Diageo credits reduced marketing spend for sales lift
Diageo is slowly emerging from its hangover and has credited its decision to reduce marketing spend in the first half of its financial year with a 1.8 per cent rise in sales.
The drinks business told analysts this morning (28 January) that a “disciplined execution” strategy helped drive improved returns for its brands, with marketing focussed on the biggest growth opportunities such as reserve brands, gin, beer and innovation.
Diageo hailed its procurement strategy, which shaved three per cent off its total marketing outlay, for supporting the investment across its markets. It spent £822m on marketing in the period, a five per cent drop on the same period in 2014.
Kathryn Mikells chief financial officer at Diageo said: “You have heard Ivan [Menezes, chief executive] talk about disciplined execution and you have seen us reduce marketing spend in this half, while driving volume growth and gaining ground on our key brands. Our overall results are evidence that the many changes we have made in the business are working and momentum is building. There is more work to do to ensure our positive trajectory continues and that work is in full motion”.
However, Diageo is still being hit by volatility and saw profits fall by £156m in the six months to 31 December, while net sales fell by £400m. It also saw a severe decline in its North American market for the Ciroc vodka brand where sales fell by 44 per cent.
In the half, procurement efficiencies amounted to £38m with each region contributing to savings and Diageo said it had renegotiated media costs in North America, Europe, Brazil, Mexico and Australia.
“We are driving efficiencies at how we spend money on point of sale material and we have become more stringent and demanding when reviewing production cost and agency fees,” added Mikells.
Diageo will continue to relying on the revamped marketing and media strategies for brands such as Smirnoff, Guinness and Johnnie Walker to yield stronger return-on-investment. For example marketing for Jonnie Walker is now structured around programmes which “recruit and re-recruit” consumers, such as its successful ‘Keep Walking’ campaign which Diageo said is already beginning to build equity and keep the brand front of mind with consumers.