Can ex-Tesco boss Drastic Dave refresh the fortunes of drinks giant Diageo? | Diageo

Nothing is more exciting when you land a new job than knowing that news of your appointment has increased the stock market value of your employer by more than £2bn.

Dave Lewis could be forgiven for keeping this confidence-boosting figure in mind as he faces the challenge of reviving Diageo.

The London-based spirits business presides over a sprawling global empire over which the sun never sets, but its glory is fading.

News that Diageo had not only ended an uncomfortably long four-month recruitment drive but also called in the man widely credited with saving Tesco sent shares in the misfired drinks group up as much as 7% on Monday.

When Lewis officially starts operating in earnest on January 1, many customers will be weaned off their overindulgence in Diageo brands such as Johnnie Walker and Guinness.

The list of new year’s resolutions is daunting for the highly respected board executive.

Earlier this month, investment website The Motley Fool asked whether investing in Diageo, one of the FTSE 100’s traditional “defensive” stocks and the City’s term for safe bets resilient to economic downturns such as pharmaceuticals and utilities, was “game over”.

A demoralizing trading update had sent shares to a 10-year low; it was yet another unintended turning point in the brutal rigor of Diageo’s post-pandemic journey.

The hoped-for “twenties” recovery has failed to materialise, not just in pubs and bars but across the wider economy, as discretionary spending falls victim to the cost of living crisis.

There were also strategic missteps, culminating in the summer sacking of Lewis’s predecessor, Debra Crew, who was appointed following the untimely death of Diageo legend Ivan Menezes.

His tenure was marked by a shock profit warning caused by a supply problem in Latin America that slumbered Diageo’s management.

In the run-up to Christmas last year, Diageo appeared to have misjudged its supply chain once again; Pubs in the UK were complaining that their Guinness flow was being rationed.

Rumors circulated that Crew, a former captain in U.S. military intelligence, could pull off the big guns. Potential strategic bazookas include the £8bn sale of the Guinness brand or Diageo’s 34% stake in champagne and cognac business Moët Hennessy.

Diageo insiders are understood to have admired Crew’s grasp of what needed to be fixed, but felt he lacked the bold strategic vision to get the company out of trouble, let alone the ability to persuade the City that he could do it.

Underlying strategic concerns were long-term trends, such as declining drinking rates, especially among young people.

Last August, Fundsmith, the investment management company run by City doyen Terry Smith, sold its stake in Diageo, which it had held since 2010.

Smith noted the rise of weight-loss drugs like Wegovy. He said these showed signs of being effective in helping people reduce their drinking and permanently threatened global liquor sales.

Harsh times called for “Drastic Dave.”

Lewis earned the moniker during almost three decades at consumer juggernaut Unilever and cemented it at Tesco.

Diageo may be suffering from a malaise, but it took over a financially struggling supermarket business and was about to go into crisis mode after it was revealed it had overestimated the company’s profits by £250 million.

As at Unilever, Lewis pursued a cost-cutting effort by cutting thousands of jobs by closing unprofitable divisions such as electrical, weakening its international arm, and cutting the Dobbies Garden Centers business through a sale.

“Dave Lewis is ‘Mr Fixit’ in terms of markets,” said Dan Coatsworth, head of markets at stockbroker AJ Bell.

Javier Gonzalez Lastra, head of European beverage research at Berenberg, hailed a “tremendous step” by Lewis, predicting he would quickly overhaul Diageo’s culture.

So what drastic measures can be taken to get Dave out of his Tesco shopping bag?

AJ Bell thinks Lewis could revive his Guinness pitch; Diageo vehemently denied earlier this summer that it was seriously considering it.

A less drastic option would involve an immediate sale of some of Diageo’s nearly 200 brands, boosting profit margins and ensuring the company’s massive marketing budget of around £2.7bn a year is focused more tightly on the best-performing labels.

Despite its troubles, Diageo has so far managed to avoid cutting its dividend. Chris Beckett, consumer products analyst at Quilter Cheviot, thinks Lewis will have the power to rip off the plaster by doing more short-term damage to the share price for long-term gain.

Beckett pointed out that cutting payouts to shareholders was one of Lewis’ first actions when he took over Tesco in 2014; “Whether you call it a ‘kitchen crash’ or simply accept the reality of an overleveraged balance sheet.”

However, macroeconomic challenges will continue.

Donald Trump’s tariffs continue to cast a shadow over consumer goods as consumer confidence remains fragile around the world. Questions remain about whether this will happen in the long term. effect of weight loss drugs – and the sobriety of Gen Z – are cyclical trends or the new normal.

Some things even Drastic Dave can’t fix.