Diageo plc (NYSE:DEO) FY2020 Earnings Conference Call July 28, 2022 4:30 AM ET
Ivan Menezes - Chief Executive Officer
Lavanya Chandrashekar - Chief Financial Officer
Conference Call Participants
Sanjeet Aujla - Credit Suisse
Celine Pannuti - JPMorgan
Simon Hales - Citigroup
Olivier Nicolai - Goldman Sachs
Laurence Whyatt - Barclays
Pinar Ergun - Morgan Stanley
Edward Mundy - Jefferies
Andrea Pistacchi - Bank of America
Trevor Stirling - Bernstein
Chris Pitcher - Redburn
Good morning and welcome to Diageo's 2022 Preliminary Results Q&A call. Your call today will be hosted by Ivan, Diageo's CEO and Lavanya, Diageo's CFO. [Operator Instructions]
We are now ready to start the call. Ivan, please go ahead.
Hello, everyone. And thank you for joining our preliminary results call fiscal 22. Hope you've had a chance to read the press release, and watch our presentation webcast on diageo.com.
I am very pleased with the quality of our excellent results for fiscal 22. Our teams have executed with tremendous agility and resourcefulness despite stronger headwinds from supply chain disruptions and geopolitical events in the second half. Sales were up 21% with double digit growth across all regions. Growth was balanced with volume of 10% and price/mix growth was 11 points, with price contributing mid single-digit growth.
Diageo’s three year rate compound annual growth rate for the organic net sales was 9%. North America's three year CAGR was 12% and for Europe it was 6%. On a constant basis, Diageo is 28% bigger than it was pre-COVID in fiscal 19. Our share momentum continues. We gained or held off-trade share in the majority of our market. We have an advantage portfolio which we continue to actively share towards fast growing category and our Super Premium+ brands grew 31%.
We continue to invest; A&P grew 25% and we had a record year on CapEx spending over a £1 billion on capacity, sustainability, and setting the business upright for future growth. Our strategic pricing action across all regions and our supply productivity saving more than offset the absolute impact of cost inflation. We have strong gross margin expansion and leverage of operating costs growth, further significant improvements in operating margin while increasing our marketing spend ahead of net sales.
Our strong cash generation enables us to keep investing for the long term, including as I talked about production capacity, supply chain agility, digital capabilities and our Society 2030 goals.
Now, while we expect the operating environment to be challenging in the near term with several headwinds including ongoing volatility related to COVID-19 and a potential weakening of consumer spending power, I'm confident in our ability to navigate. We're staying very close to our consumers, leveraging our digital tools and data capability to quickly spot trends and respond with speed.
I'm also confident in the resilience of our business. With our advantaged portfolio, effective marketing, strong commercial execution and successful innovation, we’re well positioned for the continued premiumisation of the spirits category, and the share gains within Total Beverage Alcohol. And our iconic global brand Guinness is beautifully positioned for growth trends within the category of the premium beer.
So with that, Lavanya and I are here in Soho in London headquarters, and I'll open up the line for questions.
Thank you, Ivan. [Operator Instructions] Now our first question comes from Sanjeet Aujla from Credit Suisse. Please go ahead.
Ivan, Lavanya, three questions from me, please. Firstly, you called out the headline pricing of mid single-digit in fiscal 22. Given the heightened cost headwinds, the industry is seeing, is it reasonable to assume you would require more pricing in fiscal 23 to navigate those headwinds? And secondly, you called out in your prepared remarks, US tequila household penetration, growing at 15%, half the levels of whisky. Do you think in the fullness of time, whisky is a relevant benchmark for tequila household penetration? And thirdly, just on capital allocation, with the remaining £1 billion or so of the buyback, it feels like your net EBITDA was - will end up being below your targeted 2.5 times to 3 times range in fiscal 23. Can you just give us a sense of how you think about capital allocation and to what extent you will re-lever to get into that range? Thanks.
Thanks, Sanjeet. I'll handle your second one on tequila and ask Lavanya to handle your first on pricing inflation and capital - and the third one on allocation. So on tequila, I'd say what we're seeing in terms of the underlying dynamics in the category is very positive. The category has very broad momentum across demographics, across multicultural America, across age groups, the versatility in drinks, and we're seeing really good momentum. Agave has very positive associations and as you know, we've got two of the hottest brands of Casamigos and Don Julio.
Regarding both tequila, whisky penetration levels, I mean, we don't know. We can project for sure. What we can see is the runway of fast growth ahead of the US for this industry for many, many years still. And again, if you look at it regionally, so the most developed states are places like California and Texas and Arizona, where the percent of spirits volume in those states, tequila represents about 20% of the volume, the value will be higher. If you look at the rest of the Americas, states like New York, Florida, New Jersey, there's a lot of America where the share if tequila is still top 10 of the total market. And the consumer traction we're seeing everywhere.
So I do think what we're planning on is attractive growth ahead of the spirits industry for the next five to 10 years in the US. And then we also see attractive growth developed globally that will build slower. But there's a lot of tequila interest that we - we track a huge number of mixologist and bartenders on our Diageo brand Bar Academy and through our relationships. And tequila is hot everywhere. It's showing up in the top bars in cities right across the world. So we expect momentum to also build over time, and that will be slower at the top end of the market globally as well.
