Sir Dave Lewis is going deep with cost cutting at Diageo, but he is also intent on restructuring the business to unlock greater value from its portfolio, writes Ron Emler.
Lewis said the company would continue to focus on premiumisation. “It’s done very well for us,” he says, but his recovery plan also envisages some price adjustments. That, however, is only part of what he sees as being “competitive and returning to a norm”.
“I’m talking about brand strength, quality of brand mixers, innovation. Some of the pricing through Covid has got a little bit out of whack, and and we’ve adjusted some of those things.”
‘Drastic’ Dave?
Lewis hates the nickname “Drastic” (earned from his days at Unilever and Tesco) and despite overseeing a swathe of job losses as duplicated roles are eliminated across the business, he is intent on developing the entire portfolio.
“We are not hawking any of our brands”, he says, but vows to make them all work for shareholders.
“We intend to activate a portfolio, so that we can serve more customers on more occasions.”
Far from selling off Guinness, as some have speculated, a US$1 billion investment to double Guinness production capacity over the next five years is central to his plans, as he takes it deeper into global markets. The future for Guinness [which now makes up about 12% of group sales] is “very bright”.
Betting on RTDs
He wants to make up lost ground in the RTD market. Having once held almost a quarter of that sector Diageo now has about 10%.
“We’re just going to roll up our sleeves and get on with our own business,” he says.
He is especially critical of Diageo’s whiskey offerings in the RTD market.
“We have not put our best foot forward in whiskey RTDs; I’m disappointed with the flavours”, he says, referring largely to Crown Royal.
Change has already started with a US$20 million investment in a plant in the US, much of which will be devoted to expanding Crown Royal’s presence in the fast-growing market for smaller pack formats while broadening its flavour range.
Premium pre-mixed
Lewis also argued that if around half of Scotch and other whiskies are consumed in mixed drinks, there is a significant opportunity to offer more premium ready-to-drink whisky serves.
The US market is critical to Diageo, accounting for more than 35% of its global sales. Turning it around is the responsibility of new head John O’Keefe, who acknowledges that the group has seen “share declines across around 65% of our business” in America.
He identifies Crown Royal, Smirnoff, Captain Morgan and Don Julio as the brands requiring the greatest attention, with poor packaging, weak marketing execution and non-availability of the right smaller pack sizes as key to their woes.
Restructuring for US growth
Lewis is backing him to put that right but knows that it will take at least two years to bring Diageo’s US market back to growth, even though O’Keefe is restructuring the business model.
“We are moving from separate Spirits and Beer divisions to a single commercial organisation, with one commercial leader, one set of support functions and one set of key accounts. That is going to improve our agility immensely,” O’Keefe says.
And notably Lewis points out that not one of O’Keefe’s plans for the US market involves crude price cuts.
“There have been some weaknesses in our core brands for a number of years that have been covered up [by the growth of tequila]. That’s why we have lost share in North America.
“These are very big, important brands which frankly we have not done a great job with. We need to go back and do that and also to recover the momentum with tequila.
“We are confident we know how to do that, but it won’t be overnight”, says Lewis.
Related news
Diageo targets US$1bn in savings as Dave Lewis unveils turnaround plan
India halts sales of Diageo and Inbrew spirits over flavouring concerns