaurants.

Global pre-tax profits were down by 10% but still came in at £2.2bn, on sales that fell only 5% to £6.9bn.

Despite the decline in sales and profits, a relatively resilient performance in the face of Covid-19 meant Diageo still felt able to continue its policy of annual increases in its dividend, which rose 2% to 27.96p a share for the half-year payout.

In the UK, Diageo managed a 2% sales increase, despite venues where its drinks are sold being closed for large parts of the year due to coronavirus restrictions.

Diageo said “off-trade” drinking, from shops and online, was up by more than 30% in the UK, more than offsetting the impact of hospitality closures, with spirits proving particularly resilient, up 15%.

While purchases via supermarkets and web-based retailers such as Amazon remain a small part of Diageo’s overall income, they doubled over the period.

Diageo’s CEO, Ivan Menezes, pointed to changing consumer habits that could have lasting effects.

“There are new habits developing, including making cocktails at home. Some of that will stick,” he said. “But the consumer orientation to return to socialising outside the home is very high so as conditions get back to normal we expect consumers returning to pubs, bars, restaurants and sporting events, so our business will rebalance.”

Diageo’s experience mirrors the trend in the UK market, where official figures released towards the end of 2020 showed an overall decline in alcohol sales but significant increases at supermarkets and online, as locked-down consumers bought alcohol to drink at home.

Russ Mould, the investment director at stockbroker AJ Bell, said: “Under the circumstances, Diageo’s results could have been a lot worse given the ongoing disruption to the hospitality and travel sectors as fewer people have been able to go to bars, hotels, pubs and restaurants, as well as shop for spirits at airports.

“Working in its favour is a rise in alcohol sales during lockdown as people are forced to entertain themselves at home. Notably, spirit sales have held up well and pre-mixed drinks have been very popular. But longer-term Diageo really needs all the leisure establishments to reopen as they are also key drivers of premium spirit product sales.”

Julie Palmer, of the corporate restructuring firm Begbies Traynor, pointed to the company’s global reach, which helps it to offset difficulties in one region with recovery in others.

“Diageo has benefited from sales in the US where restrictions have not been as strict as Europe, while China’s successful recovery from the pandemic will give the group a major boost as the country returns to some normality,” she said.