Yeah, Sanjeet, I'll take the first and third part of your question. The first one was on pricing. We've taken mid single-digit price. Your question was, are we planning on taking more end of fiscal 23? But before I get to price, maybe one point, we grew volume 10 percentage points this year. We grew price/mix by 11 percentage points, and within that, price was about mid single-digit. And so what we've been able to deliver this year, as we did in prior year as well, it's really a very balanced growth algorithm. And we've done this by investing in the business. We increased our investment in the business by 25%. The combination of the pricing that we took, and the productivity that we generate through our every day efficiency program, more than offset the absolute inflation that we had this year.
Now, in terms of what do we see going forward? I think what we see going forward is the same. I think we will continue to use our entire suite of revenue growth management, and price will be a level within that. And we will continue to invest in the business. We will continue to drive productivity. And I think that is what gives us the confidence that this flywheel that's really working for us is what gives us the confidence that we will continue to grow the business in a sustainable and consistent manner.
Your - the third part of the question was around buybacks and capital location. Our capital allocation strategy, it remains unchanged, it's very, very clear. We start with investing in the business. As you've seen this year, we have increased our investment in business both on marketing spend as well as capital spend. We spent - we invest in £1.1 billion of capital this year into expanding production, into our consumer experience centers, into our digital and analytical tools, and into our sustainability agenda. So that has continued to be our number one priority area. And for fiscal 23, we have guided to between £1 billion and £1.2 billion of CapEx.
Our second priority is M&A. And we've been very active this year on M&A. And we, in terms of bolt-on acquisitions, we acquired 21Seeds of flavored tequila and Unión Mezcal. This year, we've also divested and grown parts of our portfolio. So that continues to be our second focus area from a capital allocation perspective. Third, we have progressive dividend payout. We have announced a 5% increase to dividends this year. And we intend to continue to be a progressive dividend payer. And last, we do return excess cash to shareholders, the Board takes a very rigorous approach to this. We will complete our £4.5 billion return on capital program in fiscal 23. And if it's warranted, and if the Board believes it's appropriate, after we have invested in the business, after we have done the M&A that's available to us and after paying dividends, we would consider a further return of cash.
Thank you very much.
Celine Pannuti, JPMorgan, please go ahead.
Yes, thank you so much. And good morning, everyone. So two questions for me. My first question is, Ivan, in your outlook you talk about the volatility of COVID but as well the potential weakening of consumer spending power. So what I would like to know is, what is your expectation on how demand may shift in this regard regarding the volume, but as well, the premiumisation which has been quite strong as you alluded in your prepared remark, and what actions could you take in that environment be it to protect topline but as well bottom line? And my second question maybe somehow related, but we've seen that you continue to invest a lot in the business with A&P up strongly in North America. And what - I mean, what kind of flexibility do you have for this spending as we look into 2023 if the environment becomes more challenging, or are you able to give us a guide on how you think A&P will evolve for ‘23 for the group? Thank you.
Hi Celine, I’ll take the first and ask Lavanya to handle the second. So the first thing I would say is, we do not have nor do we pretend to have a crystal ball on how consumers are going to behave in the next 6, 12, 18, 24 months. I mean, clearly, the economic pressures are real, the spending power pressures are going to hit and get worse, at least for a few quarters. What I would say is, we're staying extremely close real-time to understanding shifts that are happening in occasions, in motivations, in the brands and price points that people are buying. So one of the imperatives in the company, we built incredible agility and restlessness in our culture. And we said, we're going to double down on that as we go into next year and beyond. And we've just had a leadership group together, the top 100, and we just talked about how we're going to do that. We've got incredible data and analytics and the ability to track this. So I just wanted to start with that. Now if we step back and zoom out and look at the category, this category does have very good resilience. If you look at it over a decade, and certainly through the financial crisis, we saw volume growth continue in international spirit. And we saw a few quarters of a bit of drop down trading, and then premiumisation came right back.
Now our approach is to, we have an advantaged portfolio. When you look at our categories, price points, and the geographic footprint, we have resilience built into the diversity of our portfolio, and we have agility to switch and move quickly. So let me give you an example. If we see down trading accelerate, we have the ability in the United States to pivot our execution and support to brands like Smirnoff and Captain Morgan, very strongly. If we see pack sizes change and we're tracking all of this, the 1.75 going up or the small sizes, on premium brands increasing. We have the ability in our supply chain to move very quickly and in our marketing dollars to ensure we're tracking these shifts in consumer behavior.
So, I feel - I mean, this is why we reiterate our medium term guidance, we believe Diageo has the strength and the consumer connection to be able to navigate through these volatile times. And again, I've said this before, we should not forget our category is an affordable category. The spirit household, typical US household spends $1 a day on our spirit category. It's an infrequent purchase. And that also brings a lot of resilience, right? You're only buying a few bottles of Ketel One Vodka a year. So the combination of all that, we tend to skew to a higher income consumer. So in the United States, where nearly 60% of our business comes from households that make $80,000 or more, it's the higher skew than, say, the beer business etc.
