Guinness calls time on festive price war

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Tony Greener, the Guinness chairman (pictured above), has promised an end to pre-Christmas promotional discounts on its Johnnie Walker whisky to Gordon's gin spirits portfolio in a effort to end the price deflation that has dogged the drinks industry throughout the 1990s, writes Tom Stevenson.

The company also plans a 20 per cent increase in marketing spend on its UK spirits this year to build the strength of its portfolio of brands which Mr Greener admitted had been underinvested in recent years.

In a candid recognition of the management failings that had led to Guinness's shares underperforming the market by more than a third over the past five years, Mr Greener said: "We also learn the lessons of the past - there is no question that some of the acquisitions of the early 1990s have eroded shareholder value - and some of our earlier decisions on marketing investment did not enhance brand value, for example switching investment from brand building into short-term promotions during the recession."

Speaking after Guinness reported interim profits 5 per cent higher at pounds 357m, Mr Greener confirmed the company had considered both an acquisition of rival spirits giant Grand Metropolitan and a demerger of the United Distillers spirits arm from the Guinness Brewing beer division. The company had concluded that neither route would have contributed to shareholder value and Mr Greener said the emphasis would continue to be on organic growth, bolstered by heavy marketing spending. Surplus funds would be returned to shareholders, as they were earlier in the year when Guinness bought in shares worth pounds 463m.

The market was left unmoved by the 5 per cent rise in profits and an 8 per cent increase in the interim dividend to 4.55p. The shares closed 6p lower at 448.5p as analysts focused on a 4 per cent decline in Scotch volumes thanks to lower shipments to the US and a loss of market share following the decision to hold firm on the selling price for Bell's whisky.

Guinness Brewing fared better with a 3 per cent increase in volumes boosted by price rises to increase sales by 7 per cent. Excluding Cruzcampo, Guinness's struggling Spanish brewer, profits rose by 9 per cent.

Investment column, page 21

Photograph: Andrew Buurman