With the sale of its value portfolio last year and the launch the game Game Of Thrones’ White Walker and Jane Walker’s pro-feminist whisky lines, Diageo is approaching a premium segment in search of another market value. Economists at The Fool debate whether Diageo’s stocks are a good investment.
Diageo continues to be successful in the US market with scotch whisky versus premium brands such as Bulleit Rye and Crown Royal, and facts such as the 10% increase in sales in the period clarify this evidence. On the other hand, the stabilisation in the vodka market and the launch of Ketel One Botanicals also contributed to Diageo’s growth, representing 11% of revenues, positioning vodka as the second major category.
The tequila and beer markets also enjoyed a considerable increase thanks to the Don Julio, Casamigos and Guinness brands, representing 13% of profits. However, scotch whisky still holds the largest share of profits in Diageo, with a figure of 27% of total sales. But the strong representation of vodka in the value portfolio is an indication of risk, as the continued decline of several brands is worrying, and enthusiasm for the new botanical product is likely to disappear and the category remains weak.
The advancement of craft spirits = premium
Another determining factor is handcrafted creations, such as beer, which dominates a good part of the market in the United States and with it, brought a new boom in premium lines. Consumers are willing to pay more for a better product. And Diageo is not far behind in the premium lines, as we know that Diageo has long had a close relationship with premium and superpremium spirits.
Today they position themselves as the premium distiller in a market in which premium spirits represent 62% of dollar sales (Nielsen, for example) and with superpremium spirits growing at the speed of light. Certainly, being the best and largest in an expanding field has its advantages.
Diageo president Javier Ferran remains optimistic, however, despite the loss of $6 million in Diageo shares within two years, his other moves have proven a shrewd business. He spent $1.3 million in December, just before the last wave of distiller growth, which has earned him 13% profitability to date.
But is investing in Diageo safe?
Figures over time and the growth of the company have shown rather stable growth. Javier Ferran’s self-confidence should be an engine for interested investors. The Fool specialists such as David and Tom Gardner believe however that there are other stocks that would be better worth investing in. Curiously, Diageo is not part of them.
Don’t drink and drive. Enjoy responsibly.