Good morning, and welcome to Diageo's preliminary results investor Q&A call. Today's call is being recorded. Your call today will be hosted by Diageo CEO, Ivan, and Lavanya, CFO. To ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We are now ready to start the call. Ivan, please go ahead.
Thank you, Elaine. Hello, everyone, thank you for joining our preliminary results call for fiscal 2021. I'm delighted to welcome Lavanya, our new CFO. Lavanya and I are sitting in Park Royal in our office on a sunny day in London, a rare occasion. Great to have you here, Lavanya. I hope you've had a chance to read our press release and watch our presentation webcast on diageo.com. Diageo delivered an excellent set of results in fiscal 2021. We performed very strongly across all our key financial metrics while continuing to invest in long-term growth and building on our successful ESG track record. Organic sales up 16% in fiscal 2021 and up 6% compared to fiscal 2019 on a constant basis. All of our regions grew organic top line with three of the five growing net sales above fiscal 2019 on a constant basis.
North America, our largest and most profitable market, performed particularly strongly. We also delivered excellent cash flow generation. Our strong foundation going into the pandemic enabled us to respond quickly to changing consumer trends, and we have emerged stronger. We're benefiting from our broad geographic footprint, well-positioned portfolio, data analytics and tools, and creativity, and our lean cost base. We up-weighted our investment in effective marketing and consumer-led innovation, and we gained or held off-trade market share in over 85% of total net sales in measured markets, creating strong momentum for sustainable long-term growth. While we expect near-term volatility in some markets, we believe we're well positioned in fiscal 2022 to benefit from both the resilience in the off-trade and the recovery in the on-trade. I am optimistic about the growth prospects for our industry and for Diageo.
Spirits continues to gain share of total beverage alcohol globally, and premiumization trends remain strong. The 5% increase in our final dividend and the restart of our capital return program in May reflects our confidence in the long-term outlook while delivering consistent returns for shareholders. Before we move to Q&A, I'll just turn it over to Lavanya to say a few words.
Thank you, Ivan. I'm honored to be stepping into the role of the CFO, especially at such an exciting time of growth for Diageo. I look forward to building on Kathy's tremendous achievements, partnering with Ivan and the team to drive sustainable top-line growth while using productivity to enable smart reinvestment and drive value for shareholders. From my prior role as CFO of our North America region, I know firsthand how effective Diageo is when we make focused strategic choices and invest consistently behind them. While I have had the chance to meet many of you, I look forward to meeting those of you I haven't met very soon. I'll now hand the call back to the operator to open the phone line for your questions.
Thank you. We will now take our first question from Simon Hales from Citi. Please go ahead.
Thank you. Good morning, Ivan. An official welcome, Lavanya, to you in your new role. I have three questions, please. Firstly, we've obviously seen a significant up-weighting of marketing investment through 2021 and more generally in recent years. I know you talk about, in your outlook statement, the desire to continue that reinvestment as we look forward as well. How should we think about the overall rate of investment in 2022 and beyond? How do you think it develops as a percentage of sales? I'm just trying to get an idea of where things are headed and where your spend priorities really are in 2022. That's the first broad question. Secondly, I wonder if you could talk a little bit more about the inflationary pressures that you're seeing as we head into the new fiscal year.
Is that more on the distribution and logistics side, or is it on the COGS side that you're starting to see some building pressures there? Is there any skew between H1 and H2 when we think about how that will hit the P&L from a modeling standpoint, and how confident are you in your ability to pass some of those things through in terms of pricing? Finally, just a quick one around the tax rate guidance. What are the drivers, really, of that higher tax rate of 22%-24% going forward, please?
Great. Thanks, Simon. I'll take the first, just give you a headline on inflation, but then turn it over to Lavanya on inflation and tax. Marketing investment. I would say the way to think about our approach and philosophy is, number one, we see good quality, sustainable growth in this category for Diageo. The premiumization trends are strong, spirits gaining from beer and wine. Secondly, our tools and analytics of understanding marketing effectiveness, as we've talked about before, I really feel very good about, and they keep getting stronger and better. Third, the shape of the economics of our P&L, with very positive price mix and strong cost discipline on everything that the consumer doesn't feel and touch, gives us the confidence that we have the ability to deliver margin expansion, as you saw in these results, while upweighting marketing.
Having said all of that, we don't have a percentage of sales philosophy for the next few years. We actually build our marketing investment plans bottom up, and teams have to justify them. Our orientation is to invest behind quality, sustainable growth, because we can deliver strong economics with that. Diageo is well-funded in terms of our levels of marketing investment right now. Our share of voice is very strong. We've significantly upweighted media spend across the markets. You can see the results in market share, because we put an enormous focus on what we call quality market share. We really assess that carefully. It has to be brand equity, consumer-led market share performance. I'm feeling good about where we are. Could you see us increase it? Yes, you could.
We don't have a strategic posture to upweight our marketing spend in the years ahead. We kind of build it on the basis of the business case and the opportunities we see. Certainly, our orientation would be to lean in to invest where we see the opportunities, and we certainly get the returns, as hopefully you can see in these results. On inflation, I'll turn over to Lavanya. I just have a headline comment I'd like to make, which is, the nature of the Diageo business is we can take inflation in our stride, the nature of current inflation. Lavanya will talk more about what we're seeing happening. Again, it starts with strong mix and trading up. In these numbers, our reserve brands, the top 25% of our portfolio, was up 36%, the Johnnie Walker Blue Label and Captain Morgan and Cîroc of the world.
As you know, those are higher margin businesses. We are doubling down on our cost productivity, which has been now a muscle the company has built well. Our brands are strong, just to your earlier question, and brand health is strong, so our ability to manage price and mix as well is strong. The final point I'd say, on categories like whisky, the Johnnie Walker Black Label we sell today, it's useful to remember, the liquid was distilled at least 12 years ago. So we do have a buffer in the nature of our stocks and how they flow through the system. I'll turn over to Lavanya to address the specifics on inflation.
Yes. Simon, to answer your question on inflation, specifically, you asked where are we seeing it come through. Is it in cost? Is it in distribution, logistics? It is in both cases. Historically, our inflation rate has been around 3%, and what we're seeing come through now is it's ticking up a couple of points. We're definitely seeing the pressure from a commodity perspective, oil, corn, aluminum are all going up. From a distribution logistics perspective, it's really supply and demand. As demand has ticked up, rates have gone up. I won't comment specifically about if it's going to be higher or lower from a modeling perspective, half one versus half two. I think it's hard to predict in this very volatile time. At present, we definitely see inflation ticking up. As Ivan said, we have multiple tools in our arsenal to deal with inflation.
First and foremost, I'd say one of the biggest tools that we have is the premiumization trend. It's strong. Half our growth has come from the super premium plus part of our portfolio in fiscal 2021. As Ivan mentioned, this part of our portfolio has better margins. The second thing is volume leverage. We've grown 11% volume in fiscal 2021, I think that's a big differentiation versus a lot of broader CPG businesses. That enables us to really better fixed cost absorption, right. That flows through to the bottom line. The third is we are able to take pricing, where it is required. We've taken pricing on Baileys in North America. In higher inflation markets such as Nigeria and Turkey, we've taken several rounds of pricing. We've been successful at growing the business in all of these places.
Baileys in North America is up 31%, on 17% volume growth. We've really been able to demonstrate our ability to, what I would call walk and chew gum at the same time. The last thing I would say is our culture of everyday efficiency, which Ivan referred to. It's really embedded into our culture now. In fiscal 2021, everyday efficiency was able to offset inflation. Going forward, we're confident in our ability to take inflation in our stride and continue to support our brands as they deserve to be. Your next question was on tax rates. I'll be brief on that. This year, our tax rate went up, our effective tax rate went up from 21.7% in fiscal 2020 to 22.2% in fiscal 2021. It was really a combination of drivers.
The biggest one is market mix. As our business grows in markets such as China and the U.S., our effective tax rate has increased. As we look at fiscal 2022, that is going to continue to be a factor that is resulting in our tax rate guidance going up. In addition to that, there is known external factors such as the proposed increase in the U.S. headline rate. We do not know exactly how much it will be or what the timing is, but we are assuming right now that it will happen sometime during the course of fiscal 2022.
In addition to that, just overall the tax environment with governments seeking to recover from the impact of COVID, and the G7 agreement on minimum taxation, we expect all of these to contribute to A, the higher effective tax rate in our guidance, but also the wider range that we have put around our effective tax rate guidance.
Brilliant. That's really clear. Thanks very much.
We will take our next question from Sanjeet Aujla from Credit Suisse.
Hi, Ivan, Lavanya. A couple of questions from me, please. Firstly, on the U.S., Ivan, in your outlook comments, you're talking about the market reverting back to mid-single digit levels on this high base. I guess given the importance of tequila now in your portfolio and the significant outweighing marketing spend you've had, and seems like you're going to continue on that journey, would you expect to be growing ahead of the category through FY 2022? My second question is really on margins. Again, I appreciate you're not giving any guidance for FY 2022, but when I look at an organic basis, I think your margins at the end of FY 2021 are still 170 basis points below FY 2019 levels. Would you expect to fully recover that in the fullness of time over the next two, three years? How should we think about that? Thank you.
