How Much Does Alcoholic Beverages Giant Diageo Spend On Marketing Activities Each Year?
Diageo (NYSE: DEO) expenses are largely driven by cost of sales, which account for about 50% of the company’s total expenses. Over recent years, Diageo’s total expenses have been rising, whereas, revenues have seen some volatility. This has led to a rise in total expenses as % of revenue in FY 2019 (after a drop in FY 2018). However, Trefis estimates a marginal drop in total expenses as % of revenue from 75.4% in FY 2018 to 75% FY 2019. To understand the trend in all major expense items and what is driving the change, view the Trefis interactive dashboard – How Does Diageo Spend Its Money?
Total expenses
- Total expenses as a % of revenue decreased from 77.5% in 2017 to 73% in 2018, followed by an increase to 75.4% in FY 2019, driven by higher commodity costs and increased marketing investment.
- The metric is expected to drop marginally to 75% in FY 2020, driven by faster growth in revenues and productivity savings from cost efficiencies.
Breakdown of Diageo’s Total Expenses
Cost of Sales
- Cost of sales, which accounts for 50% of Diageo’s total expenses, has remained flat in FY 2019, however, as a % of revenue it has increased, mainly due to a fall in revenues, exacerbated by a marginal rise in commodity costs.
- However, the metric is expected to drop a little from 37.8% in FY 2019 to 37.6% in FY 2020 despite inflationary pressure, mainly driven by higher growth in revenues in the near term.
Marketing Expense
- Marketing expense as a % of revenue has been increasing in recent years, from 14.9% in FY2017 to 15.9% in FY2019.
- The trend is expected to continue in the near term with the metric expected to rise to 16.2% in FY 2020, led by increased marketing spending especially for US Spirits.
Other Operating Expense
- Other operating expense as % of revenue has been decreasing steadily from 16.7% in FY 2017 to 14.9% in 2019.
- The trend is expected to continue with the metric expected to drop further to 14.5% in FY 2020, led by productivity benefits from cost efficiencies.
Net Finance Charges
- Net finance charges have been decreasing despite higher interest payout on the back of increased debt, mainly due to higher interest income.
- To understand how Diageo’s net finance charges are expected to trend going forward, view our interactive dashboard analysis.
Other Non-Operating Expense
- The company has been earning non-operating income (instead of incurring expenses) over the last few years, mainly comprising of income from associates and joint ventures.
- This income is expected to continue in the near term, as non-operating expenses are set to be very low.
Effective Tax Rate
- Effective tax rate decreased in FY 2018 due to tax credits received, but it increased to 21.2% in FY 2019.
- The metric is expected to remain around the current level going forward, as well.
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