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<\/p>\nSir 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.<\/p>\n
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Lewis said the company would continue to focus on premiumisation. \u201cIt\u2019s done very well for us,\u201d he says, but his recovery plan also envisages\u00a0some price adjustments. That, however, is only part of what he sees as being \u201ccompetitive and returning to a norm\u201d.<\/p>\n
\u201cI\u2019m talking about brand strength, quality of brand mixers, innovation. \u00a0Some of the pricing through Covid has got a little bit out of whack, and and we\u2019ve adjusted some of those things.\u201d<\/p>\n
\u2018Drastic\u2019 Dave?<\/p>\n
Lewis hates the nickname \u201cDrastic\u201d (earned from his days at Unilever and Tesco) and despite overseeing a swathe of job losses<\/a> as duplicated roles are eliminated across the business, he is intent on developing the entire portfolio.<\/p>\n \u201cWe are not hawking any of our brands\u201d, he says, but vows to make them all work for shareholders.<\/p>\n \u201cWe intend to activate a portfolio, so that we can serve more customers on more occasions.\u201d<\/p>\n 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 \u201cvery bright\u201d.<\/p>\n Betting on RTDs<\/p>\n 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%.<\/p>\n \u201cWe\u2019re just going to roll up our sleeves and get on with our own business,\u201d he says.<\/p>\n He is especially critical of Diageo\u2019s whiskey offerings in the RTD market.<\/p>\n \u201cWe have not put our best foot forward in whiskey RTDs; I\u2019m disappointed with the flavours\u201d, he says, referring largely to Crown Royal.<\/p>\n 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\u2019s presence in the fast-growing market for smaller pack formats while broadening its flavour range.<\/p>\n Premium pre-mixed<\/p>\n 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.<\/p>\n 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\u2019Keefe, who acknowledges that the group has seen \u201cshare declines across around 65% of our business\u201d in America.<\/p>\n 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.<\/p>\n Restructuring for US growth<\/p>\n Lewis is backing him to put that right but knows that it will take at least two years to bring Diageo\u2019s US market back to growth, even though O\u2019Keefe is restructuring the business model.<\/p>\n \u201cWe 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,\u201d O\u2019Keefe says.<\/p>\n And notably Lewis points out that not one of O\u2019Keefe\u2019s plans for the US market involves crude price cuts.<\/p>\n \u201cThere have been some weaknesses in our core brands for a number of years that have been covered up [by the growth of tequila]. That\u2019s why we have lost share in North America.<\/p>\n \u201cThese 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.<\/p>\n \u201cWe are confident we know how to do that, but it won\u2019t be overnight\u201d, says Lewis.<\/p>\n Related news<\/p>\n \n \n
\n Diageo targets US$1bn in savings as Dave Lewis unveils turnaround plan
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