And the final point I’ll makes is the affordability of spirits. And a Don Julio on the rocks in terms of equivalent terms, a Don Julio Blanco on the rocks it’s the same cost to the consumer as a $10 bottle of wine, which and where is the comparison? Or in the Crown Royal, a serving of Crown Royal is the same as Salsa [indiscernible]. So spirits has tremendous value, and huge desirability and aspiration. And the underlying trends of younger consumers moving towards spirits continue. So you must add all together, and we're not taking anything for granted. And we're being hyper connected and restless and tracking shifts. But we feel confident that we're going to stay invested, right? We're not retreating, we're going to invest smartly to ensure we come out of this stronger, much as we did through the last two, three years of COVID volatility, you can see where the company is today relative to where we were fiscal 19. And we intend to do the same again.
Yeah, Celine, I’ll take the second part of your question. As Ivan said, I mean, our orientation is to invest in the business. And as I said before to Sanjeet, I mean there is this flywheel of growth process really is working. As we invest in the business, we strengthen our brand equity, and we're able to drive more price, drive more productivity, drive more premiumisation, drive volume growth, very importantly, drive market share growth, and that allows us to continue to invest in the business. But we do so in a very disciplined manner, we do not have a target return on investment rate, a reinvestment rate. We do not have a target reinvestment rate for our marketing spend but we do have a lot of discipline in making sure that we get a good return on investment for all of our marketing dollars. So our brandees put together the plan, that it's a combination of brand creativity, as well as using our tools and data to ensure that we're able to drive the best effectiveness. And so we will make the decision market-by-market, brand-by brand, as we're going to be here. We do it based on where we see the consumer and where we will get the most effectiveness and efficiency of spend. And what - this is what we've done over the last two plus years and it's been - it's working. We're growing our share, we are growing our holding share in 85% of our off-trade in measured markets. And we will continue to follow the same flywheel.
Thank you. Simon Hales of Citi, please go ahead.
Thank you, good morning, Ivan and Lavanya. Two or three for me please, if I can. And firstly, I've noticed you just talk a little bit more about any changes in consumer behavior that perhaps you are starting to see in the US. I mean, clearly we've heard from some of the US retailers this week like Walmart flagging that they have seen some changing spending patterns amongst their customer base. So I appreciate that's not a like-for-like customer base necessarily with yours, but what does the real time data that you reference that you get in your business? Now, what's that really showing now in terms of occasion shifts onto off-trade moves that we're perhaps starting to see down-trading at all, or even just pauses in the trade momentum in some of the spirits categories in the US? Or is that data just showing no change at all right now? So quite a long winded first question and then secondly, obviously, number of your competitors have talked about supply chain constraints sort of impacting their businesses lately. You've clearly had issues for a while around things like Crown Royal. Are there any other particular sort of issues, you'd call out? Anything we should be worried about particularly with regards to glass supply when it comes to fiscal 23?
So I’ll take first part and Lavanya talk about supply chain. So our consumer behavior so far, and I qualify it by so far, because we read this day-by-day, week-by-week. To your point on the US, we are not seeing either slow down or down trading trends. Just broadly, I mean, obviously, we analyze the excruciating detail. But at the headline level, we're not seeing it, which doesn't say it won’t come and we are staying very alert to it. And I mean, the channel product category mix, I mean, the on-trade is strong, and continues to be strong as we come into July. And so we're feeling good about the on-trade momentum. And that's a big piece, actually of our momentum, because we're gaining share in the on-trade in the US, I think 83 basis points in the NABCA data which tracks on-trade. And we're really well positioned for that recovery. When we cut price tiers and look at all the analysis as to, has there been any shift in trend? I'd say, not yet, but it's too early to call. I think we will - we'll obviously watch it.
And as I said in my earlier remarks that we'll - we're ready to move very fast to ensure that we can sustain our outperformance in the US market. But the core fundamental of spirits momentum, people drinking better, continue. And the demographic shifts sensation in America is very positive for our category. Younger Americans are drinking more spirits than beer and wine. And you can see that come through in the types as the [indiscernible] come through the demographics, multicultural America is very good for our category. And our brands are very healthy and well invested. And we only have 7% of the TBA dollars in America. So there's a lot of opportunity even in the slowdown for us to gain from other weaker parts of the TBA market. So you put that all together and we - now we clearly are not going to see the torrent rates of growth everywhere. And even if these numbers, right? North America growing at 14%, as we said in our F23 outlook, we expect those growth to slow down. But they are still very attractive and it remains. So that's how we're looking at the current dynamics, no real shift but tracking is very closely.
Simon, on your second question on supply chain, I begin with reminding us again that we have grown volumes 10 percentage points, this fiscal year. And that comes on the back of growing volume 11 percentage points plus in the US. And so our supply organization have done a fantastic job of being able to ensure that there is sufficient availability of our products to consumers all over the world at the right time and at the right place. We did have some constraints on aged liquids on Crown Royal mainly because demand has outstripped all expectations by such - at such larger percent.
Also some of our aged variants of tequila, like 1942 continues to be rather reduced at this time. But in the first half of the year, we did have some issues with Bulleit that was very specific to bottles to the particular shape of that bottle and the design of the bottle. We had some issues with procuring enough of it at the right time. That has been solved. Bulleit is back on shelves for consumers to enjoy. If I sit back and think more broadly, to your question on bottles, two things that I think really distinguishes Diageo is, one is we have a global reach and are we are able to leverage our global reach to ensure that we are able to meet demand. And then the second one is the strategic relationship that we have built with our suppliers. This is true for our bottle suppliers, but more broadly as well. And this is what has enabled us to navigate what has been a very deciphered supply environment as well as we have done.
