Diageo, the world’s leading spirits maker, recently reported a dip in its annual sales volumes, with its East Africa operations bearing the brunt of the impact. According to Lavanya Chandrashekar, Chief Financial Officer at Diageo, the decline in sales was largely attributed to the company’s business in East Africa, where it faced the dual challenges of inflation and currency devaluation.
While Diageo managed to keep global volume flat, the markets in Kenya, Tanzania, and Uganda experienced significant effects of economic difficulties. The Kenyan shilling suffered repeated lows as demand for dollars surged, driven by oil importers and the manufacturing sector. Similarly, Tanzania’s shilling faced depreciation over the past year.
In response to the challenging economic conditions, Diageo raised prices in the East African markets to offset a portion of the inflationary pressures. Chandrashekar highlighted the impact of these measures, stating, “Volume across the globe was actually flat…There was a significant impact of devaluation and inflation in those (East African) markets.”
Despite the overall decline in sales volumes, Diageo’s Scotch business in East Africa defied the odds, posting an impressive 9% growth. The growth in spirits was primarily driven by Scotch, particularly the renowned Johnnie Walker brand.
However, the beer segment of Diageo’s East Africa business faced the brunt of the challenges, witnessing a volume decline following price and duty increases. Despite this setback, Chandrashekar expressed optimism about the overall health of the East Africa business, acknowledging, “It’s never kind of straight lines (in Africa), right? There’s periods of economic difficulty that the markets tend to go through. But overall, it’s a very healthy business.”
In comparison, rival beer producer Heineken reported a 5.6% decline in beer sales during the first half of the year, with notable declines in various regions, including Vietnam and Nigeria.
Diageo remains committed to navigating the fluctuating market conditions in East Africa while watching its various segments sustain growth and resilience in the face of economic challenges.