Distilled spirits giant Diageo reported strong sales growth and margin expansion for the second half of 2021 on Jan. 27, but also detailed continued supply chain issues that are particularly impacting the company’s products that require aging of several months or more before they are ready for consumption.
London-based Diageo, which has North American headquarters in New York City, reported 2021 second half sales of US$10.75 billion, up 15.8 percent year-over-year, with organic sales up 20.0 percent. The company said it had double-digit organic growth across all regions, reflecting continued recovery in consumer demand. Total operating profit of US$3.6 billion jumped 22.5 percent year-over-year, with operating margin up 190 basis points. Organic operating profit grew 24.7 percent, with organic operating profit up 131 basis points.
Still, supply chain issues continued to weigh on the 25-year-old alcohol company. Diageo said its aged liquid portfolio is seeing particular constrains on brands including Crown Royal whisky, Don Julio tequila, Lagavulin Scotch and Bulleit bourbon. Those products need to age months or years before hitting store shelves, and renewed high demand for them is putting pressure on output.
“The constraint is simply on being able to meet very high demand,” chief financial officer Lavanya Chandrashekar said in Diageo’s post-earnings report investor Q&A.
More granularly, Diageo is seeing a glass shortage for its bespoke Bulleit bottle. The company said it is working with its strategic supplier to resolve the issue for that brand, but Chandrashekar said it’s “going to be a matter of months to be able to resolve it,” in Diageo's post-earnings report investor Q&A. She added, though, that “it’s not going to be a long-term issue by any means.”
Chandrashekar went on to say the company has a number of tools in its arsenal to work around the supply constrains those other brands are having. On the demand side, she said, Diageo is able to move marketing spending to the parts of its portfolio where there aren’t similar constraints, such as scotch and Johnnie Walker in North America.
“We are able, through a combination of revenue growth management and pricing on the constrained areas, as well as the demand shaping, to tackle constraints in these situations,” the CFO said.