Drinks giant Diageo has said that its new financial year is off to a 'strong start', forecasting a boost to operating margins as people spend more at restaurants and bars.
Recovery in Europe was ahead of Diageo's expectations, while in North America, despite supply constraints, the business has been 'performing strongly', the company said in a statement ahead of its annual general meeting.
Sales at bars and restaurants, hit by COVID-led restrictions last year, are recovering strongly in both regions, as higher vaccination rates encourage more people to venture out.
Sales in Africa, Asia Pacific and Latin America and the Caribbean markets are also performing well, but Diageo warned it expects some volatility in these markets to persist.
Sales Momentum In All Regions
“We have made a strong start to fiscal 22, with organic net sales momentum across all regions," said chief executive Ivan Menezes. "This reflects excellent execution, as we benefit from resilience in the off-trade and continued recovery in the on-trade. However, we expect near-term volatility to remain, including the potential impact of any future waves of COVID-19."
Diageo, which recently acquired the Mezcal Unión brand and announced a minority investment in Japan's Komasa Kanosuke Distillery, is also benefiting from customers trading up to more premium drinks and from a rise in sales through higher margin channels such as e-commerce.
"We expect organic operating margin to benefit from a further recovery in sales volumes, positive channel mix and premiumisation trends, while we are continuing to invest in our marketing and commercial capabilities," Menezes added. "As previously indicated, we are managing rising inflationary pressures, which are partly due to supply chain constraints."