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Diageo Came Prepared to U.S. Drinking Party

American drinkers have saved the day at

Diageo.

That is partly because the liquor giant has been savvy at figuring out what U.S. consumers want.

On Thursday, the owner of Smirnoff vodka and Johnnie Walker scotch, said U.S. liquor sales rose 15% in the six months through December compared with the same period of 2019, stripping out currency and portfolio changes. Consumers in the U.K.-based company’s largest market are drinking more at home during the pandemic. They are also returning to trusted brands such as Baileys, which has helped Diageo to gain around 15 basis points of market share since July.

Buoyant demand in the U.S. made up for much harsher conditions elsewhere. Sales in Europe and Turkey, the company’s second-largest market by revenue, fell 10%. Although recovering, the region will be under pressure until bars and restaurants can reopen. Unlike Americans, Europeans tend to do more of their drinking outside the home.

Business in Asia is suffering from the sharp fall in airport duty-free sales. In Latin America, consumers are starting to trade down to cheaper brands as their disposable incomes are pinched. Overall, Diageo’s sales increased by just 1% over the six months through December, beating expectations of a decline.

The American market has been a bright spot for most drinks companies since Covid-19 went global. Tonic-water maker FeverTree, which also reported results Thursday, said its U.S. sales increased 23% in 2020. But Diageo is also reaping the rewards of a recent effort to tidy up its portfolio. In late 2018, it sold 19 lower-priced brands to privately owned Sazerac and has focused instead on fast-growing and higher-margin categories like gin and tequila.

That now looks to have been a smart move. The pandemic is accelerating a consumer shift towards more expensive alcohol brands in mature markets. Casamigos, the high-end tequila label that Diageo bought from

George Clooney

and two other founders in 2017 for what then seemed an inflated price of roughly $1 billion, increased its U.S. sales by 139% year over year in the latest half. These super-premium brands now generate almost a quarter of Diageo’s sales, up from 14% around five years ago. The purchase of Aviation Gin in August last year will increase this exposure further.

After a 4% increase in morning trading Thursday, Diageo’s shares trade for 25 times projected earnings—a slight discount to those of its closest competitor

Pernod Ricard.

There is a risk that Americans could trade down to cheaper alcohol if the economy deteriorates and Diageo still needs its other regions to recover.

Still, the company’s recent performance is reassuring, particularly its apparent foresight about what drinkers in its most important market want.

Write to Carol Ryan at carol.ryan@wsj.com

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