Okay, I will take the first and hand to Lavanya on the margins. On the U.S. market, firstly, we clearly see the U.S. industry momentum remaining robust. As the on-trade comes back, it is coming back strong. I love the American consumer's enthusiasm to socialize outside the home. Bars and restaurants are full, and we are, by the way, also growing market share in the recovery of the on-trade to the extent that you can measure it through NABCA, and what we pick up from our distributors. We are doing very well on the on-trade recovery. Going forward, what I am really pleased about is the share momentum in the U.S. You may or may not have seen the most recent Nielsen that just came out yesterday or two days ago. Even in the last four weeks, that momentum is continuing.
If you look at the last 12 months, six months, three months, our share momentum has steadily improved, and we're now running 50, 60 basis points of market share gains in the last month and three months. That, in part, is driven by the momentum in the portfolio. Yes, tequila is strong, and we still see a lot of runway for our tequila business. Both Don Julio and Casamigos are doing really well. It's also the full portfolio. Our whiskey business, Crown Royal, Johnnie Walker, Baileys, as you saw in these numbers, up 31%. We are in a position where we should be able to outperform and gain share as we go through fiscal 2022.
Sanjeet, I'll answer your second question on margins. As we discussed in our earnings progress in terms of where we ended fiscal 2020, part of what has caused our margin pressures has been what we would call mix, region of market mix. The shutdown of the global travel business has impacted our cross portfolio particularly, that is one of our better margin products within the portfolio. The second piece of it is the shutdown of the on-trade has significantly impacted our beer business, especially in Europe and Turkey. That has also led us to be significantly impacted from a margin perspective. Your question on do we expect margins to reverse back to pre-2019 levels? I'm confident they will reverse to FY 2019 levels.
I think it's a matter of recovering from COVID, as our cost business grows, and we gain back our beer business in the on-trade in Europe, those will substantially help us to recover margins back to FY 2019 levels. On top of that, all of the things that I mentioned in my last answer to Simon, premiumization, volume leverage, and a combination of revenue growth management supported by headline pricing will also be key drivers in us being able to recover margins over time.
Great. Thank you.
We will take our next question from Andrea Pistacchi from Bank of America.
Morning, Ivan, and morning, Lavanya. Two questions, please. The first one on your outlook commentary, where you say that you expect near-term volatility in some markets. Are you referring when you say that to anything specific that you're already seeing, maybe any markets that have deteriorated, or is it more of a general comment, potential risk of lockdowns? I think you flagged India in the prepared remarks as a market that could be volatile. Elsewhere, where do you see some risks? Then on the U.S., you were referring to the last three, six months where you've been gaining share, and this has come across clearly in the data we've been seeing. Since the reopening and since you've been facing the more difficult comps in the off-trade, how's the market been performing in the last three or four months? Would you have a number for the market depletions?
Yeah. Andrea Pistacchi, I'll take the first, and Lavanya Chandrashekar can cover the second on the U.S. market. I'd say we don't have a particularly more sophisticated crystal ball as to how the virus and the pandemic impacts are going to play out. We have scenarios, and obviously, we model against scenarios. I am cautiously optimistic and confident. However, we know the nature of the pandemic, that things can turn quickly, and so that's what's reflected in the statement. That's also our caution in not giving guidance because if I take the specifics, we know what's happened in South Africa, right? On, off, on, off, and it just reopened a couple of days ago. Could it go into prohibition again? It could. India's been up and down. Parts of Southeast Asia are tough. Indonesia. I'm talking about the virus and the pandemic. It's no more than that.
We don't have any particular geography we're concerned about. We are hopeful that the European reopening will continue and the U.S. reopening will save the on-trade momentum that I talked about earlier. That's what's behind our statement there. It isn't any specific concern in one geography. It's just recognizing that there's still, with the Delta variant and the numbers going up and down. That's why we just want to be cautious. We're very much focused on what we can control and what we can drive, building our business, gaining market share, that's what we're focused on.
I'll try to answer the second part of your question, Andrea. In terms of the U.S. market, what we're seeing happen here over the last three or four months is the very strong reopening of the on-premise. By our estimate, about 85% of the on-premises is now open, and what we're seeing is what we predicted, which is really consumers coming back to celebrating with family and friends, and enjoying a wonderful cocktail in their neighborhood bar or restaurant. That's essentially what we're seeing. In terms of the market itself, we're seeing the market continue to be very resilient. More importantly, what we are really proud of is that we are continuing to gain share in the market. Both Nielsen as well as NABCA, we are growing shares strongly on our U.S. business, both as a percentage of spirits.