Got it. And can I just sort of come back and just clarify Ivan, but in terms of your remarks with regards to what you're seeing in terms of consumer behavior trends, you're clearly seeing no down trading as things stand. Does that also mean, you've seen no change in the rate of up trading as we've moved through the back end of fiscal 2022 and perhaps into July? And overall, based on what you're seeing at the moment and your confidence in the agility of your business, are you confident you can deliver organic EBIT growth in 2023 within your midterm guidance range?
Yeah, I mean, we’ve reiterated our midterm guidance range, right? So on that in terms of growing profits slightly ahead of sales. Yeah, and we’ve seen us do that even through this tough period of high inflation. So we fully intend to do that. There's not been a dramatic and significant shift yet. Yeah, and also it's too early to call, we - there is strong consumer exuberance this summer, in America. The Jersey Shore is coming. By the way, this is what I spend all my time on. I talk to customers, I look at all the data, I talked to the distributors. To me, this is the critical difference factor for Diageo is really understanding the consumer and the shift, and being able to see them fast and execute against them faster than anyone else with flair and impact and investment. So, I mean, I'm consumed with it, because I love it. I mean, this is what I really follow very closely, and I say there's nothing I see right now.
To your point, I see the shifts in the price to category dynamics but four weeks also doesn't make a trend. So you have to really look at this and understand it. And when I was in the US last time, I visited a lot of retailers, and you've got pockets, I mean the multicultural urban America, you can see the pressure on categories like cognac, and even our syrup brands and certain DMAs in America, you see that coming through. But broadly, at the same time, you've got very strong momentum on high end tequila continuing in many parts of America. So we're all over it, and as of now and I certainly don't see, I mean, you only have to go back to the financial crisis and you potentially could see a bit of down trading for a few quarters, and/or the higher price tiers growing a little lower, but I mean that doesn't give us concern. And it's not going to cause us to change strategy or we're going to be - we feel really confident about our ability to steer through this effectively.
Brilliant, it’s very helpful. Thank you.
Thank you. Olivier Nicolai, Goldman Sachs, please go ahead.
Hi, good morning, Ivan, Lavanya. Just three question, please. Firstly, you've done some disposals in beer in Africa recently, first in Ethiopia and more recently in Cameroon. Is there any change of strategy in Africa and potentially more beer disposals to come as your spirits sales are becoming bigger? Secondly, on the US, very impressive growth overall, I've noticed, spirits related drink also grew by 18%. It's about 4% of your North America sales. Can you give us an idea of how big this category could become and how much a distribution gain this year to come in the US? And lastly, I mean, you partly answered that question before but Ivan, you were obviously running North America back in 2008, 2009 during the last recession. If the US does enter into a recession this year or next year, can you tell us how Diageo today is different from 12 years ago and the lessons you've learned from that last recession where you were running North America? And where do you see the risks for your business now, if any? Thank you very much.
Thank you, Olivier. Let me take the first and the third and Lavanya talk RTD. Yeah, our beer strategy is, as you know, we operate an asset like model in beer with the Guinness brand. And by the way, I could not be happier with the health of the Guinness brand. It's the strongest I’ve seen in my 25 years at Diageo, right across Europe, US and Africa. The actions you see us take, Ethiopia and Cameroon, is part of really getting an effective asset-light model and route to market around the world on how we build our beer business. And we - that is, it's a smart decision in terms of ensuring we still see good growth for Guinness in West Africa but we're going to do it through more capital, less capital intensive month. So no real change in our strategy, but delighted with the performance of Guinness, as you may have seen where we've announced a €200 million investment in Ireland to open a carbon neutral brewery. We need one more, we're out of capacity in Dublin. So remain positive about it.
On your US recession point, yes, I remember very clearly I was there in the financial crisis. The main point is Diageo is so different today than where we were then. Our portfolio is different, health of brands is different. The data and analytics at hand are different. The whole commercial execution, the innovation and marketing machine, and our talent is different. So I feel the company is in a much stronger place. I mean, we have an intense sell out culture, right? We know exactly what's happening every day. We didn't have that in those days. And so what I said earlier, I think the company is much, much more agile, and our portfolio is much healthier, right?
I mean, we've got momentum in tequila, in whisky, in our reserve brand. And it's not just tequila that's driving our growth, right? We've got super growth happening on Johnnie Walker and Bulleit and Crown Royal and Ketel One. And so I do feel we're in a much healthier place. Having said that, we're not taking it for granted. We're paranoid about it, and as we talked about earlier, and we're tracking it very closely. But we've got the ability to capture where the consumer needs. And let's not forget, there is very good value relative to beer and wine and in the dynamic of a more stretched consumer. That's why we feel there’s resilience here for the spirits category.
And so Olivier, I’ll take your second question on RTDs. I mean, if you just step back and think about it, I mean, where RTD plays in the consumer benefit area of convenience and beers, FMBs, so the flavored malt beverages and seltzer, and all of these are also playing that same area of convenience. What we're seeing happen here in this segment in the convenient area is, consumers have premiumised, exactly the same trend that we're seeing in the rest of this category. And consumers are willing to pay an extra amount to be able to get that beautiful, ready to drink, fruit cocktail made with real spirit. So you kind of think about our Crown Royal ready to drink, it's made with real Crown Royal, it’s not aborted, something that gives you a funny aftertaste. It’s absolutely delicious, that looks stunning. And it is significantly more premium but that is what the consumer is gravitating towards.
