Diageo Faces Sales Drop in Latin America and Caribbean


Diageo, the renowned drinks company that owns popular brands like Johnnie Walker and Tanqueray, experienced a significant setback as its shares plummeted on Friday. The FTSE 100 giant announced a downward revision of its outlook for the year, citing a severe decline in sales across its Latin American and Caribbean divisions. These regions alone account for 11% of the company’s total revenues.

Diageo attributes this anticipated 20% year-over-year sales drop in Latin America and the Caribbean to macroeconomic pressures in the area. As a result, the company expects a slower growth rate in net sales during the first half of 2024 compared to previous projections. Consequently, it predicts falling behind the growth levels witnessed in the first half of 2023.

The impact on Diageo’s stocks was immediate, with a 13% decrease on Friday and a cumulative 25% loss in value over the past year. Its US-listed shares experienced a similar decline. Other spirits sellers also suffered declines, including Rémy Cointreau, down 3%, and LVMH Moët Hennessy Louis Vuitton, which fell by 3% as well.

Diageo’s Latin American and Caribbean divisions primarily generate revenue from the sale of spirits like Buchanan’s whiskey and Don Julio tequila. The company strategically focuses on Brazil and Mexico, the region’s top two economies, as its prime sales markets, as evident from their 2023 results.

Despite these challenges, Diageo remains committed to navigating the obstacles posed by the changing market landscape and finding new avenues for growth in these critical regions.

Economic Challenges in Latin America Impact Diageo’s Growth

Latin America’s economic growth has experienced a significant slowdown this year, largely attributed to high interest rates and falling commodity prices. According to data from the International Monetary Fund, the region’s growth rates have declined from 4.1% in 2022 to 2.3% in 2023.

Sophie Lund-Yates, the lead equity analyst at Hargreaves Lansdown, acknowledges the challenging economic conditions in Latin America and highlights their impact on consumer behavior. As consumers face tougher economic circumstances, they are opting for more affordable alternatives, resulting in a decline in demand for premium options. While Latin America represents only a small portion of Diageo’s overall business, the extent of the decline necessitates a reassessment of expectations at the group level.

Despite the challenges in Latin America, Diageo remains optimistic about its performance in other regions. The company anticipates continued momentum and improved sales growth in North America and Africa compared to the previous year. However, Diageo does highlight potential headwinds in Europe and the Asia Pacific region.

In the first half of 2024, sales growth in Europe and the Asia Pacific is expected to be slower than the corresponding period in 2023. Diageo attributes this deceleration to mounting tensions in the Middle East and a slower-than-anticipated recovery in China.

Victoria Scholar, head of investment at interactive investor, emphasizes the risks that Diageo faces due to shifting consumer behavior. Traditionally, the company has focused on offering quality over quantity, prioritizing premium spirits. However, the economic downturn may result in fewer consumers willing or able to pay higher prices for these high-margin products.

In summary, Latin America’s economic challenges have had a tangible impact on Diageo’s growth. While the company expects positive performance in other regions, it is mindful of potential challenges in Europe and the Asia Pacific. Adjusting its strategy to navigate changing consumer preferences is crucial for sustained success in this dynamic market.

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