Guinness just can’t stay out of the limelight.
With fears of a Christmas shortage of the black stuff barely dissipated, the drinks industry rumour mill was sent into overdrive this weekend by a Bloomberg report which said owner Diageo was considering the future of Guinness as part of a shake-up of its portfolio.
The report said Diageo was toying with the idea of either selling or spinning out Guinness as a separate, publicly listed company, as well as offloading or increasing its stake in Moët Hennessy, citing people familiar with the matter. A Guinness sale could fetch Diageo upwards of $10bn (£8bn), it added.
After initially telling The Grocer it did not comment on “market rumour” at the end of last week, Diageo felt moved to clarify its stance over the weekend, stating it had “no intention” to sell Guinness.
And on the face of it, why would it?
Moët Hennessy report fuels rumours
The latest flurry of speculation around Guinness appears to have originated from a note to clients published by AllianceBernstein on Friday morning.
The note – titled Diageo & LVMH: Looking at the potential spin out of Moët Hennessy through a Diageo lens – postulated Diageo could be looking to firm up a long-standing interest in acquiring Moët Hennessy, of which it already owns a 34% share.
With Moët Hennessy thought to be worth somewhere in the region of €32bn (£27bn), a deal for the cognac and champagne giant would “severely stretch the Diageo balance sheet”, Bernstein analysts noted.
One way around this, they said, would be “a very reluctant disposal of beer/Guinness”.
Why Diageo might exit beer
Exiting beer entirely would certainly make some sense for Diageo, which has made no secret of its desire to pivot towards higher-margin spirits products in recent years.
Its M&A strategy reflects this – the drinks giant sold a controlling interest in Red Stripe to Heineken in 2015, and has moved to a more “asset-light” model for its beer business in Africa. At the same time, recent acquisitions have included posher spirits labels like Casamigos, Mr Black and Don Papa Rum.
Earlier this year, Diageo announced The Diageo Luxury Group, a new global division uniting its key luxury brands including Brora and Port Ellen. Adding brands like Hennessy and Moët & Chandon to its roster would clearly align with Diageo’s long-term strategy, while current headwinds in cognac and champagne could drive down LVMH’s asking price.
Guinness is good for Diageo
But offloading Guinness right now feels akin to a football club selling its star striker in the midst of, if not quite a relegation dogfight, a major slump in form.
After a bumper few years Diageo sales have stuttered, declining 0.6% organically in the year to June. A 21% collapse in LATAM was the primary cause for the slide, but Diageo also booked a 2.5% decline in North America – a must-win market for any global spirits supplier.
And posher spirits like scotch and tequila, which fuelled much of Diageo’s remarkable post-Covid growth tear, have begun to fall out of favour as consumers feel the effects of several years of sustained inflation.
Amid the turmoil, Guinness has become ever-more important to Diageo, particularly in Europe, where beer volumes swelled 18% last year.
Sales of Guinness in Great Britain, meanwhile, climbed 30% on the back of a social media-driven fascination with ‘splitting the G’ and endorsements from celebrities like Olivia Rodrigo and Kim Kardashian. The beer had become increasingly popular among younger and female drinkers, Diageo boss Debra Crew told journalists last summer.
“The gods of fashion have smiled upon Guinness, previously consumed by blokes my age, but now widely adopted by younger generations,” added JD Wetherspoon boss Tim Martin in May.
Against this backdrop, an offload – even for the eye-watering sums being bandied around – would represent a huge gamble by Crew, who is yet to command the full confidence of investors following a shaky first 18 months or so in the hot seat.
Who could buy Guinness?
There’s also the question of who would have pockets deep enough to acquire Guinness.
Of the major brewers, only Heineken or AB InBev would have the financial muscle (and the inclination), but a deal would post anti-trust headaches for both, such is their exposure to the UK market. Carlsberg, meanwhile, is busy diversifying away from beer, having recently splurged £3.3bn to acquire Britvic.
And irrespective of Guinness’ present popularity among Gen Z, a big money move for a booze brand would also represent a gamble for any supplier, given a wider trend towards moderation.
Alcohol volumes in the UK fell 10% between 2019 and 2023, according to Mintel, while the low & no-alcohol segment is expected to grow at a CAGR of 7% between 2024 and 2028, according to ISWR. And that’s before weight loss drugs like Wegovy – reported to suppress alcohol cravings – have properly taken hold in the UK.
While Guinness 0.0 is the biggest selling low & no brand, having grown by close to 100% year on year [NIQ 52 w/e 7 September 2024], the majority of sales still come from the full-strength version of the beer.
A blockbuster deal for the brand at this time seems unlikely. Guinness remains Diageo’s sacred cow – for now, at least.
No comments yet