We see the same our category in soda in the US or the Bulleit. Manhattan or the Bulleit or the Old Fashioned that we have in the US, I mean, it's just absolutely brilliant liqueurs. How big will it get? I’m not sure but you know what we are definitely seeing is that consumers are willing to pay that extra premium to get the great taste that fit with the convenience attached to it. But on the other hand, what I'd also say is that the spirits category continues to be very in fashion. I mean, the art and the craft of being able to make a cocktail at home is something that consumers really took to during COVID and that is very much alive and growing. So and that's what allows consumers to be able to being creative, make something authentic or that matches their meals and so that magic is by no means going away.
Thank you very much.
Thank you. Laurence Whyatt from Barclays, please go ahead.
Good morning, Ivan and Lavanya. Thanks very much for the questions, three from me if that's okay. Firstly, on the tequila category, if we look at Casamigos, it grew 125% last year, and then another 88% this year, some extraordinary growth numbers. And just your views on how long this sort of extremely high double digit, triple digit growth can continue? And on a similar point, to what - what are your levels of agave supply? Do you have agave contracts that are able to deal with this sort of level of demand? And if you have a view on where the agave price may go to? There certainly have been some expectations that agave prices might start to fall but it doesn't sound like we've seen any of that yet. So want to have your view of the agave price, as well. And secondly, on A&P spend, just following on from an earlier question, I wonder if, Lavanya, you could give us some - a bit more detail on the returns you're getting on your A&P or certainly whether it's continuing to increase? And if so, could we expect the A&P as a percent of sale to actually continue to increase from here if you're getting better returns from it to potentially drive faster top line growth? And then finally, we have -
Laurence, could you please unmute your line? It appears Laurence has difficulties with his line.
Shall we move to the next and then come back when he’s on.
We’ll move to the next question.
Pinar Ergun from Morgan Stanley, please go ahead.
Hi, thanks for taking my questions. Two from me, a follow up on the US. Could you please help us reconcile the very strong growth you've reported in the US with the softer trends we're seeing in the Nielsen NABCA data in recent months? And comments if you're happy with the level of the wholesaler inventories in the channel now following the restock? And then the second one is, can you please talk a little bit more about the new supply chain agility program? Is this aimed at replacing aging operations or building new ones? And are you able to give us a steer on the magnitude of the related savings you're expecting? Thank you.
Thanks Pinar, I think the US and Lavanya on supply agility. So as you can tell from our release, I mean, our US sales divisions grew at about 14% but it’s really strong growth. And what you're seeing, to your point, we should never forget. I mean, Nielsen is a tiny piece of the market, right? And so in value terms, I think it's under 20%, 16%, 17%. NABCA is another piece, but then you have the on-premise. And I talked about our momentum in the on-premise is really strong, right across the country. And we have the independent and franchise states and independent retailers of spirit. And you've got e-commerce platforms, etc., which typically are served by independent retailers. We’re doing very well in these other channels.
And I mean, our estimates, in last fiscal years, the US industry, spirits industry grew about 6% to 7%. And we're clearly outperforming. So our growth is broad based on multi-channel, and I just wouldn't over read what's happening in Nielsen and Nielsen tends to be a very promotional channel. We don't like fighting a lot in promotional channels because we've got plenty of higher quality business, we can build. The stock levels in distributors, I mean, we are perfectly satisfied. There were two dynamics at work. One was, with the impacts of COVID, we immediately took our stock levels down as we couldn't forecast future demand when we were in the seams of the COVID storm. So you're seeing a restocking coming from there.
And then the second thing is our imported products, shipping Johnnie Walker from Scotland to the US now takes two weeks longer, it’s sitting on the water. And so our distributors want to make sure that they're covered. So this is - we have daily visibility on depletions and stock levels and a huge sellout culture. I am very comfortable with where we are and back to your first point, really comfortable about the broad outperformance and share growth that's coming through in the US. And for many years, we didn't perform that well in the on-premise and what Claudia and the team have done and have put a machine in place where we're really executing superbly in the on-premise. And I went to see it firsthand a few weeks ago in the US, and where our whole capability and execution of winning the on-premises has improved significantly in the last couple of years.
Pinar, thank you for your second question on the supply agility program. I’ll start off by saying that supply is a core capability and strength for Diageo. It’s - this is what enables us to be able to grow volume 10 percentage points in this fiscal on top of 11 percentage points in fiscal 21. I feel like I said that before today. But and it is absolutely essential for us to ensure that we keep this capability at a cutting edge. And we have an ambitious growth agenda in terms of increasing our market share from 4% of total beverage alcohol to 6%. And supply is going to be - has to be a competitive advantage for us to be able to achieve that ambition. Our business has changed quite a bit over the last years, we have grown volume, we have reoriented our portfolio. We've seen shifts in category and product mix and market mix.
And so we have initiated the supply chain agility programs and spent five years starting this fiscal in ‘23. Their objective really is to strengthen our supply chain to improve it resilience, to improve its agility, to be able to deliver further productivity savings and to make our supply operations more sustainable. And it's really all about being able to offer fulfill our share growth ambition by creating a supply chain, by continuing to enhance our supply chain to be fit for the future. So we do think it will create significant long term value.
