Image source: Getty Images
He Diageo (LSE:DGE) is in a bind. It is down 18.43% in one year and 32.41% in two. This is a dismal performance for a company that for years was one of the largest and best dividend growth stocks on the market. FTSE 100 Index.
The group's shares fell 11% in one day on November 10, 2023, after first-half sales in Latin America and the Caribbean collapsed. Rising prices hit demand for Diageo's premium spirits brands, leading to unsold inventory building up in Mexico and Brazil.
I thought this was my chance and bought Diageo shares a couple of weeks later, but the crisis was deeper than I feared.
FTSE 100 recovery opportunity
On July 30, the group reported a 4.8% drop in organic operating profit for the year to $304 million. All but $2 million of that was due to its troubles in Latin America, admittedly, but sales were also down 2.5% in North America amid further inventory problems. On the positive side, sales in Africa, Asia Pacific and Europe were down 1.8% “resilient”.
As the stock suffers from a massive two-year hangover, many investors are wondering whether it's worth kicking the Diageo habit for good.
But I have just found a compelling reason to keep going. Diageo has come up with a first-class product and is only just beginning to realise its potential. In fact, I am a fan.
Diageo has a host of iconic spirits brands including: Baileys, Johnnie Walker, Smirnoff, tankardAt some point, he picked up the Irish stout maker. Guinness also.
It has always been a niche product with stable global sales. Suddenly, it is going crazy. And it is the non-alcoholic version that is doing the business. I have tried Guinness 0.0 And it's not hard to see why. It's by far the best non-alcoholic beer I've ever had.
A shot in the arm for this important UK action
I love craft beers and craft beer, but I can't stand hangovers anymore. I've tried some non-alcoholic IPAs and some are okay, but they're missing something (what could it be?). Guinness 0.0 tastes just as good as real beer. It's a huge step forward.
Sales have doubled in the last year and it's not hard to see why. What's really fascinating is that Gen Z and young women in particular love it. I'm told it's all over Instagram.
I've written before that Diageo faces an existential threat as the younger generation turns away from alcohol. Now it may have found the solution. Until now, Guinness 0.0 was only available in cans, But Diageo has been rolling it out on draught in thousands of pubs and bars. The opportunity is huge.
The vast majority of Diageo's brands are spirits, and I don't see how vodka, gin or non-alcoholic whisky can do. Spirits sales could take a hit if young people really cut back. It doesn't help that people are still strapped for cash after the cost of living crisis, and not just in the UK. Plus the shares aren't that cheap anymore, trading at 19.76 times earnings.
However, I am feeling more optimistic than ever about Diageo. I plan to reduce my average bet before the Guinness 0.0 revolution really takes off.