Sir Dave Lewis, whom the company announced today will join the Scotch whisky giant as chief executive on January 1, certainly comes with a strong pedigree.
He is perhaps best known for transforming the fortunes of Tesco following an accounting scandal that rocked the UK grocery giant in 2014, tackling its debt pile and restoring it to profitability during a successful six-year tenure that ended in 2020. Sir Dave, who was knighted for his contribution to business and the food industry in 2021, had arrived at Tesco with a big reputation. Prior to joining the grocer, he had earned the nickname “Drastic Dave” over a three-decade career with Unilever, during which he established a reputation for bold decision making and turnaround expertise at the consumer goods giant. It was the latter that attracted the attention of Tesco shareholders in 2014, according to a profile of Sir Dave in The Guardian.
He will certainly require to be at the top of his game at Diageo. The drinks giant is home to an enviable roster of premium spirits brands, spanning luxury Scotch, high-end gin, vodka and Tequila, not to mention the beer juggernaut that is Guinness.
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But the company has been faltering of late. Under former boss Debra Crew, who left in July following a period of share price erosion, Diageo toiled as the Covid era surge in spirits sales began to fade. The company issued a profits warning in November 2023 following a slump in sales in Latin America and the Caribbean amid overstocking and consumers switching to cheaper drinks, while at Christmas last year pubs in the UK were forced to ration Guinness sales following a period of “unprecedented” demand for the famous Irish stout.
Earlier this year, Diageo was presented by a further challenge when US President Donald Trump unleashed a barrage of tariffs, which the company has warned will hit profits by $200 million per year. An efficiency plan launched by Ms Crew to target savings of $500m over three years was bolstered by Diageo following her departure, with the company increasing the target to $650m in August. That came as the company reported a 27.8% fall in operating profit to $4.335bn for the year to June 30, when it warned that “macroeconomic uncertainty and the resulting pressure on consumers continues to weigh on the spirits sector”
Those challenges have continued in Diageo’s current financial year. Last week, the company cut its sales and profit guidance for the year to the end of June as it reported that net sales in the first quarter dipped by 2.2% to $4.9 billion. Growth across Europe, Latin America and the Caribbean, and Africa, was offset by weakness in Chinese white spirits and a softer consumer environment in the US, where sales of Tequila declined.
Judging by the market response today, with shares leaping by 7% in early trading, investors have welcomed the appointment of “fix it” Sir Dave, albeit one analyst expressed concern that the premium drinks industry was new territory for the grocery and consumer goods veteran.
“Diageo has pulled a blinder by hiring the man who saved Tesco,” said Dan Coatsworth, head of markets at AJ Bell. “Dave Lewis is ‘Mr Fixit’ as far as the market is concerned, joining the grocer with no retail experience and putting it back on track after a difficult period.
“Convincing him to return to CEO life will have been a challenge. Lewis has only held chair and advisory positions since leaving Tesco in 2020, so there must have been something special about Diageo for him to put on his CEO boots again.
“The £1.5 million salary is certainly tasty, but Lewis is more likely to have been driven by the size of the task. Pull off a second business recovery of this scale and he’ll become a legend in the business world.”
Mr Coatsworth added: “Investors are clearly excited about Diageo’s prospects under Lewis. The stock is unloved after several years of disappointment and the appointment of a highly respected CEO could be enough to win over many investors. However, Lewis knows he will ultimately be judged on results, not hope.”
Chris Beckett, consumer staples analyst at Quilter Cheviot, described Diageo’s hire of Sir Dave lews as an “interesting move”.
“Having invested behind him at Tesco through its recovery, we have seen his capability when it comes to managing a business in need of steering in the right direction, and he put in place the fundamentals that Tesco has benefited from ever since,” he said. “However, there are certainly differences to this business compared to those that he has worked in and managed before.
“Lewis’s experience is not in the spirits industry and is instead in more mainstream fast-moving consumer goods – not at the higher discretionary, aspirational end where customers are spending several hundred dollars for a bottle of spirits. While this is not to say he won’t be able to gain it, he will not enter the role with the experience of Diageo’s distribution model, particularly in the US and spirits.”
Shares in Diageo closed up 5.44%, or 94p, at 1,820p.
