Why new CEO suggests a crisis of confidence at Diageo – Comment

In 2014, Dave Lewis was appointed CEO at Tesco on the strength of his ruthless – and successful – right-sizing and efficiency-focused approach at previous employer Unilever. Emerging from his 28 years at the latter with the nickname Drastic Dave, Lewis spent the next six years at the (at the time) bloated mess that was Tesco, setting about the task in hand with similar zeal – and success.

His appointment at Diageo, announced earlier today, couldn’t possibly be an admission by the Guinness and Johnnie Walker owner that it too is in need of saving – Could it?

For years now, one of my favourite interview questions when speaking to any C-suite executive in the alcohol industry has been: What’s the first data set you look at in the morning? The response was always telling, about where their current priorities lay, be it a geography or a category or even a brand extension. It was only when speaking to someone at Diageo that I first heard the answer: “The share price.”

By that metric, then, Diageo does need saving: The slide in share price during previous CEO Debra Crew’s tenure – falling 40% during her two years in the hot seat – was widely flagged over the summer as having been sufficient grounds for her departure.

But, considering Diageo’s performance within the beverage alcohol industry during that time – and even now – paints a different picture to the claim that an existential overhaul is due.

In sales terms, Diageo has by no means been an outlier at the bottom end of the alcohol industry. Indeed, last week’s announcement of flat sales from fiscal Q1 (to the end of September) was a beat on Pernod Ricard’s -7.6% and Rémy Cointreau’s -11% top lines for the same period, and only just behind Moët Hennessy’s +1%. This positioning has been pretty consistent since end of the post-pandemic booze boom.

And yet, today sees Diageo bring in an external recruit to be its next CEO, resulting in a warming jump in the share price. That fillip will have come from Lewis’ name recognition as well as his impressive reputation for cleaning up messes. But, for a company long built on looking up the price ladder for growth and not down, Lewis’ lack of industry experience is not without risk.

Meanwhile, that Diageo feels it needs digging out of a hole when, in industry terms, that hole isn’t particularly deep, implies an internal crisis of confidence that only a stronger share price can quell.