It's not one project. It could be a series of projects at the right time. Of course, after communicating it internally to our employees, we will communicate it externally as well with more detail. The savings will be incremental to our ongoing everyday efficiency program of £1.2 billion that we laid out. And so this will be incremental to that. It does not replace or overlap our everyday efficiency program in any way at all. And we do believe that we expect that this program will have a payback period of five years.
Great. Thanks, is Laurence back?
We'll now move to our next question from Edward Mundy from Jefferies. Please go ahead.
Morning, Ivan and Lavanya. Three for me, please. Apologies if you've sort of partly answered this question but that you've come through fiscal 22 with great momentum and you're flagging some normalization rate of growth. I appreciate there's a lot of known unknowns. But is there anything you're seeing at the moment in either customer or consumer behavior that would indicate you deliver below 5% to 7% organic sales for fiscal 23?
The second question is around the inventory picture, I appreciate it sounds like it’s quite normalized and you've obviously moved from a sell in to a sell-out culture. But you talked about the health of inventories globally. Are there any areas where you're holding back inventory at this stage?
And the third question is around the US. I missed your answer around what you think the industry is growing at, at the moment? Could you just confirm what that was and if you look back to 2008, a day when they went 2009, number of supplies took pricing down to match where the consumer was heading and in this inflation environment, does it make it harder for the industry to use price as a lever to take value out of the US spirits industry?
And your last question was about industry growth and -
Yeah, well do you think industry is growing and relative to last time 2008, 2009 when people cut prices, given we've got inflation environment, does it make it harder for suppliers to cut prices and therefore help to protect industry growth?
Yeah, so I'd say I mean, I mentioned the fiscal year finish as with the US industry is about 6% to 7% growth in fiscal 22, in value term. We do, if you go back to the financial crisis, I mean, you had - the industry grew through it, and you had three, four quarters of slight down-trading, which then reversed. I would say the industry is in a much healthier place, but let me talk about Diageo not the industry, is that our brands and our connection to consumers, the effectiveness of our marketing, and the scale of our marketing dollars. And so, and we've also got a much better portfolio.
But don't forget, we’ve sold a bunch of low performing brands, we've added this incredible tequila position to our business. Whisky is hot, and those trends will continue. So it's a very different picture from last time around. And I do think we’ve - and if you get trade down, let's say the premium sector, where if you look at the price segmentation, say, the price points around Smirnoff and Captain Morgan pick up and the Black Label or the Don Julio slows down, we've got depth and breadth in this portfolio to be able to respond to it. And I see nothing that suggests spirits share gains of TBA will slow down. In fact, to the contrary to my earlier comments about value, spirits offer tremendous value. And so you put that all together, and we could have a few quarters of down trading, but we'll work our way through it.
On your first question on the - or your second question, inventory levels globally, we are very happy. I mean, we moved through COVID, I mean, we took dramatic action bring inventories down, and we were at very appropriate levels, the seller culture is highly embedded, and we track and measure this in every market in the world. Lavanya and I’ve review it in detail at every half. So I'm very comfortable with where we are, very healthy levels of inventory and receivable, very, very healthy levels. And Diageo is in really good shape to respond to shifts because we don't have and markets around the world are tracking that very close.
I can take your first question. And I mean, I’d - what I do is, I’ll actually, I see it in a slightly differently way, which is I'll tell you why we are confident in our medium term guidance. And kind of going back a little bit to pre-COVID, our guidance was to grow between 4% and 6%. And that Capital Markets Day we issued guidance, which was one point faster. And this was really driven by the fact that we now have a much more advantaged portfolio in terms of markets and categories. The spirits category is growing faster taking share from wine and beer as Ivan just mentioned. Premiumisation has accelerated and it's really driven by consumers choosing to drink better and we are performing better. I mean that our - we are growing share more consistently, we are executing much better, we have a tremendous suite of tools and people capability and energy. And so that's what led us to have the confidence that we will be able to deliver on our medium term guidance on top line growth of between 5% and 7%.
Now, having said that, I will say that, that's still quite different than where we have delivered at the three year CAGR of 9%, right? But we do recognize that market conditions are changing. We expect category growth and markets such as North America to reverse to pre-pandemic levels. And we do see the potential impact of the inflationary impact on consumers. And but again, put it all together, we do have strong confidence in our ability to deliver on - consistently deliver on our top line growth of 5% to 7%.
Great, thank you.
And we have back Laurence Whyatt from Barclays. Please go ahead Laurence with your questions.
Laurence, please ask your questions? So let’s answer them. Tequila and A&P, so I do tequila, or Casamigos. I mean obviously, these kinds of growth rates are not going to sustain in such a big business. However the brand is incredibly hot. Brand equity and consumer traction and penetration recruit seems to be very strong. We see a good runway of continued exciting growth. We are, both Casamigos and Don Julio. And by the way, we’ve just taken global leadership in tequila in value both in the US and globally with these two brands. You see the investments we’re making in Mexico. So we are counting on continued growth, but the growth rates will clearly slow down.
