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Diageo’s UK sales fall 2% after declining to offer big Christmas discounts

Company says lower-volume business was more profitable as it made an effort to market on quality, not price

Diageo said UK sales of Christmas favourites such as Bell’s whisky and Bailey’s liqueur declined over the holidays after it stopped heavy discounting in supermarkets.

Andrew Morgan, president of the drinks multinational’s European business, said: “This year we have not got into the deep discounting that has been a feature of the grocery channel.” Diageo reduced the “depth and frequency” of offers it was willing to fund as it tried to shift the focus of its marketing from price to product quality.

The change of tack contributed to a 2% fall in UK sales, but those Diageo did make were more profitable, he said, as Britons “drank less but better”, trading up to more expensive brands such as Tanqueray gin and Cardhu single malt whisky.

Diageo, which also owns the Smirnoff vodka and Johnnie Walker whisky brands, said growth of more than 10% in France and Germany had helped to offset problem markets such as Spain and Greece, where consumers have drastically reduced spending on luxuries such as alcohol. As a result, sales at its European arm were unchanged at £1.5bn for the six months to 31 December.

Worsening economic conditions in the eurozone meant Morgan was now more cautious about the outlook: he said ekeing out growth would be “hard yards for the foreseeable future”.

Turnover at the group increased 7% to £5.7bn, with sales ahead in all regions barring Europe. Underlying profits were up 10% at £1.86bn. In the US, Diageo’s biggest market, sales rose 5%, but chief executive Paul Walsh pointed to growth in emerging markets such as Latin America, where sales jumped 23%.

To bolster its presence overseas, Diageo has made a series of acquisitions including that of Istanbul-based Mey, which makes the Turkish national drink raki, for .1bn (£1.3bn) at the end of last year. Emerging markets now generate 40% of sales and profits, said Walsh, adding: “In an uncertain economic environment we have again demonstrated the benefits of our geographic diversity.”

Walsh has been a severe critic of some of the coalition government’s policies that affect business. Last year he attacked the 50% income tax rate, which affects those earning over £150,000 a year, arguing it could do “long-term damage” to Britain’s ability to compete. On Thursday he waded into the row over bonuses, stating that the pressure of being “constantly bludgeoned for rewarding people at a level commensurate with a global marketplace” would also act as a deterrent to companies using the UK as a base.

Diageo’s shares closed up 6.5p at £14.68, with Hargreaves Lansdown analyst Keith Bowman describing it as “another solid performance”.

“The group’s early and ongoing focus on the emerging markets continues to blossom, with sales growth comfortably compensating for more troubled European markets,” Bowman said. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds