Diageo’s UK Managing Director, Nuno Teles, has expressed strong disapproval of the new alcohol duty changes, labeling them as a disguised tax hike that negatively affects sales volumes for the company, known for brands like Guinness and Johnnie Walker.
The changes, which tax alcohol based on strength and unfreeze alcohol duty, have been dubbed the “Brexit Pubs Guarantee.”
However, Diageo’s MD and others argue that the adjustments are not a cause for celebration, as they result in higher prices and disproportionately affect spirits, rather than achieving the intended relief for consumers.
Discrepancy in Alcohol Duty Changes:
Teles points out that the perception of beer becoming cheaper due to the changes is misleading.
Instead, the alterations lead to a rise in alcohol duty, particularly impacting spirits, at a time when consumers are seeking price relief.
The British Beer & Pub Association also highlights that brewers will experience a 10.1% increase in taxes on beer bottles and cans, with tax constituting 30% of the cost of a 500ml bottle.
This hike is expected to add £225 million in annual costs across the industry, posing challenges for numerous breweries.
Impact on Diageo’s Sales:
Diageo reported a 7% increase in UK revenue, attributed mainly to higher prices, while sales volumes declined.
The success of Guinness stood out, with its market share growing in the UK, representing one in every ten pints consumed in London.
Overall Guinness sales saw a remarkable 16% increase, marking the drink’s best performance in its 264-year history.
Despite the positive results, Teles acknowledges that the pace of price rises is slowing.
However, Diageo remains watchful of inflation and may raise prices further if necessary.
The Future of Price Increases:
As Diageo embarks on constructing a new Guinness brewery in Covent Garden, they also face decisions about future price adjustments.
While inflation monitoring will be crucial, the company remains committed to meeting market demands and balancing consumer expectations with sustainable business growth.
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