Diageo to slash £200m as emerging markets slow

Diageo, the world's largest spirit manufacturer, has confirmed it is to cut costs by £200m over the next three years following slowing demand in China and other emerging markets.

The drinks giant, with brands such as Guinness, Smirnoff and Johnnie Walker, has seen the fall as a result of a curbing of gift giving to Chinese officials and decreased demand in Nigeria and Thailand.

Sales rose 1.8 per cent across the half-year to December 31 but this was weaker than the growth rate of 2.2 per cent recorded at the end of the first quarter.

With 42% of sales accounting for its emerging markets, the Chinese anti-corruption crackdown have slashed Diageo’s sales in the country by 66%, while also affecting rivals Pernod Ricard and Remy Cointreau.

Chief executive Ivan Menezes, who has pledged to make the £200m saving by 2017, said demand in the United States and better trading in Western Europe enabled Diageo to absorb the challenges faced in some emerging markets.

Mr Menezes said: “We reacted quickly to the changing emerging market environment, reducing inventory levels in several key markets, which led to a weaker second quarter, and tightly managing our cost base.”

UK sales grew 1% over the half year, helped by strong growth for Pimm’s during a summer of good and demand for Captain Morgan rum.

Guinness’ figures decreased with the blame placed on price increases and competitors’ pricing, with Smirnoff was impacted by promotional activity as net sales declined 2%.