Equally importantly, we are growing share of total beverage alcohol.
Quick follow-up on that, Lavanya. You say about 85% of outlets have reopened. When you think of on-trade spend, would you say that in the recent month or two, on-trade spend is back to or very close to pre-pandemic levels in the U.S.?
Yeah. The on-trade, there is geographic differences, but you look at Florida and Texas, it is absolutely back and ahead. It is coming back strongly. As I talked to our distributors in the last few days, the on-trade recovery is definitely very close back to pre-pandemic levels, if not ahead of it. It is coming back strong with premium brands. Tequila and spirits is doing very well in the recovery of the on-trade, so we are feeling good about it. Market share, as I pointed out, where you can measure it is NABCA in about 15 states. We are gaining strong share in the recovery of the on-trade in those NABCA markets.
Very clear. Thank you.
I'm sorry, Andrea. One other point I should have mentioned on volatility is GT, Global Travel. I mean, that's going to be a slow recovery, and that's also a little hard to predict the pace at which global travel will come back.
Yeah. Thank you.
We will take our next question from Olivier Nicolai from Goldman Sachs.
Hi, good morning, Ivan, Lavanya. I've got three question, please. First, on North America, you had a strong step up in marketing investment as a percentage of your sales this year. Should we expect marketing investment to continue to grow ahead of sales from this already very elevated level, going forward? Or could we actually expect some operating margin progression to resume in North America in the midterm? Secondly, to stay on the U.S., you mentioned price increase for Casamigos, which makes a lot of sense considering the demand. When I look at the numbers, though, on page eight of the press release, the price mix for Don Julio appears to be negative. Is that an effort of trying to change a relative price positioning between those two brands, which is so far relatively similar?
Is it me just reading a bit too much into this, and it's just a question of timing? Just last question is, you are reopening actually a few ghost distilleries. Port Ellen, Brora, and you've made a lot of investment in Scotch in recent years. Do you see single malts playing a bigger role in the reserves portfolio going forward? Can we also expect direct to consumer sales to become much bigger in the future? Thank you.
Okay. Olivier, I'll take your second and third, and Lavanya can come back to the North American investment in margins. No, Don Julio is I think what you're seeing in that Don Julio number, which is purely mix. It's probably more Blanco and Reposado and 1942, Don Julio 1942, which is the single biggest luxury spirits brand in the U.S. I mean, we're constrained on the supply. No, Don Julio is really healthy. We're taking price. We're not going discounting this brand. We don't have enough. It's probably the mix effect that you're referring to, which is more Blanco and less Reposado and Añejo and 1942. A lovely data point I will give you, which is in the state of California, which you know is the most developed tequila market in the U.S., Don Julio is now the number one ultra-premium tequila brand.
The health of this brand is really, really strong. On our investment, yes, really delighted about our investment in Brora and Port Ellen. Brora's producing now. Port Ellen is going to open next year. In our Scotch strategy, we clearly see opportunities for continuing to build Johnnie Walker and Buchanan's and accelerating the growth on malt. Even within blends on Johnnie Walker, the top end of Johnnie Walker is where we're seeing acceleration. We've got some very exciting plans on Blue Label, where again, we see good growth, but we believe we can get significant growth on Blue and Gold and Green, and the higher marques of Buchanan. Malts are definitely on trend, and we have, I'd say now, a very clear strategy and investment behind building the malt brands and building the top end of it.
A brand like Mortlach, which we really want to build, and it will be slow, but we intend to build Mortlach as the pinnacle of malts over the next 5-10 years, and we're investing behind it, and we're also liquid constrained. There's a clear malt strategy for which I think is going to be very exciting and accretive for Diageo.
I think, Olivier, your first question on the North America marketing investment. How we think about North America marketing investment, I start with saying that despite our strong growth in North America on the business of 20% growth, we are still only a seven share of total beverage alcohol. Despite the 79% growth of our tequila business, we are still only a 10 share of the tequila category. We believe we have a strong runway for continued growth. That's really what drives our decision to continue to invest strongly behind our brands. We, of course, measure our marketing investment very carefully. We have discussed several times before tools such as Catalyst, which enables us to ensure that we are looking at our marketing investment, and making sure that we're always ensuring that we are supporting our brands to sufficiency.
The second thing that I would say is, leverage that we have to drive operating margin, volume leverage. As we grow our volume, in markets such as North America, we gain substantial operating margin due to leverage. Mix, again, as we grow out the premium part of our portfolio, and everyday efficiency. The last thing I'd say is, our North America margins are still significantly accretive to the group margin. Our accelerating investments behind the North American business and our growing North America disproportionately is good for Diageo.
Thank you very much.
