{"id":48558,"date":"2026-05-25T22:29:26","date_gmt":"2026-05-25T22:29:26","guid":{"rendered":"https:\/\/www.europesays.com\/britain\/48558\/"},"modified":"2026-05-25T22:29:26","modified_gmt":"2026-05-25T22:29:26","slug":"diageo-takes-premium-problems-with-lower-price-points","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/britain\/48558\/","title":{"rendered":"Diageo takes premium problems with lower price points"},"content":{"rendered":"

Two months into the top job, Dave Lewis believes the fundamentals of the spirits category remain strong and stable. The impact of GLP-1 drugs<\/a> and moderation trends<\/a> might dominate headlines, but there\u2019s a bigger issue lurking underneath.<\/p>\n

The problem, Lewis says, is not that people are drinking less: it\u2019s that they\u2019re spending less.<\/p>\n

Not such an affordable luxury<\/p>\n

Diageo has built up its company on a portfolio of strong, premium brands. And while premium products can usually be expected to be resilient to economic hardship – representing an affordable luxury – Lewis believes there\u2019s a limit to how far that goes.<\/p>\n

Dave Lewis has come into Diageo after spending six years transforming mainstream supermarket Tesco (2014-2020), and believes Diageo has a delicate line to play between maximizing the strengths of its premium portfolio and offering affordable products. <\/p>\n

\u201cThe spirits category is a very, very stable category,\u201d he said, speaking at the company\u2019s H1 earnings call, where the company saw sales down 2.3%<\/a> over the last six months of 2025.<\/p>\n

\u201cIn fact, it\u2019s one of the most stable I\u2019ve ever seen. Between 2010 and 2024, volume growth is around 13%. <\/p>\n

\u201cThe significant feature of the market is the strong trend to premiumisation. And Diageo deserves great credit here for seeing the opportunity and driving this trend. It was a fantastic strategy, and it developed a portfolio of truly exceptional brands.\u201d<\/p>\n

But today, consumers are very much under pressure. Nowhere is that seen more than in the US: where consumers have been downgrading from tequila (Diageo\u2019s US tequila portfolio slumped 23% over H1<\/a>, dragging the US portfolio down). <\/p>\n

And with Diageo\u2019s North American portfolio making up 40% of sales, that\u2019s a serious problem. <\/p>\n

Another drink? No thanks<\/p>\n

What Lewis sees is a market where the same number of people are drinking spirits. And they\u2019re actually drinking spirits more frequently: with new occasions for spirits are being created by drinks such as RTDs.<\/p>\n

But the key change is that people are cutting back on the number of drinks at each occasion. <\/p>\n

Lewis is less inclined to see this as people moderating and more inclined to see this under the lens of the harsh reality of today\u2019s economic climate.<\/p>\n

\u201cThese fewer serves per occasion point to a pressure in the economics that our consumer groups are facing,\u201d he said.<\/p>\n

Disposable income reduced<\/p>\n

Having also spent 30 years with Unilever and time at PepsiCo, Lewis\u2019 strategy is to focus on understanding the consumer and their spending habits in general, before even starting to look at Diageo\u2019s segment in alcohol. <\/p>\n

And he says the picture is clear: \u201cWhat you see is a very significant squeeze on disposable income\u201d.<\/p>\n

The cost of a basket of CPG staples has gone up more than 25% over the last few years. As a result, consumers now buy 8% fewer items. Luxuries are the first to go.<\/p>\n

\u201cThere\u2019s a very significant squeeze for US consumers, and that\u2019s before you start talking about the cost of healthcare and other costs that US consumers are having to bear,\u201d he said.<\/p>\n

Similarly, UK consumers are suffering from increased costs around essentials such as housing, fuel, power, transport and food, he said.<\/p>\n

\u201cYes, there is some moderation in drinking and there is some impact from GLP-1s,\u201d he said. \u201cBut it\u2019s small when you think of spirits specifically.\u201d<\/p>\n

Diageo has built up a portfolio of premium products: but is \u2018significantly underrepresented\u2019 in the mass market arena, he said. For example, 21% of the US market is in products $45 and above. For Diageo, that bracket represents 31% of its portfolio. <\/p>\n

