Diageo on resilient off-trade, inflation, and future of hard seltzers
The head of Diageo’s UK business has said he expects the off-trade to remain resilient, as consumers start to return to bars.
Speaking as part of the company’s H1 results presentation, Dayalan Nayager, managing director of Diageo GB, said: “When we saw the on-trade reopen last year, what we were pleased about was the resilience of the off-trade. We expect that to continue.
“If you look at spirits, we have been really pleased with the penetration of spirits in the at-home occasion. It’s now the highest it has ever been, and we think that is a trend that will continue,” he added.
Ongoing premiumisation is also driving spirits trends. When asked about inflation, and the impact rising food prices and soaring energy bills will have on consumer spending, Diageo CEO Ivan Menezes said: “Ours in an infrequent purchase category. The typical household doesn’t spend that much money on it. In America for example, the average household spend for spirits at home is $1 a day.
"The second point is the brands and quality of products – people are willing to pay a little bit more. You’re not betting the bank. And it’s not like putting petrol into your car, where you’re seeing big bills every week. That’s what gives us confidence in the resilience of this trend, which has been going on for a long time. People are willing to spend a little more for a special treat and a better brand. We feel confident about the sustainability of this trading-up trend continuing.”
The company was also asked about hard seltzers, a category in which it is a relatively small player in the US market.
“Our focus actually is on the trade up to even more premium convenience, single serve products,” Menezes said. “So, we're very excited about spirits-based cocktails in a can. And that's where we will continue to see consumers trading up to. It’s very hard to call what the seltzer category is going to do in three years or five years. It has definitely slowed down but it's still a very big category in the US. And so I wouldn’t count it out.
“It’s bringing legal drinking age consumers straight into seltzer, and not into lager. And we believe over time that will also help the trade up into spirits.”