We will take our next question from Trevor Stirling from Bernstein.
Good morning, Ivan and Lavanya. Two from my side, please. The first one, Lavanya, I think from your page 13, looking at the comparison with and without travel retail and Guinness. Would I be right in thinking that if you had a full recovery in travel retail and the G.B. and Ireland on-trade, you're probably looking at about 6 percentage points of sales coming back and presumably a bit more on margin? The second question, maybe for Ivan. Looking at your two-year CAGR, Ivan, Latin America at 5% with travel retail still depressed is a very strong recovery. I wonder if you could give us just a bit more color on what's driving that strength in Latin America.
Sure. I can start with Latin America. Actually, when we were sitting here 12 months ago, I would not have expected the pace of recovery we've seen in Latin America. It really is quite broad-based. We're seeing very good growth across all the markets. Brazil has had astonishing growth at, well, 50%. Mexico is strong. Scotch whisky has come back very strong. It's not just primary whisky, where we had a big good success with Black & White and White Horse and those brands. Buchanan's and Johnnie Walker has also come back really strong. Here's what's happening. We are, again, a very tiny share player in the TBA markets of Latin America. Our focus has been very much on growing share of TBA and looking at the occasions in which we can take share also from beer.
In the at-home occasions through the lockdown, I'd say our marketing approach and commercial execution pivoted very strongly to winning in that at-home occasion. Our premium brands came back really strong. Johnnie Walker is up, what's it, 29%, Buchanan's up 23%, all parts. I'm feeling good. The margins have come back, Trevor, which is also really encouraging. We had, I think, over 600 basis points of margin improvement in LAC. With Alvaro, who heads up Latin America right now, we're setting our sights on really ensuring that this business can really be high margin and can be really growth accretive for Diageo. Alvaro and the teams across those markets have kind of exciting strategies on how we can go about it.
Scotch whisky vibrancy and health is really encouraging, and the premiumization trend, all of that is supporting what you see in these numbers and our confidence that Latin America will continue to be a really good growth engine for us.
Trevor, on your first question, yes, your interpretation of that chart is correct. If you exclude the negative impact that we've had on our business from the shutdown of the global travel business, which is down 62% this year versus last year, fiscal 2021 versus fiscal 2020, and the impact of Guinness, which in total terms was flat in fiscal 2021 versus fiscal 2020. There's been a big kind of regional mix difference there within the Guinness numbers. Our two-year compound annual growth rate versus fiscal 2019 would have been 6%. That's exactly what we were trying to communicate in that chart. I hope that answered your question.
Yes. Thank you very much indeed to both of you.
We will take our next question from Mitch Collett from Deutsche Bank.
Good morning. I also have three questions. Firstly, can I ask if you can comment on stock levels, particularly in the U.S., but are you back to normal now everywhere, or are there parts of your business where stock levels are below or above where they would ordinarily be? Secondly, just to go back to the increase in marketing. It's up about 70% on a five-year view, in absolute terms. I think as a percentage of sales, it's the highest we've ever seen. I know you've commented that you want to keep investing, but should it be a constraint to profit growth in FY 2022? Also, I noticed you mentioned it was one of the drivers of good working capital performance. Can we infer from that the timing of marketing investment this year is somewhat back-end loaded?
Finally, Ivan, you mentioned in the slides that Diageo has emerged stronger as one of your key points. I just wondered if you could clarify what you mean by stronger? Do you mean higher growth, higher margin, more heavily invested, or maybe even all of the above? Thank you.
Sure, Mitch. Why don't I take the emerge stronger, and then I'll ask Lavanya to address stock levels and your marketing spend question. When the pandemic hit 16 months ago, we set internally a very clear focus in February, March of last year around. What we wanted to do was steer this company to emerge stronger. What that meant was a couple of important things. One is quality market share was our focus. We were not focused on financial plans and markets where we removed the annual plans that we had in place, and we said to every market and business around the world, "Focus on quality market share." Now, quality has a big definition that goes with it, which is all about price and mix and building brand equity and investing behind it, and the commercial execution that goes with it.
The second thing was to really ensure we took care of our customers, our people, and the communities in which we operate. We call it enhance our lookback reputation. As I look at where the company is today, I'd say on both fronts, we've performed really strongly. Now, we stayed invested to ensure that the business, not just in marketing investment, our capital spending in Scotland, our acquisitions, we went out and bought Aviation and did Lone River and Loyal 9. Obviously, the financial strength of the company is important. To me, cash flow is a real important measure of, if you look at our working capital disciplines and how we've come through. Receivables and bad debts have never been lower. Stock in trade is really, really healthy around the world.
