Johnnie Walker, Bundaberg Rum owner Diageo decries pallet shortages, tax hikes on spirits

Last year Diageo ran dry of scotch like Johnnie Walker as Covid-19 disrupted supply, but now it is still facing pallet shortages and among the highest taxes on spirits in the world.

Diageo was boosted by a rebound in licenced venues as Covid-19 lockdowns ended. Picture: AAP Image/Julian Smith.

Diageo Australia boss Angus McPherson says the worst of the supply chain disruptions from the pandemic that saw him momentarily run out of stock for his most popular whiskies like Johnnie Walker and Talisker had mostly been resolved, although he was still facing pallet shortages heading into Christmas.

Mr McPherson, whose large portfolio of beverages includes labels such as Johnnie Walker, J&B, Bell’s, Baileys, Gordon’s, Smirnoff and Australian iconic rum Bundaberg, has also hit out at the “double whammy” of inflation and steep alcohol-based tax hikes now hitting local drinkers that he said was reflective of an unsustainable tax regime on the spirits sector.

Unveiling the local arm of the global drinks giant latest financial results, Mr McPherson said that through fiscal 2022 there was a rebound later in the period as Covid-19 lockdowns ended and people went back to socialising and heading out to licenced venues.

“The ready to drink (RTD) pre-mixed drinks category continues to grow and continues to be the fastest growing segment within the total beverage sector, so that’s beer, wine, spirits and cider. And that segment in terms of both light spirits, so whether it be vodka-based, seltzer-based, or gin, it continued to be really strong performers and equally bottled spirits continued to be the second strongest performing category in the market.”

In 2022 Diageo Australia posted sales of $707.35m, up from 697.7m in 2021, as net profit was down slightly to $57.3m.

Mr McPherson said the first half was marked by supply chain disruptions caused by Covid-19, which he tagged as the most challenging he has seen in his long career in the beverages industry, and which led to Diageo running dry of some of its most popular whiskies.

“Orders that were supposed to arrive in mid November did not arrive until mid January, and then that challenge also continued a little bit into the second half but obviously for the Christmas trading period things like scotch and whiskey is incredibly, incredibly important.

“And we had significant out of stocks across all of our premium portfolio of scotches. So that was Johnnie Walker Black, Johnnie Walker Gold, Green label, were out of stock and also our single malts such as Talisker and Singleton, and it wasn’t only a challenge to Diageo. We went from a two to two-and-a- half month time frame of getting stock from Scotland to Australia to a five-month time frame, and that happened within weeks it sort of just completely collapsed.”

Mr McPherson said pallet shortages were also a feature of last Christmas but this was yet to be resolved with the drinks giant still scrambling to secure enough pallets to shift stock around the country.

“We still continue to rely on our partners to help us with getting pallets for products versus the traditional channels of being able to go through like CHEP (Brambles). They are still not able to service their customers and we are still relying on key partners to help us get through these important trading periods.

“It is still a challenge.”

In terms of the inflationary environment, Mr McPherson said Diageo was having to cope with high inflationary pressures as well as elevated alcohol taxes that were both combining to slug customers at the bar or when enjoying a drink at home.

“The challenge with inflation for us is the (alcohol) tax goes up with inflation as well. So with inflation looking to be at sort of circa 8 per cent, tax on a bottle of spirits will also go up 8 per cent and it is the third highest in the world. So you add the tax and then you add the cost pressures we are seeing with fuel, electricity, commodity prices and it is actually a double whammy, consumers are getting hit twice.

“They’re getting hit through a tax system that is proven to be unsustainable and then they’re also getting hit with increased commodity prices.”