Diageo rolls out ambitious growth plans to capture a bigger share of drinks market

Drinks giant Diageo has unveiled ambitious new growth plans to accelerate sales and capture a larger share of the booze market.

Shares in the group soared by 3% when markets in London opened this morning as investors reacted to the news, with the stock hitting record highs of 3,935p.

The Guinness and Johnnie Walker owner set itself a target to increase its share of the alcoholic drinks market by 50% – from 4% in 2020 to 6% by 2030.

Diageo, which also owns market-leading brands such as Smirnoff, Captain Morgan, Tanqueray and Baileys, said it expected “strong” organic sales growth of “at least” 16% in the first half of the year ended 30 June 2022, with profits growing ahead of that figure.

Hosting its biennial Capital Markets Day in London today, CEO Ivan Menezes laid out new medium-term forecasts, with annual organic sales growth of between 5% and 7% for the 2022/23, 2023/24 and 2024/25 financial years, compared with 4% to 6% from 2017 to 2019.

Organic operating profits are guided to rise by 6% to 9% during this period.

Diageo enjoyed a boom time during the Covid pandemic, despite the hit taken by the hospitality and travel industries, as consumers around the world stocked up on alcohol to drink at home. Organic sales in the year ended 30 June 2021 soared 16% to £12.7bn.

Menezes said today: “We believe our sales growth trajectory has accelerated, underpinned by the strength of our advantaged position across geographies, categories and price tiers.”

He added: “With continued investment in marketing, digital capabilities and our people, we have significant headroom for growth.”

CFO Lavanya Chandrashekar said that despite the expected increase in inflationary pressures hitting the food and drink industry, Diageo could expect to benefit from operating leverage, premiumisation, revenue growth management and productivity gains.

He added, the group had made “a strong start” to the current financial year, with the off-trade continuing to show resilience as demand for at-home remained elevated and the on-trade continued to recover since reopening.

AJ Bell investment director Russ Mould said Diageo had “declared it is party time as far as its growth ambitions go”.

“Often considered to be a pedestrian company with slow but steady revenue gains each year, Diageo has now announced bold ambitions for a 50% increase in its share of the alcoholic drinks market by 2030,” he added.

Mould said investing more money in marketing, digital capabilities and staff was pivotal for hitting its new targets.

“It helps that Diageo already has a global reach and a wide range of strong brands across areas like vodka, whisky, gin and tequila. It came under criticism for paying top dollar for relatively young brands like Casamigos and Aviation Gin, but their sales are growing incredibly fast, and the products are ‘on trend’ for drinkers.

“A cynic might say it is all very well Diageo declaring big growth goals but achieving them is another matter. However, from a stock market perspective, investors like to know what goals a business thinks are achievable as it sets expectations for future earnings.”