Diageo — the world’s largest spirits maker and the firm behind Johnny Walker, Tanqueray Gin and Smirnoff Vodka — has taken a 1.3 billion pound ($1.7 billion) write-down as a result of a bigger-than-expected decline in sales, as demand for its range of alcoholic beverages has plummeted in nearly all markets.
The write-down relates to Diageo’s businesses in India, Nigeria, Ethiopia and South Korea, as well as complications created by the worldwide COVID-19 pandemic, Reuters reported. The outbreak has shut down bars and restaurants worldwide, leading to the company’s worst annual sales in more than a decade.
By region, Diageo’s Asia sales saw the biggest drop at 16 percent. The company attributed that to the fact that many countries in that region not only shuttered bars and restaurants, but also liquor stores.
Diageo also reported double-digit percentage losses in Latin America, Africa, Europe and Turkey, mainly attributed to supply chain disruptions and fewer social occasions amid the pandemic.
However, not all regions showed declines: North America bucked the trend and saw its sales rise 2 percent. However, Chief Financial Officer Kathryn Mikells noted that even though North America is the company’s largest region, that wasn’t enough to offset the firm’s losses elsewhere around the world.
Diageo isn’t the only alcohol brand facing tough times in the pandemic. Last week, AB InBev took a $2.5 billion write-down related to its African operations, and Heineken took a 550 million ($654.3 million) euro write-down.
The big hit that alcohol firms are taking might come as a surprise, given the steady stream of reports about surging U.S. alcohol sales as consumers stock up on booze while stuck at home.
U.S. alcohol sales shot up 55 percent in late March, just as stay-at home orders were going into effect across the nation. Bars and restaurants shut down across America, but grocery and liquor stores remained open, and consumers began stocking up on spirits, wine and beer.
CNN reported that the big winner was ready-to-drink cocktails in cans or bottles. Spiked lemonades, canned gin-and-tonics and the like saw a 106 percent sales increase. People also voted with their wallets for hard seltzer products, such as White Claw and Truly.
However, experts predicted that alcohol sales would fall as people emerged from panic mode and into a more realistic picture of what the pandemic would look like.
Analyst Laurent Grandet of Guggenheim told CNN that he expected the shutdowns to eventually hit small distillers and craft beer brewers who draw most of their sales from bars and taprooms. He said small labels would also suffer as retailers picked larger brands to stock their shelves because those are easier to get.
"It's a perfect storm for the craft beer business," Grandet told CNN Business.
Still, early evidence is starting to indicate that the longer the pandemic grinds on, the more Americans find themselves wanting a good stiff drink — or maybe a few.
“I can attest that we are definitely an essential business based on the increased sales since COVID-19 started affecting everything,” Zachary Isaacs, general manager of Bottles Beverage Store in Mount Pleasant, South Carolina, told The Charleston Post and Courier.
Justin Coleman of downtown Charleston’s Monarch Wine Merchants said his sales so far this year have been “very strong” — to the extent that he’s already surpassed his 2019 totals just eight months into the year.
How are alcohol sales booming in America and still sagging worldwide? Are people in other nations less likely to try to drown their pandemic-related sorrows in booze?
Not quite, Diageo CFO Mikells noted. The more important issue is that even in a pre-pandemic world, 80 percent of the brand’s North American sales originated in stores.
By contrast, most of the company’s sales in other markets come from bars and restaurants. The shutdown of those establishments — and their slow reopening in a world without a COVID vaccine — is depressing sales to an extent that not even the uptick in North American sales can offset the loss.
What comes next? Like many of its compatriots in the industry, Diageo isn’t offering predictions for the future, instead citing pandemic-related uncertainty. Given the company’s dependence on people around the world consuming alcohol in bars and restaurants, there’s no easy answer for when Diageo’s slowdown will end.