Diageo has said the tequila boom “covered up” softness in North America, acknowledging that it has “a turnaround to execute” in the region.
The spirits major saw full-year declines in ‘North America’ of 8.4% to US$7.97bn in fiscal 2026, reported yesterday, led by a 21% decline in tequila sales. In the fourth quarter, sales fell 10.7% in the region.
Speaking to investors at the company’s capital markets day yesterday (6 August) CEO Dave Lewis said: “It’s fair to say our North American business has been underperforming for quite a while. The growth of tequila covered up some of that. We now need to face into some of the realities.”
He added: “We’re really clear that we have a turnaround to execute in North America, but we need to do that whilst we continue to accelerate the growth elsewhere in the world.”
Looking forward, Diageo forecast “a mid-single-digit decline to a low-single-digit decline, and then getting to a flat performance in North America” over the next three financial years.
Though Lewis plans to advance the company’s “competitiveness” in North America, he insisted that this did not mean solely focusing on price.
“What I’ve learned in this category is … every time I say competitiveness, everybody says price,” Lewis told reporters in a separate call yesterday. “That’s … an element, but it’s not what I mean.”
Smaller pack sizes
One of Lewis’s key strategies to improve “competitiveness” is to increase the business’s focus on smaller formats (under 75cl), in which he said the company “under trades by about 50%”. The North American market is a “case in point” here, he argued.
“Part of [the lack of smaller formats] is a capacity constraint: we didn’t put the capacity into those pack sizes,” he explained. “Partly [it] was not being quick enough in realising that as the economic pressure came in, what do people do, they buy smaller pack sizes before they trade out of the category. So we have lost some of that opportunity. North America would be a case in point.”
Lewis has allocated US$20m for small-format capex investment in North America. “It’s an opportunity for us, but it’s going to take some time because I’ve got to invest the capital for the packaging capability,” he explained.
Also speaking to investors yesterday, North America president John O’Keeffe said: “We will now have unlimited ability to go after our small format opportunity, starting from the second half of this fiscal, and closing out those distribution gaps.”
Portfolio management
Lewis argued that a lack of investment in core brands including Crown Royal and Smirnoff in the US – while focusing more on tequila, for example – has hampered growth in the country.
“These are very big, very important brands, which quite frankly, we’ve not done a great job with. We need to go back and we need to do that. And we need to obviously recover the momentum in tequila. We’re confident we know how to do that, but it won’t be overnight,” he said.
“I see some weaknesses in core brands for a number of years that’s being covered up by the growth of tequila. And actually in the last year, we’ve seen tequila suffering quite considerably for a number of reasons, and … that’s why we’re losing share in North America.”
On Smirnoff, O’Keeffe added: “As I have travelled around the US in the last two months, I have been struck by how poor we look on shelf with Smirnoff. There are a number of packaging missteps that we have taken, which I am currently undoing.”
These moves include rolling back the use of rPET – “which is cloudy and opaque” – and moving the Smirnoff mark into virgin plastic (alongside glass).
Lewis outlined plans for a more balanced focus across core brands under his organisational restructure – something he said was “almost impossible if you’re [managing a portfolio] country by country” (as the business did previously). “We need to be much more strategic about how we think about the resources and the activity plans that we put together,” he said. “The new organisation allows me to do that.”
