Alcopops hangover at Diageo

BRITAIN'S love affair with premixed alcopops could finally be over after drinks giant Diageo today revealed a major slide in volume sales of its flagship Smirnoff Ice drink.

Diageo said both volumes and prices were coming under pressure in the £1.3bn market that has been revolutionsed by the success of Smirnoff Ice, Bacardi Breezer and Red Square.

The group added that punters are also voting with their feet and reacting to higher prices in bars across Britain by heading to the local supermarket and buying cans to drink at home.

A massive marketing campaign is planned for the coming months to boost its flagging Guinness brand after seeing sales of the 'black stuff' fall 3% in the last six months of 2003.

Diageo is home to some of Britain's best known spirits such as Johnnie Walker and Baileys and has helped drive the ready-to-drink alcopops market through the success of Smirnoff Ice.

But volume sales of the brand's ready-to-drink varieties fell 12% in the first half of its financial year to 31 December as Diageo conceded it was coming under 'volume and pricing pressureî.

Industry experts believe consumers, buffeted by a host of new entrants to the alcopops market, may finally be tiring of the bottled spirits combos and groups need to breathe new life into the sector. Diageo said the decline in its domestic market contributed to a 4% slide in volume sales of its RTD arsenal across the world. It has also completed the roll-out of its alcopop brands into new markets.

Despite the setback, pre-tax profits across the group edged ahead to £1.29 billion in the six months from £1.27 billion the year before despite the weaker US dollar knocking £20 million off the results at the operating level.

Exchange rate movements and last year sale of the Burger King empire to venture capitalists Texas Pacific pushed turnover down £273 million to £5.33 billion.

Chief executive Paul Walsh said the group's growth was driven by strong sales of its premium spirit brands with organic volume sales increasing 6% over the first half.

Excluding RTD sales, Smirnoff was up 4% and Captain Morgan volumes were 7% higher while Baileys continued to take market share in the UK liqueur category.

Walsh said: 'Diageo, focused as it is on premium drinks, continues to deliver growth with improvement in key measures of performance in this first half.

'Looking forward the trends that we have seen in the first half are expected to continue despite the uneven recovery in Europe, although the current exchange rate volatility will impact reported results.'

Operating profits in the UK rose £11 million to £150 million on turnover of £829 million as strong sales of spirits and wine compensated for the decline in the RTD market and beer. The interim dividend is up from 9.9p to 10.6p.

Diageo shares rose 6p to 716p in early trading.