Drastic Dave takes Diageo

Investors are popping champagne today for Diageo, the largest maker of spirits in the world.

Shares of the parent company for brands like Guinness and Smirnoff rose 4.74% today to their highest level since February after new CEO Dave Lewis unveiled a dramatic turnaround plan that aims to save $1.2 billion in costs over the next three years.

The announcement is an aggressive move to combat what’s been a rut of weak growth for the company. Shares of Diageo are down 8.78% over the past year.

It’s also Lewis’s first major move since becoming CEO in January. Lewis’s reputation as a shrewd cost-cutter unafraid of upheavals earned him the nickname “Drastic Dave” during previous gigs at Tesco and Unilever. Investors were relieved that Lewis offered a concrete plan after months of question marks over how he’d revive the struggling drinks giant.

Diageo’s plan has a few components:

• Layoffs: Although Lewis didn’t specify how many, he said there would be a “very significant” impact on colleagues, according to Reuters.
• Diageo will also use good old fashioned supply chain reorganization and corporate restructuring.
• Instead of splitting the G, Diageo will in fact be doubling the G: The company is investing $1 billion to double Guinness production by 2031.

A generational hangover

Diageo isn’t the only beverage maker that’s struggled in an era where young people are drinking less than ever. Other companies, including Pernod Ricard and Brown-Forman, have noted dry spells as Gen Z eschews alcohol and inflation drives people toward cheaper drink options.

But Diageo still had a few bright spots worth toasting in its earnings report. The World Cup attracted customers and spiked sales of its ready-to-drink beverages by about 35%. Overall, for the fiscal year that just wrapped up on June 30, it reported organic net sales of $19.64 billion, down just 2% from last year, and forward-looking guidance wasn’t as bad as analysts feared.

Maybe Drastic Dave doesn’t have such a dangerous situation on his hands after all.—LB