Hi everyone,

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:

1. Gin

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.

2. Scotch

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.

3. Vodka

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!

4. Liquers

Who can forget about Baileys? It is number seven on the list of best-selling liquers, and has a brilliant, unique identity.

5. Stout

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!

Best regards,

Graham

Monopoly Investor

It's time to talk about Diageo