Allied Domecq raises advertising spend to revive flagging sales

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The Independent Online

Allied Domecq, the Ballantine's Scotch to Perrier Jouet champagne drinks group, is raising spending on advertising by more than one-quarter to shore up "disappointing" sales of its core brands in the US.

The world's second-biggest drinks group is under pressure to revive volume sales after an ill-timed pricing hike in the US last year coupled with destocking that hit market share of its leading brands such as Beefeater gin and Sauza tequila.

Philip Bowman, Allied's chief executive, said: "We recognise that we have had some short-term challenges. These include lower volume performances than we had planned from some of our core brands, particularly in the US."

While Allied reported profits for the six months to 28 February in line with market expectations, analysts criticised the group for the lack of momentum behind its leading brands.

The price increases in the US, which were pushed through by the group's former head of US operations, Todd Martin, caused North American volumes – excluding the impact of a programme to reduce inventories – to fall by 2 per cent.

"There is legitimate concern at pretty poor turnover figures in what has been quite a strong trading environment," said Nigel Davies, at JP Morgan.

Allied insisted that better trading in the past few months for all of its core brands meant that it had turned the corner in the US. "The signs are positive and the market is picking up nicely," it said.

The group, which also runs the Dunkin' Donuts and Baskin Robbins fast-food chains, increased the advertising spend behind its brands by 27 per cent in the first half of the financial year to £204m – a double-digit increase. It is putting $70m (£48m) behind a US campaign to launch two ready-to-drink products based on Stolichnaya vodka and Sauza tequila in the US. The drinks, which were developed in partnership with Miller Brewing, will mark Allied's entry into the fast-growing sector.

Allied attempted to defend widespread criticism that it had failed to keep pace with rival Diageo in the ready-to-drink sector. "The market is expected to grow to 7 per cent of the US beer market this year from 2 per cent," it said. The group will also launch a cream version of Tia Maria called Tia Lusso later this year in the UK.

Pre-tax profits for the first-half of its financial year rose by 6 per cent to £251m on turnover up 17 per cent to £1.7bn. Allied booked an exceptional profit after tax of £74m from an anticipated Mexican excise tax rebate.

The group said it expected to close its recent £560m purchase of Malibu rum from Diageo "within the next couple of week". It is awaiting US approval for the deal, which it struck as part of a bargain that saw Diageo keep the disputed Captain Morgan dark rum brand.

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