Diageo Confronts Deteriorating US Spirits Market as Dave Lewis Assumes Leadership

Fresh data has revealed the extent of the challenge awaiting Sir Dave Lewis as he prepares to assume leadership of Diageo, with the US spirits market registering its weakest performance in 16 years. The latest monthly figures from the National Alcohol Beverage Control Association indicate a sharp deterioration in November, with the spirits category remaining under considerable pressure.

The Washington-based organisation, which represents US states that directly control beverage alcohol distribution and sales, reported figures analysed by Deutsche Bank that paint a stark picture of the sector’s decline. When adjusted for variations in selling days, US spirits volumes contracted by 5.7 per cent year-on-year in November, whilst the value of sales fell by 7.9 per cent.

The US alcohol market is heading towards its fourth consecutive annual decline in consumption, driven by a confluence of factors including heightened health consciousness, the proliferation of cannabis products, reduced drinking amongst Generation Z consumers, the impact of weight-loss pharmaceuticals, and persistent cost-of-living pressures.

Mitch Collett, Deutsche Bank’s head of European beverages research, highlighted that the bank’s detailed examination of NABCA data suggests volume and value declines reached previously inconceivable lows in November. The price-mix metric, which measures the relationship between pricing and volumes, declined by 2.3 per cent, marking the worst performance since Deutsche Bank began tracking this data in July 2009.

This metric deterioration signals either falling individual item prices or a shift towards lower-priced products, both trends that undermine Diageo’s premiumisation strategy. The company has built its approach around encouraging consumers to purchase higher-quality, premium-priced beverages across its portfolio, which includes Don Julio tequila, Johnnie Walker whisky, Captain Morgan rum, Tanqueray gin, and Smirnoff vodka.

North America represents Diageo’s largest market, accounting for nearly $8 billion of the company’s $20.2 billion net sales in the most recent financial year. However, Deutsche Bank’s analysis suggests the group is underperforming relative to the broader market. Diageo’s US spirits volumes fell 13.3 per cent in November, with sales value declining by 15.9 per cent. The price-mix registered a negative 3 per cent, with prices falling by more than 1 per cent for 48 per cent of Diageo’s product range.

These figures represent a marked deterioration from October’s declines of 5 per cent in volume and 7.7 per cent in value. Whilst Diageo’s performance lagged behind rival listed drinks companies including Pernod Ricard, Campari, and Rémy Cointreau, the company faced more demanding comparatives with prior trading periods. The tequila category, historically a strong performer for Diageo, is showing signs of weakness as consumers migrate from premium brands such as Don Julio to more affordable alternatives.

The challenging US market conditions compound the difficulties facing Lewis, the 60-year-old former Tesco chief executive who assumes his new role in January. He takes over from Nik Jhangiani, the interim chief executive who has overseen operations since Debra Crew’s departure in July. Jhangiani will return to his position as finance director, having championed lower-priced ready-to-drink cocktails as a strategy to offset declining sales of premium spirits.

Diageo confronts additional challenges beyond market conditions. The company’s shares have approximately halved since February 2024, whilst net debt stands at $21.9 billion. The group faces the dual imperative of stabilising sales performance whilst managing its substantial debt burden.

The structural concerns extend beyond American shores. Research firm IWSR recently informed the Financial Times that average UK adult alcohol consumption has fallen to its lowest level since data collection commenced in 1990. This broader pattern of declining consumption raises questions about whether the current downturn represents a cyclical phenomenon or a more fundamental structural shift in consumer behaviour.

Collett cautioned that the deteriorating data increases the risk of a sector-wide reset, with listed companies potentially choosing to sacrifice profitability margins to arrest market share losses and value declines. This scenario would create additional pressure on Diageo’s financial performance and strategic positioning.

Diageo declined to provide comment on the NABCA data and market conditions. The company faces a critical period as Lewis takes the helm, with investors closely monitoring whether the new chief executive can arrest the decline in the company’s largest market whilst managing debt levels and maintaining shareholder returns.