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01/09/2007
Sales go flat but pint puts up a stout defence
First things first, Guinness sales in Ireland are down for the third year in a row, down by a significant 9pc in volume while net sales fell by 7pc. These figures alone are likely to dominate all coverage of Diageo's preliminary results over the coming days.
The likelihood is of further speculation as to when Diageo will take the plunge and divest of Guinness -- the potential purchaser most agree would be Heineken -- to focus on its profit making spirits portfolio.
But, and it is a big but, the reality is that while Guinness sales have been plummeting in Ireland, globally the iconic stout is far from unhealthy.
In Ireland, Diageo accounts for over 40pc of total alcohol sales, but worldwide we are a minuscule component of this multinational company's overall sales structure accounting for just 7pc of total sales.
Furthermore, Guinness is a brand which is currently yielding Diageo a global sales growth rate of 3pc.
Consider Guinness' s overall performance.
In North America, the world's largest and therefore most important alcohol market, Guinness recorded sales growth of 7pc. This is a major positive result for Diageo.
Meanwhile in Africa and Latin America, Guinness sales have rocketed by 15pc in a single year. Indeed, Africa now accounts for 35pc of all Guinness sales and this figure is rising year-on-year.
In what's termed Asia Pacific (China/Australia/Korea/Japan/ India/Thailand and Taiwan) Guinness recorded 5pc growth, a good result and one which is likely to continue thanks to the region's emerging middle class.
Indeed, it is easy to understand why Michael Ioakimides, managing director of Diageo Ireland, insists that Guinness has just enjoyed a "very good year" despite difficult market conditions at home and continues to dismiss media speculation that Diageo may sell the brand -- after all, globally Guinness is a growing brand.
Of course, here in Ireland the reality remains that Diageo has little control over the "difficult market conditions" currently playing havoc with sales.
In the past, Guinness prided itself on being the very foundation on which every Irish pub was built. After all, without Guinness it simply wasn't a real pub.
The result is that, today Guinness is startlingly dependant on the pub sector for sales. Ninety per cent of all Guinness consumed in Ireland is sold in pubs.
However the Irish nation is now spending less on alcohol, and significantly less in pubs, each year.
Last year consumers spent €6.86 billion on alcohol, an actual increase of €6.7 million over what was spent in 2001, however this is a misleading increase that can primarily be attributed to the rising cost of alcohol rather than an increase in consumption.
The best illustration of the rampant changes taking place in Irish society can be illustrated by the fact that in 2001 over 70pc of all alcohol sold in Ireland was purchased in pubs. Today that figure is approximately 47pc.
Consumer spending in pubs and Guinness sales have fallen by practically an identical ratio, too similar to be coincidence.
The reason for this radical change of Irish society is primarily due to the emergence of "cocooning'' -- the increasing trend among consumers to socialise and drink at home, spurred on by yearly alcohol price increases, busier lifestyles, consistent increases in mortgage rates and property prices and one of the highest inflation rates in Europe.
The result has been a general movement towards greater off-licence purchasing. Off-licence alcohol purchasing is currently growing by 12pc while pub sales are declining by 5pc.
The belief at St James's Gate is that for the first time in the history of the State, next year will see the volume of alcohol sold in off-licences eclipse that of pubs.
This is bad news for Guinness, which is so vitally dependent on consumer spending within the pub sector.
So where does this leave Diageo and Guinness in Ireland?
The immediate answer is playing catch-up.
Guinness has radically altered its advertising approach spending millions on modernising its image. Its target market is now 25-year-old males, those believed to be lucrative and carefree enough to still spend consistently in pubs. This is being complemented by greater focus on the now vital off-licence sector.
And there are signs that this new strategy is paying off, after a five-year period of Irish decline, July and August yielded a positive performance.
With the stout experiencing strong growth in all markets except Europe, reversing this trend, especially in the home market, is now a priority concern for Diageo.
Mr Ioakimides revealed as much when he stated that European growth is Diageo's "primary challenge", and it seems this growth must begin at home.
Can Diageo reverse Irish society's movement away from pubs? Hardly. But with the proper focused approach, and the full brunt of Diageo's marketing and advertising expertise brought to bear, there exists a real possibility that Guinness in Ireland could once again be a profitable -- if minor -- component of Diageo's stable.
With Michael Ioakimides stating the Guinness is now firmly on a "much better trajectory" for the year ahead, we must now wait and see whether Diageo can rise to the challenge and turn the world's best known stout into a profitable endeavour in its home market.
Irish Independent
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