By Peter Evans
LONDON-- Diageo PLC said growth in the U.S. spirits industry
slowed in the past year amid intense price competition and signs
that drinkers are falling out of love with flavored vodka.
The world's biggest liquor maker said an uneven economic
recovery in the U.S. had eaten into sales across the industry and
forced distillers to cut the prices of premium products. Diageo
said its own sales over Thanksgiving had been weaker than
expected.
"Our view, based on all the data and feedback from our
distributors, is that industry sales growth has slowed," said Larry
Schwartz, Diageo North America president, on a call with investors
on Wednesday.
North America is Diageo's biggest and most profitable market,
accounting for around a third of its annual GBP10.26 billion
($16.13 billion) in sales. The company said industry sales growth
over the last 12 months had been between 3% and 3.5%, a slowdown of
"about half a point" from a year earlier.
The news sent Diageo's shares down as much as 2.4%, hitting a
near two-month low, though they rebounded to end London trading
down 2% at 1,791 pence. Shares in French drinks makers Pernod
Ricard SA and Rémy Cointreau SA--which both run big U.S.
businesses--also fell Wednesday.
Diageo has in recent years held--or even increased--the price of
many of its brands in the U.S., including Smirnoff vodka and
Captain Morgan rum, even as promotional activity has ramped up. But
the company said that to stay competitive, it had been forced to
take fewer price increases this year and had started deploying
"more tactical pricing actions."
Still, Diageo said the luxury side of its business in the
U.S.--referring to brands that sell for more than $40 a bottle--had
remained strong.
The U.K.-based distiller also said it had seen signs of "flavor
fatigue" among American vodka drinkers. In recent years, dozens of
vodka flavors have appeared on the market, allowing Diageo and
other liquor companies to steal market share at the expense of
traditional spirits.
But Mr. Schwartz said Smirnoff flavors--which include fluffed
marshmallow and whipped cream--are now in decline.
Write to Peter Evans at peter.evans@wsj.com
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