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Diageo increases marketing spend to try and ‘win with consumers’ as prices rise

Diageo BaileysDiageo continued to increase marketing spend last year, albeit at a slower rate, as it tried to “win with consumers” and mitigate the impact of higher prices in the face of inflation.

The drinks manufacturer, which owns brands such as Guinness, Johnnie Walker and Baileys, increased marketing spend by 5.6% on an organic basis to £2.85bn in the 12 months to 30 June.

The uplift follows the 24.7% hike in the same period a year earlier, a steeper than typical increase as the company recovered from the pandemic.

Investment in its brands helped the company post net sales of £17.1bn. While this represented an organic increase of 6.5%, the company did see a slight decline in volume sales, which the company attributed in part to the impact of higher prices.

Organic volume declined by 0.8%, while price was increased on average by around 7.3%.

This growth represents the company’s continued investment in its “strong brands” in the year, it said in a statement following the results announcement.

Diageo has upped marketing spend by almost £1bn since 2017

While organic marketing spend did increase on an absolute level, it is lower as a percentage of net sales than it was in 2022.

The business’ organic operating margin grew by 15 basis points, with marketing contributing 14 basis points. In the previous year, it contributed -43 basis points to the organic operating margin.

Diageo attributed its expanded margin in its 2023 financial year to “disciplined cost management”. It saved £450m in the year, up from its historic average of £400m in savings annually. As well as savings made in areas like procurement, logistics and manufacturing, marketing effectiveness was highlighted as an area where savings were made.

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Diageo detailed its “living and breathing” effectiveness culture, as Diageo vice president of customer value creation and end to end commercial planning, Kiel Petersen, described it in an interview with Marketing Week earlier this year. The company has effectiveness “bake[d] in” Peterson said, to enable the right level and mode of investment behind brands like Johnnie Walker.

After a record year in fiscal 2022, Johnnie Walker was again highlighted by Diageo as a stand-out brand. Johnnie Walker is now the world’s biggest international spirits brand by retail sales value. In a year where volume declined across the business, it grew organic volume 9% year over year, even against the strong comparator of the previous year.

On a category basis, Diageo invested the biggest chunk of its reported marketing spend in scotch, of which Johnnie Walker is by far its biggest brand. The company indicated that, going forward into the near future, it will increase the absolute amount of advertising and promotional spending and maintain its reinvestment rate in the scotch business.

After scotch, vodka and beer were the next two categories with the highest proportion of marketing investment from Diageo in its 2023 financial year.

Guinness was another brand called out for a strong year. The company claimed the beer brand had its “best year” since they began tracking it. In Europe specifically, it grew net sales by 20%. Despite its premium positioning and association with the pub and on-trade, Guinness is now the number one beer by volume in the off-trade on the island of Ireland.

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This Much I Learned: The DNA of Guinness and why that matters in 2023

The company highlighted its innovations behind the brand like non-alcoholic product Guinness 0.0, and at-home serving product Nitrosurge, as helping to drive continued growth for the brand.

The annual results were the first presented by Debra Crew since taking over as CEO of Diageo in June, a month earlier than planned, after the death of her predecessor Sir Ivan Menezes who had been due to retire in July. Crew is a former marketer, with experience in FMCG companies and tobacco.

She outlined some of her aspirations for the company today, particularly in the tequila category. Diageo owns tequila brands such as Don Julio and Casamigos. It sees opportunities not just to grow its brands, but also to grow the category as a whole globally.

“I want to take tequila around the world,” said Crew. “We are the people who have done that successfully with so many brands.”

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