Diageo's Strategic Marketing Boost to Outshine Competition and Delight Consumers Amidst Rising Prices

Last year, Diageo focused on winning over consumers and offsetting the effects of inflation by increasing its marketing spend. The drinks manufacturer, known for brands like Guinness, Johnnie Walker, and Baileys, saw a 5.6% rise in organic marketing spend, reaching £2.85bn by the end of June in a slower-paced growth compared to previous years.

The increase in sales this year is even higher than the 24.7% hike seen in the same period last year, indicating a strong recovery from the pandemic. The company's investment in its brands has paid off, resulting in net sales of £17.1bn. Although there was a slight decline in volume sales, this was partially due to the higher prices implemented.

The company attributed this growth to its ongoing investment in its "strong brands" throughout the year, as stated in a press release.

Although there was an increase in absolute organic marketing spend, it constitutes a smaller percentage of net sales compared to the previous year.

The business experienced a 15 basis point growth in organic operating margin, with marketing contributing 14 basis points. In contrast, the previous year witnessed a negative contribution of -43 basis points to the organic operating margin.

In its 2023 financial year, Diageo attributed its expanded margin to effective cost management. The company saved £450m, surpassing its average annual savings of £400m. In addition to cost-cutting measures in procurement, logistics, and manufacturing, Diageo also achieved savings in marketing effectiveness.

Diageo has fostered a culture of effectiveness, as expressed by Kiel Petersen, Diageo's vice president of customer value creation and end-to-end commercial planning, in an interview with Our Website earlier this year. According to Petersen, the company has ingrained effectiveness into its operations, ensuring the appropriate level and method of investment in brands like Johnnie Walker.

Johnnie Walker, the world's largest international spirits brand in terms of retail sales value, stood out once again in fiscal 2022 following an exceptional year. Despite a decline in overall business volume, Johnnie Walker's organic volume grew by an impressive 9% compared to the previous year. Diageo, the parent company, allocated the majority of its reported marketing spend towards scotch, with Johnnie Walker being its flagship brand. Looking ahead, Diageo plans to further increase advertising and promotional spending and uphold its reinvestment rate in the scotch business.

In Diageo's 2023 financial year, the highest proportion of marketing investment was allocated to scotch, vodka, and beer. Among the brands, Guinness had an exceptional year, achieving their "best year" on record according to the company. In Europe, Guinness experienced a significant 20% increase in net sales. Surprisingly, despite being known for its premium positioning and association with pubs and on-trade, Guinness has now become the top-selling beer by volume in the off-trade within Ireland.

The brand's continued growth was attributed to its highlighted innovations including Guinness 0.0, a non-alcoholic product, and Nitrosurge, a product designed for at-home serving. These developments were emphasized by the company.

Debra Crew, the current CEO of Diageo, presented the annual results. She took over earlier than expected, in June, following the untimely passing of her predecessor, Sir Ivan Menezes, who was originally set to retire in July. Crew, with prior experience in FMCG companies and tobacco, has a background in marketing.

Crew highlighted her company's ambitions for the tequila sector, emphasizing Diageo's ownership of renowned tequila brands like Don Julio and Casamigos. Moreover, she expressed the company's vision to expand not only its own brands but also the tequila industry as a whole across the globe.

Crew stated, "Our aim is to spread the popularity of tequila worldwide, leveraging our track record of successfully achieving this with multiple brands."