Published on
Dave Lewis, Diageo’s new chief executive, announced a $1 billion (€870m) cost-cutting and restructuring plan on Thursday, turning to aggressive cuts to address lagging growth as the drinks giant braces for slower demand in the years ahead.
The company now expects low-single-digit organic net sales growth until the 2029 financial year, down from a previous medium-term target of 5% to 7% growth.
Investors welcomed the plan as a sign that Lewis was taking concrete, proactive steps to address years of stagnant or declining sales. Diageo owns a number of brands, including Johnnie Walker, Guinness and Smirnoff.
Lewis earned the nickname “Drastic Dave” for previous cost-cutting during spells at Tesco and Unilever.
It is currently unknown how many jobs will be affected by the plan, especially as consultations are still under way in some regions.
However, Lewis said a restructuring plan of this scale, which is likely to fundamentally change the business’s cost structure, is expected to have a significant impact on colleagues.
Considerable changes are likely to be made to back-office functions across global operations, as well as in areas currently seeing significant duplication in processes for country-wide, regional and global functions.
The new plan will also generate savings by cutting spending on capacity built up in anticipation of growth that ultimately failed to materialise.
Savings from the programme will be generated over three years, with 70% of the initiative’s total cost of $1.2 billion (€1bn) already having been incurred.
Global beverages industry continues to struggle
The global drinks industry has continued to see slowing demand in recent years, as drinking habits, including the type of drink consumed, where and how much, have changed considerably since the pandemic.
Rising inflation and the cost-of-living crisis still affecting several parts of the world have also contributed to this, along with a shift towards low- and zero-alcohol beverages among health-conscious, younger drinkers.
This makes Diageo’s move unsurprising, especially as other major players in the industry, such as Heineken and Pernod Ricard, have also launched similar cost-cutting and staff reduction measures recently.