Diageo to Expand Investment in U.S. Beer -- Update

By Saabira Chaudhuri 

LONDON -- Diageo PLC on Friday said it plans to broaden its investment in beer in the U.S. and change the name of the business there, signaling a shift in the world's largest spirits maker's approach to American beer.

Diageo said it is changing the name of its beer business to Diageo Beer Co. USA from Diageo-Guinness USA to signal its "commitment to the broad category of premium beer." The company will ramp up investments in Irish beers Smithwick and Harp, which have struggled in the U.S., resulting in falling beer sales last year.

Diageo's U.S. beer portfolio, which includes alcopop Smirnoff Ice, logged a 3% drop in volumes in fiscal 2016. Beer net sales fell 3% driven by a decline in Smithwick and Harp. Diageo reported flat net sales for Guinness in the U.S., blaming "a crowded craft beer segment."

Beer makes up about 20% of Diageo's global sales but its biggest business is in Africa, where it sees the drink as a vehicle through which to sell its spirits brands.

In the U.S., the company has historically plowed its money into Guinness and Smirnoff ice, which make up the vast majority of the Diageo-Guinness business. On Friday it said it has "a deep innovation pipeline for beer and flavored malt beverages" including creating a new alcoholic soda line and launching a Smirnoff spiked seltzer.

The moves come as beer has been losing market share to liquor and wine in the U.S. and beer companies such as AB InBev and MillersCoors LLC have expanded into alcoholic soda in a bid to help stem the decline. Diageo's global beer head Mark Sandys last year noted that growth is expected to come from Africa and Asia, while the U.S. and other mature markets will be flat.

"This change truly represents a culture and mindset shift for Diageo's U.S. beer business," said Tom Day, president of the newly named Diageo unit. Mr. Day said Diageo was responding to interest from U.S. consumers in "experimenting with new styles and brands."

Diageo's Chief Executive Ivan Menezes has been working to turn around the company's performance in the U.S., its largest and most profitable market, after a sustained period of slumping volumes. Some of his efforts are starting to pay off with Diageo last week reporting a 3% rise in organic sales in the U.S.

Write to Saabira Chaudhuri at [e-mail]

(END) Dow Jones Newswires

August 05, 2016 13:52 ET (17:52 GMT)

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