Diageo sees strong UK growth during festive season

LONDON, Dec 8 (Reuters) - Diageo Plc , the world's biggest alcoholic drinks group, said on Monday it was seeing strong growth in British retail sales in the run up to Christmas as price-cutting promotions start earlier than usual.

Driving growth, especially of wines and spirits, is the so-called off-trade to British supermarkets and wine shops, said the British maker of Smirnoff vodka, Baileys liqueur and Guinness beer, which is targeting higher annual sales growth this year despite the economic downturn.

"In the off-trade, we are seeing strong growth, not a decline, but we normally see growth at this time in the run up to Christmas," managing director for Diageo GB Benet Slay told an investor briefing on the British market.

He added the group was selling more volume earlier this year due to the promotions, while it had not seen any signs of downtrading from its products to cheaper brands.

Diageo shares were up 7.7 percent at 947 pence, ahead of the FTSE 100 .FTSE index which was 6.6 percent ahead by 1545 GMT.

Although the overall British alcohol beverage market declined by 1 percent to 33.7 billion pounds ($50 billion) in the year to June 2008, depressed by the falling beer market and an accelerating shift to the off-trade from the on-trade of pubs and bars, Diageo showed underlying sales growth of 2 percent.

"Right now we have good momentum at the top line level and we would be looking to beat that kind of number this year," said Diageo GB's finance director Chris Davies.

Last year's British sales were boosted by spirits up 5 percent and wines 7 percent ahead, but held back by a decline in ready-to-drink products like Smirnoff Ice. Overall, Diageo showed a 9 percent rise in UK operating profit that year.

The London-based group makes around 10 percent of its profits in the British market, which accounts for about a third of its European profits.

In mid-October, Diageo said its July-September first-quarter global sales growth slowed to 6 percent from the previous year's 8 percent, while holding its goal to grow underlying operating profits by 7 to 9 percent for its current year to June 2009.