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Diageo Plans Sustainability, Strengthens E-commerce Channel

Zacks Equity Research
·4-min read

Diageo Plc DEO is one of the companies that have witnessed hardships in its on-premise channel amid the coronavirus crisis. The Beverages – Alcohol industry has been significantly impacted by the coronavirus outbreak across the globe, which dealt a huge blow to the on-premise sales channels as bars, restaurants and pubs remain closed due to lockdowns in most countries.

Consequently, alcohol makers have been looking to shift resources to the off-premise channels like supermarkets and retail stores as well as enhance e-commerce presence as the coronavirus outbreak has given rise to growing at-home consumption trends.

Per media reports, Diageo is looking to strengthen its e-commerce portals in Brazil, citing the coronavirus-induced lockdowns. Reports indicate that the company has witnessed strong growth in at-home consumption in the past three months. However, revenues earned do not completely make for the sales lost through the closures of bars, restaurants and pubs. Analysts note that the “on-trade segment”, which is the sale of alcoholic beverages in licensed premises, accounts for nearly 40-50% of Diageo’s revenues.

The company has been leaving no stone unturned to adapt to this shift in sales trends by reallocating resources to online channels to compensate for the closure of the on-trade channels. Eventually, it entered partnerships with major retailers in Brazil, including local chains like French supermarkets groups Casino Guichard Perrachon SA and Carrefour SA. It also made pacts with international online companies like Amazon AMZN and MercadoLibre.

While these efforts standout, Brazil's alcoholic beverages association Abrabe predicts total alcohol sales to be down nearly 50%, on average, due to the coronavirus crisis.

With restrictions starting to ease out in Brazil, Sao Paulo is expected to be allowed to reopen bars and restaurants from Jul 6.

Additionally, on Jun 24, Diageo announced a $100-million recovery fund to help bars, pubs and restaurants around the world welcome customers after the lockdowns are lifted. The two-year program will be available from July 2020 and is called “Raising the Bar”.

The program will provide support for the recovery of major hospitality centers in New York, London, Edinburgh, Dublin, Belfast, Mexico City, Sao Paulo, Shanghai, Delhi, Mumbai, Bangalore, Nairobi, Dar es Salaam, Kampala, Sydney and more.  The program was designed after a global survey of bar owners to identify their requirements in the post-lockdown situation. These include hygiene initiatives, digital backup and practical equipment to transform the functioning of their outlets.

Moreover, the Zacks Rank #4 (Sell) company recently pushed back its earnings release date by five days. Diageo will now report preliminary results for the year ended Jun 30 on Aug 4 instead of Jul 30. The company earlier withdrew its sales and earnings forecast for fiscal 2020. It also suspended its share-repurchase program to preserve financial liquidity amid the pandemic.

Although shares of Diageo have declined 20.7% year to date, it fares better than the industry’s slump of 29.6%.



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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Diageo plc (DEO) : Free Stock Analysis Report
 
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Craft Brew Alliance, Inc. (BREW) : Free Stock Analysis Report
 
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