The spirits giant Diageo estimated that the fast-spreading COVID-19 disease could shave off up to £325 million of net sales for the group, as the virus outbreak forced many restaurants and bars to shut doors across Greater China region.
This is the latest estimate for a leading and international spirits giant to quantify the damages of COVID-19, the disease caused by the novel coronavirus that has now infected close to 79,000 and killed over 2700 in China.
“We estimate the negative impact in fiscal 2020, on the group’s organic net sales and organic operating profit, to be in a range of £225m to £325m and £140m to £200m, respectively, with the timing and pace of recovery determining the impact within these estimated ranges,” the company said in its latest trade update.
The estimation is made based on the large scale of negative impacts the outbreak had on on-trade business and travel retail sector in Greater China and Asia Pacific, the company says, but the economic damages could be more far reaching as the virus has now spread to all continents except Antarctica, raising fears of a global pandemic.
Bars and restaurants have largely been closed across China and there has been a substantial reduction in banqueting. “As the majority of consumption is in the on-trade, we have seen significant disruption since the end of January which we expect to last at least into March,” it says.
A previous report by the New York Times estimated that some 760 million people are affected by the lockdown of various strictness. Restaurants and bars look deserted across the country amid the outbreak.
However, the company expects a gradual improvement with consumption returning to normal levels but it won’t happen until the end of fiscal 2020.
Across Asia, the outbreak in several other Asian countries, especially South Korea, Japan and Thailand, has led to events being postponed, a reduction in conferences and banquets, and a drop in tourism which have all impacted on-trade consumption, the company says. For these countries, it expects a gradual improvement throughout the fourth quarter of fiscal 2020.
South Korea at the moment has become the country with highest confirmed cases outside of China. It now has over 1,500 confirmed cases and 12 deaths as of February 27. Japan reported close to 900 cases including patients on Diamond Princess cruise, and Thailand has 40 cases.
For the travel retail sector, sales is expected to suffer as well, it warns. The outbreak has caused a significant reduction in international passenger traffic, especially in Asia. Recovery of passenger traffic is assumed to be gradual, resulting in weaker performance for the remainder of fiscal 2020.
The company, owner of Johnnie Walker, says it remains confident in the growth opportunities in our Greater China and Asia Pacific business. We will continue to invest behind our brands, ensuring we are strongly positioned for the expected recovery in consumer demand.
The spirits giant ranks as the world’s second most valuable spirits company by market value behind China’s Kweichow Moutai. It owns brands including Johnnie Walker, Crown Royal, JεB, Buchanan’s and Windsor whiskies, Smirnoff, Cîroc and Ketel One vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray and Guinness.
The COVID-19 has now spread to 30 countries, and for the first time today number of infected patients outside of China surpassed reported cases within China, as the whole world hunkers down to brace for a potential pandemic.