Since the pandemic, Diageo has benefited from people buying more expensive types of alcohol while staying home under lockdown.

Diageo, the world’s largest spirits maker, beat first-half sales forecasts on Thursday as it raised prices and more people drank premium spirits.

The London-based company, which makes Tanqueray gin, Captain Morgan’s rum and Ketel One vodka, said organic net sales rose 9.4% in the six months to December 31, beating analyst forecasts for a 7.9% rise.

The growth reflected organic volume growth of 1.8%, indicting 7.6 percentage points of higher price growth. Organic operating profit grew 10%.

The spirits market has been resilient amid a global cost of living crisis that has otherwise hit volumes at other consumer goods companies, with people continuing to buy what they consider occasional treats for themselves even as they trade down to cheaper food brands.

Diageo’s “premium-plus” brands – which are more expensive than brands such as Smirnoff vodka but under about 50 pounds ($61.92), drove 65% of its organic net sales growth, the company said.

Since the pandemic, Diageo has benefited from people buying more expensive types of alcohol while staying home under lockdown. The company and its rivals invested heavily in marketing and improving their products to capitalise on newfound demand, focusing on premium brands such as Bulleit Bourbon and Don Julio tequila.

“We believe we are well-positioned to deliver our medium-term guidance of consistent organic net sales growth in the range of 5% to 7% and sustainable organic operating profit growth in the range of 6% to 9% for fiscal ’23 to fiscal ’25,” Chief Executive Ivan Menezes said in a statement.

The company, which said people mainly drank more tequila, scotch and Guinness, added it would return up to 500 million pounds to shareholders — in addition to its existing buyback commitment — this financial year. It raised its interim dividend by 5% to 30.83 pence per share.

Tripping on alco-bev

Diageo also said it was “confident” Chinese consumers would “return” as COVID-19 infections fall in that country.

The market, especially for premium products across categories, saw a sharp recovery in 2022 after a slump during the Covid-19 pandemic. The premium portfolio now accounts for a fifth of all whisky sold in the country, gaining 500 basis points since 2018 as consumers steadily shifted to the higher priced tipple. The growth last year, however, was slower than in 2021, which saw a 15% expansion on a low base.

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