Agave prices, again, in part because demand has been so strong for the category, you haven't seen the softening yet that was predicted three years ago. I mean, our advantage is we got scale and we’re playing at the top end of the market. So we do expect agave pricing to come down over time, but we don't have that instant demand supply dynamic. And right now we're really struggling to fulfill demand, which has continued at this accelerated rate. But certainly in a few years, I would expect the agave prices to come down.
Yeah. Now I shall answer your question on A&P and whether we are seeing improving return on investment on our A&P dollars. And the answer is yes. And it is because we continue to build and improve our capabilities in this area. So you heard us talk about tools such as Catalyst, which we've had for several years now. At Capital Markets Day, we talked about a tool called Sensor, which is a proprietary tool that helps us measure the relative effectiveness of our media spend across digital platforms. So within digital, we can understand the effectiveness of our spend between platforms A versus B versus C. And it has enabled us to improve our return on investment on our digital spend in the US by about 30%.
So as we continue to build more capabilities, we are able to get better effectiveness of our A&P spend and a sense of better return on investment. I'll give you another example of Crown Royal in the US, again, and this was with the NFL. We were able to create multiple versions of the Crown Royal video. And by using data and analytics, we were able to deploy the right video content to the right consumer occasion, like and by geolocation. So it could be personalized to target consumers in specific cities where they have individual NFL team sponsorship, and with the right messaging. And work-life business contribution to like a 17% improvement in our ROI on Crown Royal digital media, which is a large part of our spend in the US.
And so, yes, we do continue to see improvement in our A&P effectiveness. And we measure it on an everyday basis and we will continue to invest behind our brands, as long as we see these returns playing through.
That's great. Thank you very much. And I think before I got cut off, I was hoping to ask a final question about the potential situation in India. There's certainly been a lot more discussion around a potential UK India trade deal that sort of heated up over the summer. Obviously, the UK Government has changed somewhat in the interim. But I was wondering if you got any views on what may or may not happen in India and how you might respond to any changes that could take place in that market?
Yeah, I will take that. I mean, the discussion between the team continue. And, clearly, we need a Prime Minister on the UK side before Diwali, I hope, which is what Boris Johnson and the Indian Prime Minister had hoped for the deal to get to. Free Trade Agreements till they're done, I don't - we don't count on them. The conditions are more encouraging that Scotch whisky is on the table. However, there's a lot of give and take on both sides. The trade teams on both sides are working very hard, so it hasn't stalled. And the urgency that both Prime Ministers have put on it is working through the systems. I would not give you the answer on what’s likely to happen. We're just tracking it, supporting it.
And clearly, it will be another nice boost to the growth of the category in India. Though I would point out even with these high tariffs, our Scotch whisky business deal was up 62%, Johnnie Walker up 66%. We're seeing real momentum on the high end of the Indian business even with the high tariffs. And so that would really add an additional benefit and accelerate the growth of premiumisation within whisky and whisky as you know, India is the largest market for whisky in the world. So we wait and see. And we'll work very closely to with both sides to see if we can get a Scotch whisky addressed in some form. It won't be an overnight change to zero, there'll be a staggered change. But every step will be helpful.
Great, thank you very much.
Andrea, Andrea Pistacchi, Bank of America.
Yes, good morning. Thank you. I have two questions, please. The first one on the US, now it's of course hard to say how the consumer slowdown might play out on the industry but in the event of let's say mild recession for a few quarters, do you think some categories may be more impacted than others? I think you've highlighted cognac. Do you see categories that could potentially be beneficiaries of a weaker environment? For example, and I'm wondering whether prepared cocktails given the sort of affordable proposition of buying a cocktail, and I can just for a few dollars, whether this could if anything, whether a difficult environment could be a further boost to the growth of the category?
And the second question is actually about emerging markets you've talked about or you sound reasonably confident about the resilience of the industry in your business, of course, in developed markets. So how do you feel about emerging markets over the next six to 18 months where consumer demand tends to be usually more correlated to disposable income? Are there any sort of hotspots in emerging markets or any areas that you're monitoring quite more closely? And if you could highlight the main differences in your business and portfolio in emerging markets, generally speaking, compared to 2013, ‘14 which is when we saw the last slowdown there.
I can take those. I’ll say on the first one, the research impact on big shifts in consumer preferences across categories and format, it's not that big. And in part, because it comes back to what consumers are spending on the spirits category is for households that buy spirits, about $300 a year, right? So it doesn't - this is an occasional purchase, you're buying it five, six, seven times a year. It doesn't cause the shock to kind of down trade from a premium detergent to a private label detergent, right? And so when we practice also through the financial crisis, and there weren't big dramatic shifts, so now we'll have to watch it, I'm not saying there won't be. And there'll be at the margin, and we need to be quick.
So pack sizes is a very important factor, which Claudia and the team are tracking daily. And how is the pack mix changing? Because you tend to see a little bit of the [1.75L] pick up as value is more. And people shop at clubs and warehouses as opposed to going to the little liquor store. So those kinds of trends we track. On the emerging markets, I mean, we have a lot of experience of working through cycles in the emerging markets. I think what's different this time around is our portfolio and brands are in healthy shape. I mean Scotch whisky clearly is a big player across Latin America and Asia. And in Africa our beer business and Guinness is in very healthy shape.