All those dimensions bring us to a point where we do feel the company is stronger, and that's how we set about what we set about to do. We're feeling good about the platform that we're on as we go into fiscal 2022 and beyond. Lavanya?
Yes, Mitch. Your question on stock levels, as Ivan said, we are very comfortable with where our stock levels are. On a global basis, still not back to pre-COVID levels. This comes out of the culture that we have built over here over the last several years of sell in, sell out. We came into the crisis with healthy stock levels. In terms of what we've seen happen with stock levels in North America, the primary thing that we've seen was in fiscal 2020, as we ended fiscal 2020, we saw de-stocking in the market, and it was really driven by the uncertainty and the volatility that existed as we were exiting last fiscal year, and the hesitancy of the distributors and retailers with holding higher stock levels as well as our desire to match our sell in to sell out.
What we've seen in fiscal 2021 is really the replenishment of those inventory levels. They're still below historic levels. Now at a comfortable place, is what I would say. Your other question on working capital, did we feel was it back weighted? Was marketing spend back weighted, and if that was causing the working capital increase in fiscal 2021. We always want to ensure that our marketing spend matches with what's happening in the marketplace. We try to spread our marketing spend across the year to best support our business in line with how the market is evolving. What we have seen at the end of fiscal 2021 is up-weighting of marketing spend in certain regions and markets, mainly driven by how the on-trade has opened back up. In North America, 85% of the on-trade is back open.
As that started to happen in March, April, May and June, we were keen to invest in and support bars and restaurants as they opened back up and support our business in the on-trade. The second thing that has also impacted working capital spend iS just production in levels. We've come out of this year with strong growth rates, which has required us to pick up production versus where we were at the end of last year, where we were actively pulling back on discretionary spend.
That's very clear. Thank you both.
We will take our next question from Edward Mundy from Jefferies. Please go ahead.
Morning, Ivan, Lavanya. Three questions from me as well, please. The first is, I think in H1 you said that you had held or grown off-trade market share in 70% of total net sales value, and that's risen to 85% at the end of the year. Could you talk about what the big movements were and what really drove that? The second question is on the U.S. market. I think, Ivan, you mentioned that you expect the U.S. market to revert back to its sort of medium-term run rate of mid-single digits. I think historically it was running about four. Is there scope for the industry to grow more than four, do you think? As more people have made cocktails at home and more people have tried premium spirits.
Then the third question for Lavanya, you talk about the focus on everyday efficiency, and obviously, Diageo's done an awful lot the last five years or so. Are there any learnings from some of the other companies that you've worked at that can apply to Diageo when it comes to sort of really driving everyday efficiency?
Okay, I'll take the first two. Just on the market share reporting, I think if you read the fine print, we've added some more markets. Actually, the market share momentum hasn't changed on a real basis, because the basis on which we're reporting the 85% is a bit different. It's consistent to where we were in the first half broadly. It's still very strong performance. If you look at where we are, in the most important markets, the U.S., pretty much all of Europe, there are a few small exceptions. We're significantly gaining share. Across Latin America, actually Mexico, which was losing share in the first half, is now in the second half is gaining share. Most of our markets in Latin America are gaining share.
We have pockets where we are behind, pockets in Southeast Asia where we are not quite gaining share yet. We have, in the beer business in Nigeria, a little behind, but Guinness has done astonishingly well in Nigeria. Overall, I'd say the health is strong. We're also losing a bit of share in Canada, where we're underperforming the market. On the U.S. market, I think your point is Our assessment is there should be a bit of an uptick. It's hard to quantify, and it's early, and there's a lot of dynamics at work with the recovery of the on-trade. Also, the return to work is a phenomenon we need to understand the extent to which it happens and how it impacts consumption occasions and moments.
What I've always said, Ed, is consider the pre-pandemic trend as the floor, because the core drivers of consumer taste, demographics, premiumization, spirits growing faster than beer and wine, we believe all those will continue. There certainly is the opportunity for it to be higher. I think we'll just need to see. I'd be cautious to declare it. What I'm comfortable saying is the pre-pandemic level is the floor. We certainly intend to keep the vibrancy of the spirits category very high as our competitors are as well. The marketing innovation that's happening in spirits continues to be very effective in the category. We did see spirits penetration increase faster than wine and beer penetration in the last 12-18 months. Those habits of at-home consumption should stick.
This discovering your inner mixologist and having that delicious Tanqueray and tonic or Bulleit Bourbon Manhattan or on the rocks versus a boring glass of wine or a boring bottle of beer from the fridge, I think those habits will stick. Cautiously optimistic, it could be a little higher than the pre-pandemic trend.
