Adrian Watkins

After taking a majority stake in non-alcoholic ‘spirit’ brand Seedlip, Diageo said it sees a “real growth opportunity” for the group and will continue investing in the alcohol-free category.

UK drinks giant Diageo increased its shareholding in booze-free Seedlip to a majority stake in August 2019. At the time, the group said it “will be a global drinks giant of the future”. The acquisition marked Diageo’s entry into the non-alcoholic ‘spirits’ category.

The Johnnie Walker maker first acquired a minority stake in Seedlip in 2016 through its Distill Ventures growth accelerator programme, which supports high-potential brands with investment and expert guidance.

In the group’s final six months of 2019, Diageo said the completion of the deal resulted in an “exceptional step up gain of £8m (US$10.4m)”.

Speaking at a press briefing for its financial results yesterday (30 January), Diageo’s chief financial officer, Kathryn Mikells, said the non-alcoholic space “is an area that we’re looking to invest in”.

“It’s still a quite nascent space, but we do view it as a real growth opportunity”, she said. “Seedlip I would say is one of the largest early brands in this space but it will be a place that you’ll see us coming forward. We’ll continue to invest in small founder-led brands in the same space.”

Mikells added that volumes for the non-alcoholic space “are still really small today” and that its investment in Seedlip and the category is “for the long-term”.

She also said the brand is not the only product operating in the no- and low-alcohol space within Diageo’s portfolio, citing the launch of the Gordon’s “ultra-low-alcohol” range in June 2018.

Vodka performance

During the group’s second half of 2019, vodka sales dropped 1%, due to a decline in North America. Smirnoff grew 1% boosted by “strong growth” in Mexico and Australia, while Cîroc fell by 9% and Ketel One declined by 1%. Both the decreases were attributed to the US spirits market.

Addressing the category’s decline, Diageo’s chief executive Ivan Menezes said vodka “is extremely competitive in the US.”

He continued: “It has been for the last few years and it remains the most competitive category. It’s got the most entrants and so, it’s tough. Smirnoff is now stabilising and is in better shape than it was a few years ago.”

Tito’s Handmade Vodka overtook Smirnoff as the best-selling spirit in the US in 2019, knocking the Diageo-owned brand off the top spot for the first time in more than a decade, according to an IWSR report earlier this month.

Menezes said Ketel One is “healthy and growing” and that while it appeared to decline, this was due to the “phenomenal launch” of the brand’s low-ABV Botanical range in May 2018.

Regarding Cîroc’s 9% drop, Menezes said: “Cîroc is a little more challenging because its flavours are more volatile and that will take us some more time to stabilise.

“So our vodka performance should slowly improve but in the context of the total portfolio in the US, this is one of the strengths of our portfolio. While vodka is tougher, we’ve got Tequila and American whiskey and other things growing fast. So we can manage the total portfolio to deliver the 6% growth that you saw in these numbers.”

During the period, Tequila reported a 31% increase. The boost was driven by the double-digit growth of Don Julio and Casamigos in the US, and Don Julio in Latin American and Caribbean.

US whiskey increased by 6%, while Canadian whisky was up by 11% with “strong growth” from Crown Royal in the US.

This article first appeared in TheSpiritBusiness