So when you get down cycles, and big devaluations, and I mean, it does have an impact. There's more volatility in emerging markets. But again, we’re in a healthier position. Our stock levels, as I talked about earlier, are very healthy. We're reading the shifts earlier. And if you look at the numbers in Latin America through, let's say, what was not a great economic period, this last year and we’ve really come through very strongly in Latin America, and it's mostly deluxe Scotch. And that's because marketing activation, commercial execution, pricing actions, I mean, all of that is really working at a far superior level than five or 10 years ago in Latin America. So we'll be - there will be more volatility in emerging markets but again our focus is just ensure we come out ahead, grow market share, and do it in a quality sustained way.
Trevor Stirling for Bernstein, please go ahead
Hello, Ivan and Lavanya. Two from my side, please? First one, probably for you Ivan. Concerning Scotch and definitely Diageo Scotch seems to have got its mojo back in great numbers in the fiscal. But also the blends tend to do much better with Johnnie Walker at 35%, Old Parr up 59% and malts just lagging a little bit at 17%. I guess part of that may be a composite. But maybe you talk a little bit about your malt strategy. I know you're putting a lot of money into the business centers in Scotland, that would be really helpful. And the second one, I think Ivan it’s the first time I had a chance to chat since the appointment of Debra as COO or rather the announcement about Debra’s appointment. And I wonder if you could give us a little bit of color about that decision?
So on Scotch, as you know, historically, Trevor, we've always underperformed in malt, our market share. And it has always been my biggest frustration for a company that owns these 28 soon to be 30 beautiful distilleries all around the country. And we were spoilt for choice and we've been feeling, what's changed in the last three years? And we now have a very focused long term strategy on malts. So Singleton is a major play for us. Going at, let's say, the more mainstream malt, we're very clear on Talisker and where we want to build it, Mortlach at the high end. I mean Mortlach is our jewel and it's going to be a long play, it's going to be 10 years, but I'm really encouraged with what we're seeing there. And then every market depending on the world has specific malts that they're driving.
So what's changed? Yeah, 17% growth is not good enough, we should be doing better. And I hope to see our malt momentum improve year-after-year. The strategy is clear, the investment behind it is now clear. And those were things we didn't have before are clearly laid out. On Debra, I’m delighted to have a move into the COO role, October 1. The main focus, and it's actually dealing with a lot of the questions we've had on this call. She will be connecting the market supply and the brand and really bringing everything we talked about here. And I think steering the company through the volatility and navigating and delivering the outperformance you've seen us do in the last few years.
But I would say, I mean, I'm really delighted about the Executive team and the top 100 leaders in Diageo. And so Debra will move into that role, the challenges and opportunities are clear as we talked on the phone. And really looking forward to her, she's done a terrific job in North America and with supply team and works very well across the Executive Committee, so looking forward to that next step.
Thank you very much, Ivan.
And we have time for one last question today from Chris Pitcher from Redburn. Please go ahead.
Good morning. Thank you, Ivan and Lavanya. I've a couple of question, I'll keep it short. Following on from Trevor's point around blends, obviously seeing very strong price mix for Johnnie Walker in the US. You gave the global growth rates for Red, Black and Blue. But could you share these for the US as well? You mentioned double digit for Black and Blue but how much did Blue grow ahead of Black? Did Red grow? And can you give the mix of the Johnnie Walker portfolio today in the US? And then very short final question, 7% CapEx to sales is a level we've never seen before. How many years before that sort of steps back down again to the 4% to 5% or will it stay high during the whole supply chain investment? Thanks.
Chris, I don't have at hand the mix of Red, Black, Blue in US. But what I would say is Black and Blue, I mean, that's our focus to build Black and Blue and both are doing really well and growing fast. Red benefits from the Johnnie Walker halo, but it is not, I mean if you step back, total Scotch whisky business, 70% of it now globally is a Black Label and above in terms of value, this is a very premium whisky. And we've shifted it over the last few years. So the focus areas will continue to be to build Black and above and Blue Label had super momentum. I mean, you've seen the global numbers, right? Roughly speaking, Red Label grew 20%, Black Label grew 40%, Blue Label grew 60%. That’s trade off within the Johnnie Walker trademark that we’ve seen. And the US trends are similar. And your second question was?
It’s around the CapEx, the 7% of sales? I mean, even when you were building RTD capacity in the early 2000s, it was never that high. I mean, how long is it going to be at this level do you think?
Yeah, now I’ll take that question. On CapEx, this it is the ‘22 our CapEx was £1.1 billion and that was really coming off the back of several projects going down through COVID and the need to support the growth of the business and our sustainability agenda. And we've guided to between £1.0 billion and £1.2 billion here for the medium term. And it's really to continue to support the growth of the business. I mean, you're - you've seen the fabulous volume growth that we have on the business. We have an ambitious growth agenda. And this will also be required for us to be able to meet our sustainability goals. And it is also going to be a portion of it is also going towards on our supply agility program. And s we do expect a slightly higher level of CapEx as we execute this program. And I do expect our CapEx levels to go back to more normal levels as this program complete.
Great, I'm going to close it here. Thank you, everyone, appreciate your interest in Diageo and for following and tracking and investing in us. I wish all of you a great summer. Lavanya and I, look forward to meeting several of you over the next week or 10 days, as we get around. So thanks again. Appreciate it and goodbye.
This concludes today's conference call. Thank you for your participation. You may now disconnect.