Edward, on your last question on everyday efficiency, what I have admired in Diageo since joining Diageo three years ago is really the fact that productivity and everyday efficiency is truly embedded into our culture and our ways of working and our business reasons. It's not a program anymore. It's just something that every one of our 28,000 employees just do every day. Having said that, the job is never done. There continues to be opportunities that we're always pursuing. I would say that we see opportunities in the supply chain area. We see opportunities to continue to simplify and streamline our processes end to end, and drive further efficiency in shared services. Just the availability of data and how the world is evolving from a digitization perspective also provides tremendous opportunities for us to continue to pursue productivity.
I think great progress in fiscal 2021, we were able to offset inflation through productivity. Going forward, I think we will continue to look for more avenues to drive efficiency.
Great. Thank you.
We will take our next question from Laurence Whyatt from Barclays.
Hi, good morning, Ivan and Lavanya. Thanks very much for the questions. Two from me, if that's okay. Firstly, on the U.S. business, tequila's obviously been the standout performer. The comps, even recent months, have been pretty high. Still the growth rates that we've seen in Nielsen are still well elevated over those. Could you give an indication of what sort of level of growth you're potentially expecting this year in tequila? Should we expect that to slow down somewhat, or do you think the growth that we're seeing at the end of fiscal 2021 could be maintained? Linked to that, I suppose, what % of U.S. sales at the end of this year are coming from tequila? Then my second question on the Indian business.
There's been a bit more chatter in U.K. press about the potential trade deal with India that may include a reduction in the tariff on imported alcohol, which would presumably include Scotch whisky. If any tariff was reduced, hypothetically speaking, would you look to reduce your prices in India at a similar level or a commensurate level to the tariff reduction that may be seen in the country? Thank you very much.
Sure, Laurence. I'll take those. On Tequila, it's about roughly 20% of our business, I think, of the U.S. business. It's obviously very fast-growing. We do see, I won't give you a number, on terms of what we expect for this year, but it's obviously going to be very fast growth. Casamigos grew 126%. I'm not sure that's going to sustain, but you're going to see very fast growth. One of the things we feel about the Tequila category going forward is that we do see a lot of runway. This category is, if you look at the dynamics at work, it's cutting across demographics, it's cutting across occasions, the versatility of drinks, and the association with health and wellness of agave. All of those bode really well.
The other thing I'd say to you, which it's an interesting data point, California is the most developed Tequila market in the world. If you look at Nielsen sales, Tequila is about 20% of spirits in California. A lot of the country is still sitting at about 10% or lower. This trend has a lot to run, and what we're really excited about is it's happening at the top end. Right? Our growth rates double the growth rates of the Tequila category because the acceleration is happening at the top-end price points. We feel good about that. On tariffs, again, the discussions between the U.K. and India are happening. It's more promising than ever before. It's obviously too early to call what may happen. We expect there to be some gains, hopefully in the next year or two. Clearly, we will have to reflect our pricing.
If we have elimination of tariffs, it will impact the pricing in the marketplace, but we also have global pricing norms on brands like Johnnie Walker. The bottom line is we would see an acceleration in our Scotch whisky, bottled in origin Scotch whisky business, were tariffs to come down. We've modeled all those scenarios, and we'll see it through in the next year or two, depending on where the talks get to between the U.K. and India. It's more encouraging than it's been, I'd say, in decades. We have scenarios of the amount of whisky we'll need to lay down in Scotland as tariffs come down. It is going to impact our plans.
Thank you very much.
We will take our next question from Alicia Forry from Investec.
Hi. Good morning, and thanks for taking the questions. I've got three, please. The first one is on your guidance for margin expansion in FY 2022. Does this include an assumption of price increases to recover the slightly higher cost inflation that you've mentioned, or can efficiencies cover that inflation yet again in FY 2022? Secondly, you mentioned having taken some successful price increases in LAC and in Africa, but you've also mentioned elsewhere some down trading in a few of those markets. I just wondered your thinking behind taking price in those markets at their various stages of recovery across the emerging markets landscape. My third question is on Africa, where it seems like you've made quite a big focus on the off-trade and on e-commerce, both of which historically have been a bit challenging in that region.
I was just wondering how you've gone about making the African off-trade work for you so successfully? Thank you.
Sure, Alicia. Why don't I take Africa, and then Lavanya can do the margin and price increases? Yeah. Our Africa business, which by the way, is strongly on-trade driven. The beer business has a lot of on-trade, out-of-home consumption. We dis, as you point out, we did pivot strongly in the off-trade. Our business is up 20%. We had good growth across all the regions. Our beer business was up 19%, spirits up 21%. Guinness actually was really strong in Africa, up 32%. We did a few things in Africa, not unlike everywhere else in the world. The shift to off-premise in marketing and commercial execution, we stepped up significantly. In markets like Uganda, we went into home delivery, e-commerce platforms for home delivery, with boda bodas, guys on motorbikes who would deliver your beer and spirits to the home. Kenya, we did the same.
