Sales of Diageo’s Scotch whiskies grew by 4% in North America during the second half of last year as distributors and retailers stocked up ahead of the introduction of Donald Trump’s tariffs.
Blended brand Buchanan’s and single malt labels Lagavulin and Oban all benefited from customers increasing their stocks before the tariffs hit. But sales of Johnnie Walker in the United States fell by 3% in the six months to 31 December as the world’s best-selling Scotch whisky struggled to match the previous year’s strong performance by Game of Thrones tie-in White Walker by Johnnie Walker.
The US president slapped a 25% import tariff on Scotch whisky in October in retaliation for the EU taxing American whiskeys at the same level from June. The moves are part of an ongoing trade war caused by a dispute over the EU’s subsidies for plane maker Airbus, which America claims put rival Boeing at a disadvantage.
On Tuesday, trade bodies on both sides of the pond called for an end to the “whisky war”, with the Scotch Whisky Association (SWA) and the Distilled Spirits Council of the United States (DISCUS) joining forces. The SWA warned the tariffs would cost the Scottish industry £100 million a year in lost sales, with many smaller distillers mulling a retreat from the US market.
Diageo chief executive Ivan Menezes warned: “There is ongoing uncertainty in the global trade environment, and we would not be immune from further policy changes. We remain focused on building the long-term health of our brands, supported by data led insights and a culture of everyday efficiency.
“For the full year, we expect organic net sales growth to be towards the lower end of our 4% to 6% mid-term guidance range. We continue to expect organic operating profit to grow roughly one percentage point ahead of organic net sales.”
Overall, Diageo’s sales climbed by 4.2% to £7.2 billion in the six months to 31 December, with operating profits edging 0.5% higher to £2.4 billion. The firm raised its interim dividend by 5% to 27.41p.
Scotch sales in Canada climbed in the second half of last year as Johnnie Walker Black Label became the neighbour to the north’s best-selling Scotch brand. Overall, global Scotch sales fell by 3% in volume but rose by 1% in value as strong sales in China and South America and the popularity of single malts were masked by declines for Bell’s in Great Britain and Haig in Greece and by challenging conditions in Mexico.
Diageo had said previously that the direct financial impact on the company “will not be material” whether the UK has a free trade agreement (FTA) in place with the EU or ends this year’s [2020’s] transition period with no deal. Today it added: “We have further considered the principal impact to our supply chain of a no-FTA scenario, which we have assessed as limited and believe that we have appropriate plans in place to mitigate this risk.”
But it warned the full impact of Brexit on areas such as intellectual property, health and safety, and supply chain logistics would not be known until “future trade, regulatory and tax arrangements to be entered into by the UK are established”. The company has a working group monitoring the situation.
