Shares in Diageo fell as much as 16% earlier today after it stated that it expected its first-half operating profit growth to decline as a result of a “materially weaker performance” in the Caribbean and Latin America.

Sales in the region make up 11% of the beverage maker’s global sales, but are expected to decline by over 20% in the six months to the end of December.

The maker of alcoholic beverages such as Guinness, Tanqueray gin and Johnnie Walker whiskey has said that it expects gradual improvement in organic net sales growth in North America compared to the 2022/23 financial year, whilst also predicting improvement in net sales growth in Africa.

Head of investment at interactive investor, Victoria Scholar, said: "Macroeconomic headwinds are dampening demand for Diageo’s offering in the Caribbean and Latin America. The consumer slowdown is prompting customers to switch to cheaper substitute drinks instead, weighing on Diageo’s branded sales."

Diageo has said that it has witnessed continued momentum in Europe and Asia Pacific, albeit slower than in the second half of the 2022/23 financial year.

Scholar added: "In Europe and Asia Pacific, it also expects slower momentum in the current half year. Trading down among consumers is a key risk to Diageo’s strategy which has been to focus on quality over quantity. The economic downturn is likely to mean fewer consumers are willing or able to pay more for expensive high margin premium spirits."

Investment director at AJ Bell, Russ Mould, added: "It’s a rarity to see Diageo issue bad news, yet no business is immune to setbacks and the drinks giant has confirmed that life is not going well.

"The last time Diageo issued a major profit warning was in February 2020 when it said the spread of COVID-19 in China – an important sales region for the group – would hit earnings. That situation was out of its hands and it simply had to muddle through what then became a global problem. There has been a premiumisation trend among consumers in many parts of the world whereby people have been happy to spend more to get what they perceive to be a higher quality product. Diageo rode this tailwind with great success.

"This shift in drinking habits is now being tested by a gloomier economic environment. Some people are trading down to cheaper products or are drinking less often, which means perceived ‘luxury’ companies like Diageo are finding life harder.

"The idea that luxury goods companies are immune to an economic downturn isn’t stacking up. LVMH, Estee Lauder, Ralph Lauren and Watches of Switzerland have all talked about a slowdown in growth at various points this year, so perhaps Diageo falling into the same pit shouldn’t have been a surprise."

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