An imploding European alcopop market and the fallout of the Irish smoking clampdown have driven Diageo, the drinks giant, into profits decline.
The company, whose brands include Smirnoff, Guinness and Baileys, announced a 5 per cent fall to £1.24 billion in underlying pre-tax profits for the last six months of 2004.
Turnover in Europe, the company’s most important region, fell by 1 per cent to £3.24 billion amid “tough” trading conditions and a steep decline in the alcopop market.
In Britain, sales of Smirnoff-labelled alcopops, such as Smirnoff Ice and Smirnoff Twisted V, slumped by 18 per cent, although, in a more rapidly shrinking market, the brand managed to increase its share of the £1 billion in alcopops sold.
The market’s decline was blamed on a reluctance among 18-to-24 years olds to make mid-week visits to nightclubs, a major prop for alcopop sales.
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“People on Friday and Saturday nights are still going out,” Paul Flanagan, a Diageo spokesman, told Times Online.
“On Wednesday and Thursday, they are not going out as much,” he said, attributing the growing willingness to stay at home to the consumer spending slowdown.
Marketing spending on alcopops in Europe slumped by 49 per cent “in response to the decline in the segment”, Diageo said.
The company also admitted that the Irish ban on smoking in public places had prompted “difficulties” in the pub trade. Diageo’s Irish sales fell by 3 per cent by volume, although the long-term decline in Guinness sales slowed.
Spanish drinkers showed a waning thirst for whisky, with volumes of J&B, which relies on the country for half its sales, falling by 4 per cent.
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However, the volume of drinks sold in North America rose by 5 per cent, twice the market average, led by a 30 per cent surge in sales of the Smirnoff Twist flavoured vodka.
“The growth in Smirnoff has been due in part to an improvement in the brand’s appeal amongst legal drinking age to 29-year-old customers,” Diageo said.
Group volumes rose by 3 per cent, with underlying net sales increasing by 5 per cent to £3.70 billion.
“We have made a good start to the year,” Paul Walsh, the Diageo chief executive, said.
Diageo shares stood 3.5p higher at 748.5p in afternoon trade.