\u201cThis is both a challenge and indeed an opportunity,\u201d he said. <\/p>\n

For Diageo, it\u2019s going to be about addressing consumers who are trading down.<\/p>\n

Small packs and RTDs<\/p>\n

Rather than changing the premium nature of Diageo\u2019s portfolio, it\u2019s going to be about creating products that sell at affordable and accessible price points.<\/p>\n

\u201cAs economic pressure has found its way into the US category, we see a downtrading to smaller pack sizes,\u201d continued Lewis. \u201cIf you look at US spirits, 9% of the market is now in those pack sizes. But Diageo\u2019s portfolio is only contributing 5% from that particular segment. That\u2019s an opportunity for Diageo.\u201d<\/p>\n

Then there\u2019s RTDs. Diageo\u2019s efforts in RTDs date back to the launch of Smirnoff Ice some 26 years ago: but the company has lost its focus here over the last decade, said Lewis. <\/p>\n

Having once had a 25% market share (albeit in an era with a much smaller RTD market), the company\u2019s share in the category is now below 10%.<\/p>\n

And that\u2019s at a time where the RTD category is increasingly important to spirits sales (now around 15%). <\/p>\n

Again, this category indicates that moderation is not necessarily defining today\u2019s drinking habits, argues Lewis.<\/p>\n

\u201cIf you take those RTDs and see where the growth is coming from, you can see that of the $8 billion of growth between 2021 and 2024, 50% of the growth is in the higher ABV ready to drink segment,\u201d said Lewis.<\/p>\n

\u201cYoung people are choosing RTDs, but they\u2019re choosing RTDs with higher ABV, which gives some indication of their attitude towards this category. <\/p>\n

\u201cWe believe that there\u2019s a very significant and profitable opportunity for Diageo in RTDs, but we have work to do.\u201d<\/p>\n

Keeping premium power at a lower price point<\/p>\n

Verushka Shetty, equity research analyst at Morningstar, notes that Diageo\u2019s premium strategy has been a successful one for many years: but that has now left the portfolio skewed away from the larger parts of the market.<\/p>\n

\u201cFor years leading up to the pandemic, Diageo invested in premium brands and had success, especially in categories like tequila in the US,\u201d she said.<\/p>\n

\u201cAs a result, the company is under-indexed in mass market offerings. <\/p>\n

\u201cThe long-term trend of premiumization has materialized to Diageo\u2019s benefit<\/a>, however this has not been the case in recent years, with consumer wallets pressured in Diageo\u2019s most strategic markets. Once consumers trade up to premium brands, they are unlikely to completely trade down and instead purchase smaller volumes or seek alternatives. <\/p>\n

\u201cGiven this, it makes sense for Diageo to leverage its premium portfolio to reach the mass market, with go-to-market initiatives such as smaller-pack sizes and ready-to-drink collaborations.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Two months into the top job, Dave Lewis believes the fundamentals of the spirits category remain strong and…\n","protected":false},"author":2,"featured_media":48559,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[21250],"tags":[5174,2477,714,24371,24372,24373,633,24374,24375,24376,4110,3445,252,24377,11,24378,24379,24380,24381,371,24382,24383,24384,24385,24386,24387,24388,5237,5238,24389],"class_list":["post-48558","post","type-post","status-publish","format-standard","has-post-thumbnail","category-diageo","tag-alcohol","tag-bank","tag-banking","tag-beautiful","tag-black-color","tag-brandy","tag-business","tag-cognac-brandy","tag-colors","tag-currency","tag-diageo","tag-drink","tag-europe","tag-european-union-currency","tag-finance","tag-financial-figures","tag-glass-material","tag-green-color","tag-hat","tag-investment","tag-lack","tag-large-group-of-objects","tag-marble","tag-number-100","tag-paper","tag-paper-currency","tag-selling","tag-symbol","tag-table","tag-unity"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@UnitedKingdom\/116637582029691922","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/48558","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=48558"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/48558\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/48559"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=48558"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=48558"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=48558"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}