In a trading update on the impact of the global Covid-19 outbreak Diageo has stated that while it is working closely with its suppliers and customers to minimise business disruption, social distancing measures, including the closure of the on-trade channels, have been introduced in most of its markets.
“We are tracking changes in consumer behaviour during this time and adjusting our plans and resources in response,” stated Diageo.
“In mainland China, we are beginning to see a very slow return of on-trade consumption as restaurants and bars have started to gradually re-open,” it commented. The significant impact on global Travel Retail, referred to in its update of 26th February, has extended beyond Asia Pacific into other markets in March due to a steep drop in passenger numbers as well as new travel restrictions imposed by many countries.
In North America, the on-trade channel accounts for approximately 20% of US Spirits’ net sales but most US states closed their bars and restaurants in March.
In Europe, there have been significant closures of on-trade premises in most countries.
“This channel accounts for approximately 50% of Europe net sales” stated Diageo, “although the size of the on-trade channel varies significantly between individual countries. In both of these regions, we have seen some pick-up in the off-trade channel (retail stores) in recent weeks although it is unclear whether this will be sustained.”
In India, a nationwide lockdown for an initial period of three weeks until 14th April 2020 has closed the on- and off-trade channels as well as production facilities across most industries including United Spirits’ supply operations.
In its main markets in Africa, the on-trade channels have also been impacted and Diageo has closed two of its production sites in Nigeria. South Africa has imposed a nationwide lockdown for an initial period of three weeks until 16th April 2020 and a number of Latin American and Caribbean governments have also placed restrictions on the on-trade there.
As a result of all this Diageo is reducing its discretionary spend and reallocating resources across the group in the short term.
“As part of these mitigation measures, we are stopping Advertising & Promotional spend that will not be effective in the current environment,” it stated, “We are also tightly managing working capital and deferring discretionary capital expenditure projects. We are providing an appropriate level of support to our key suppliers and customers to ensure we are strongly positioned for a recovery in consumer demand,” it concluded as it withdrew its guidance on group organic net sales growth and organic operating profit for the 2020 fiscal year.
“During this challenging time, our top priority is to safeguard the health and wellbeing of our people, while taking necessary action to protect our business,” said Diageo’s Chief Executive Ivan Menezes, “I am confident in Diageo’s long-term strategy and our ability to move quickly in this difficult environment. We will continue to execute with discipline and invest prudently to ensure we are strongly positioned for a recovery in consumer demand. I am proud of the resilience and commitment of our people as they work hard to support our partners, customers and communities.”