Living costs and alcohol tax burden crash cocktail hour, says Diageo boss Dan Hamilton

Cash-strapped drinkers are reaching for more affordable drinks options to save money, while the excessive tax on alcohol is taking a toll, Diageo’s local boss Dan Hamilton says.

Dan Hamilton says Diageo feels well positioned as it had ‘products that play across different price points’. Picture: Britta Campion

Australians are increasingly reaching for a Johnnie Walker Black from the drinks cabinet instead of a Johnnie Walker Blue or sipping from more affordable vodka brands such as Smirnoff as cost-of-living pressures overshadow the cocktail hour.

And excessive government tax on alcohol isn’t helping drinkers afford their favourite tipple at the end of the day, with 63 per cent of the shelf price of a bottle of Queensland’s popular Bundaberg Rum now made up of tax.

Dan Hamilton, the local boss of global drinks giant Diageo and a 13-year veteran of the alcoholic beverages group, says cost-of-living pressures are fuelling several trends in the beverage industry including consumers trading down to cheaper labels, such as Johnnie Walker Black or Smirnoff vodka, but also staying loyal to trusted brands rather than experimenting.

Mr Hamilton said younger consumers were also dipping more into spirits, instead of wine, especially at bars where pre-mixed cocktails on tap were proving popular, while traditional beer was making a comeback led by Diageo’s flagship Irish beer, Guinness.

But despite the strength and dominance of its brands, it remained a challenging year for ­Diageo Australia, which owns brands such as Johnnie Walker, Smirnoff, Baileys, Captain Morgan rum, Bundaberg Rum, J&B, Tanqueray gin and Don Julio ­tequila, with its sales for 2024 falling 7.8 per cent to $680.65m.

Australians are increasingly reaching for a Johnnie Walker Black from the drinks cabinet instead of the more expensive Johnnie Walker Blue.

Cost-of-living pressures were the key culprit in the sales decline, as well as consumers trading down to cheaper brands, with excise tax on alcohol – increased automatically twice a year – not helping the affordability of cocktails and spirits.

“It was certainly a challenging year for us, and actually something that we’ve seen not just here in Australia but across many markets for us, for us globally. It’s evident that the cost-of-living pressures are very real and the consumers are feeling it out there,” Mr Hamilton told The Weekend Australian.

“And from our business and from our portfolio, we feel relatively well positioned because we do have products that play across different price points. So if there are consumers who are looking to trade down to a more accessible price point, we might be able to offer a Johnnie Walker Black instead of a Johnnie Walker Blue.”

He said brands with good ­momentum included Smirnoff, which was winning market share and was a well-known brand at an affordable price, as was Gordon’s Gin, which was also taking market share.

“It’s people looking for trusted, famous brands, and consumers are being more selective how they spend their money and want something they know will be a great quality product,” he said. “And we think big, trusted brands are benefiting in this consumer environment.”

Mr Hamilton said he saw other consumers still willing to spend on a great quality product for the special occasions, with tequila category doing well, especially premium and super premium ­tequila products such as Diageo’s Don Julio range.

Drinkers were also returning to pubs and bars – known in the industry as the “on trade” – to enjoy a night out and a cocktail.

DJ Kitty Kat attends the unveiling of the Don Julio Marquee at the Melbourne Cup Carnival at Flemington Racecourse. Picture: Getty Images

“We’re seeing parts of the on trade extremely vibrant and doing well, so in the pub channel you see consumers that are benefiting from having a great quality drink, and might be a mixed drink, it could be a pint of Guinness at a in a great environment and still wanting to enjoy themselves outside of the home,” he said.

“The thing that they are looking for is maximising the experience in the occasion. So I think people are more discerning in terms of what they’re spending on and therefore looking for the buyer offer in that moment.”

To benefit from this trend Diageo has rolled out to 260 venues its “cocktails on tap” offer, which includes leading cocktails such as Gordon’s pink martini and Captain Morgan strawberry daiquiri.

“We are extremely pleased with the progress we’re making with that solution, and it really is the perfect solution for this environment, because it’s a chance to get a great quality cocktail from a famous brand in a nice, casual pub environment,” he said. “It might be $15 or $16 so relatively accessible price point, and the customers, the publicans, are loving it.”

Mr Hamilton said excessive taxes on alcohol remained a headache for the industry with excise duties threatening the ability for people to enjoy a drink at the end of a hard day at work.

“If you’re buying, for example, a bottle of Bundaberg Rum, 63 per cent of that price is going straight to Canberra in excise and that is going up twice a year, every year, and we are close to touching $104 per litre of alcohol,” he said.

The twice annual rise in excise is particularly painful as it is linked to inflation.

“So it continues to be a significant challenge for consumers that are looking to enjoy a drink at the end of the day. Consumers talk to us about the fact that sitting down and having a Bundy and cola at the end of the day on a Friday evening has become a luxury, versus what used to be a treat.”