We pivoted on working with e-commerce platforms that developed in these emerging markets, and I'd say that in part is what's helped us to sustain the growth there. Mainstream Spirits has done very well in Africa, and we're really glad. It was up 29%. That business is nicely building for us, and it's margin accretive for us. These are locally made spirits. That lends itself to at-home consumption and off-trade as well. That's been part of what's supported our growth. Lavanya Chandrashekar?
Yes. Your first question, Alicia, was in terms of our guidance on margin expansion and will this include pricing. I'd say that pricing is one of the levers that's in our arsenal to be able to drive margin expansion. The other ones are obviously volume leverage, mix, that's premiumization, and the return of the growth of Scotch with the growth of the more premium part of our portfolio, as well as the return of on-trade beer, are all going to play a factor in being able to drive our margin expansion. Our objective will be to negotiate with our customers the right pricing required in individual markets as needed. In terms of your second question on down-trading, we have seen some down-trading in the emerging markets, our value brand, as consumers have looked for value in more challenged conditions.
I think our Mainstream Spirits business in Africa was up 29%. We saw primary Scotch up in Latin America, especially in the first half of the year as well. What we're very proud of is that we've been able to keep consumers in our portfolio because we have the breadth and depth of the portfolio to be able to cater to consumer needs, both in environments where there is significant premiumization and trading up happening, also in circumstances where consumers feel the need to temporarily trade down. I think definitely we've seen the impact of both. In total, 50% of our growth has come from the super premium and above segments of our portfolio and our Reserve business, which has grown 36%. I think in aggregate, I think we've clearly seen far more premiumization impact on our business than down-trading.
Okay. Shall we do the last question?
Thank you. We will take our final question from Chris Pitcher from Redburn.
Thanks very much. Just a couple of questions then. Following up on the discussion around travel retail and Guinness impact, the details you've given at the back of the statement show that combined, they were a very high margin contributor in fiscal 2019, and profitability has fallen off significantly. Can I just understand a bit more of the economics there? I would imagine travel retail is much more of a variable cost business and therefore margins won't have fallen very much, or as much. Is it Guinness that has really seen profit drop very significantly, and that's where the operational gearing coming back is, i.e., you're more geared into an on-trade Guinness recovery than you would be necessarily to a travel retail recovery? Secondly, on Casamigos. I remember at the time when the deal was announced, it was slightly a headline grabbing price.
The volumes have massively exceeded certainly our expectations at the time, even with higher agave costs and I would assume some incremental capital investment. Have you covered cost of capital this year? In which case, that would be a positive indication. Thanks.
Sure. Chris, I can take your questions. On the impact of travel retail and Guinness, what we need to remember is that a significant portion of our travel retail businesses is premium Scotch, super premium Scotch. Part of what we have seen and what's demonstrated in the financial statements that we put out there comes from the fact that we have lost a significant portion of that very profitable Scotch business that flowed through travel retail. There's definitely a portion of impact that comes from the reduction of our Guinness business as well. That's really, it's been a tale of two cities. We've seen Guinness on-trade do poorly in Europe mainly due to the restrictions of the on-trade. On the other hand, we have seen the Guinness cans business pick up. Guinness in total, in aggregate, at a global level is flat.
That mix between the very profitable on-trade business versus the loss of the on-trade business versus the gain of the off-trade cans, plus the loss of premium Scotch, is what has contributed to the margin decline. Casamigos, I'd say that we have been very pleased with the acquisition of Casamigos. The brand has outperformed all of our expectations at the time of acquisition from a top-line basis. It's a very efficient model of driving a business in terms of how the brand is supported and how it has grown. Yes, we are very pleased with the return of capital that we've had from the Casamigos acquisition.
Just on the contingent payments you're making, is that a good indication, are you well ahead of the sort of 10-year earn out? That's a good indication of how it's been progressing. Is that the way to think about it?
Yes.
Yeah. We're ahead of our expectations, so we're really, really happy with it. In spite of agave prices being higher, the cash flow that this acquisition has thrown off has been superb, and the brand still has a lot of runway ahead of it.
Thank you very much.
Good.
We'll wait till the next period to talk [Inaudible] .
Okay. Thanks, Chris. Thanks very much, and appreciate everyone calling in, and appreciate your interest in the company. Lavanya and I look forward to talking with many of you over the next couple of weeks. Thank you.
That concludes today's presentation. Thank you for your participation.