It's time to talk about Diageo
I just want to get this off my chest: I think it's probably the best large UK company.
I’ve been meaning to talk to you about Diageo (DGE). Firstly because it’s an important company which has had a big impact on me over years (growing up in Dublin and knowing more than the average person does about St. James’ Gate).
Secondly, the company released its preliminary results last month, and then shortly afterwards published its annual report for FY June 2022.
As someone who also spends quite a lot of time studying small companies, I find it fascinating that large, high-quality companies can get all of their accounts published without delay, while small companies leave their investors in the dark!
In this article, I don’t want to get into the weeds (that will be for future articles). For now, I just want to talk about what makes Diageo unique, and why I think it deserves to be thought of as a monopoly.
Inspired by this article, I’ve delved into the 2022 edition of the Annual Brands report by Drinks International. Their main finding is as follows:
…there has been no revolution; the brands that pass through these pages are, by and large, the same as before the pandemic. There’s been an evolution, but it’s hard to put this down to much more than natural year-on-year deviation… Diageo, Bacardi and Pernod Ricard still dominate the house pours in our sample of the world’s best bars.
Diageo’s excellent positioning is undeniable:
Of the top six categories in the high-end bars, Diageo takes first in gin, American whiskey, tequila and scotch.
Let’s take a look at some of Diageo’s best brands and powerful sector positioning:
Diageo calls it, with good reason, “the world’s number one premium gin”.
This might be a good moment to show progress made by Tanqueray in 2022 (see the sixth line). The table is from Diageo’s 2022 annual report. Some very nice numbers here, I think you’ll agree:
I like the “organic volume movement” as it helps us to get avoid being fooled by any inflationary price increases.
Of course in the Covid-era, volume movements from year-to-year have been less meaningful than they were before, as activity has at times been artifically suppressed.
So I’ve also checked the tables from Diageo’s 2020 and 2021 annual reports. It’s true that some categories declined in 2020, but Tanqueray isn’t one of them.
Here’s the 2021 table, to help give you a sense of progress over the past two years. Tanqueray is at the bottom line:
You might like to refer back to these tables as we look at some other categories.
Johnnie Walker has a fine reputation among Scotch drinkers (not that I am one myself, but I listen to them). For example:
Coming in a range of varieties to suit different tastes, Johnnie Walker is a powerful and well-respected brand, even among whisky connoisseurs, and takes the number one spot.
Ketel One is quite at the same level as Grey Goose, but it still gets number two on the vodka list from Drinks International.
Ketel One does get ranked as the “top trending” vodka brand, and Diageo also happens to have a little brand called Smirnoff on the top-selling list. Diageo also owns Cîroc, so it has three entries on the top ten list. Not bad!
Who can forget about Baileys? It is number seven on the list of best-selling liquers, and has a brilliant, unique identity.
I’ve already given you a picture of Guinness as the cover photo for this article on our website, so I won’t give you another one here. I’d just like to point out that Guinness is the only stout on the list of top beers from Drinks International.
But Guinness is such a different drink to Heineken and Budweiser, I would think that it deserves its own category! When it comes to stout, there is nothing close to Guinness.
6. American Whisky - Diageo’s Bulleit takes the number one spot for Drinks International, and is “hugely popular with bartenders across the globe”.
7. Non-alcoholic spirits - Diageo has the top-selling non-alcoholic spirit, Seedlip.
I could go on, but I have to put a stop to this article somewhere before it gets too long.
And I’ll have more opportunities to talk about this unique, world-renowned drinks giant again soon.
I just wanted to get this off my chest: I think Diageo is one of the best companies ever listed in the UK. It is currently the fifth-most valuable. If I had to buy a large-cap, I would start by studying this one.
What do you think? Let me know with a comment. And if you enjoyed the article, please hit the “heart” button to let me know!
Very interesting comments. My father sought and got a job at Guinness in 1957 because “it was the best company to work for” and he and everyone he knew there thought the same. They knew the salary scale changes were based on how well the company was doing and received one months bonus each Christmas. He used that to purchase shares in the company each year and retired with a double pension pot as he saw it! In retirement the dividends purchased more shares.
My sister and I continue with his belief and Diageo shares are by far our largest and most successful investments. Apart from growth, the dividends over time make a significant contribution to returns.
Thanks for highlighting Diageo and its remarkably strong brands. Perhaps unusually, I compare large UK companies with their international competitors before investing and a few years I chose Brown Forman (BF) in preference to Diageo. Although BF can't boast Diageo's depth of brand strength, BF does claim to have the "best selling individual brand of whiskey in the world" in Jack Daniels. One aspect of the BF business which impressed me was that its ROIC over the past 5 years has been around the 18 to 20 mark whilst Diageo is a bit more variable but around the 12 mark (with thanks to Gurufocus). I think these ROIC firgures are consistent with Diago achieving only 3.8 times the net income of BF, yet Diageo has 5.3 times the number of staff at BF. I dont' think that you can go far wrong with either of these companies but my slight preference would be with BF purely on the financial figures. I am also aware of the risk of directly comparing figures reported in the US to those of the UK so I hope my conclusions are not affected by this.