No honeymoon period likely for Guinness owner’s new boss

Debra Crew, the incoming chief executive of Guinness parent Diageo, is about to find out how following a much-lauded boss is never easy – especially when the one preparing for going-away drinks seems to have timed their exit close to perfection.

Crew (52), a one-time US army officer, who previously worked for Kraft, Nestle, Mars, PepsiCo and tobacco company Reynolds American, would have done well to avoid reading some of the notes from stock market analysts when she was named this week as heir to Ivan Menezes, who has led the group for the past decade.

“We regard Ivan’s departure as a meaningful loss for Diageo – he’s been a brilliant CEO,” RBC Capital Markets number cruncher James Edwardes Jones gushed in a note this week. “We won’t eulogise too much about Ivan, other than to say that his tenure has been seriously successful. We think Diageo was in poor shape when Ivan took over; now it’s one of the most impressive [European consumer staples] companies we cover.”

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Derren Nathan, head of equity research at Hargreaves Lansdown, said Menezes would be a “tough act to follow” and investors would be unlikely to give the new captain of the sixth-largest company on the FTSE, with a market value of £81.4 billion (€92.3 billion), “much of a honeymoon period”.

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Aside from Guinness (the world’s most valuable Irish brand, according to consultancy Brand Finance) and Baileys cream liqueur (the eighth most valuable), Diageo’s drinks cabinet also stocks the likes of Johnnie Walker whiskey, Smirnoff vodka, Gordon’s gin and Captain Morgan rum.

Still, it wasn’t initially so obvious Menezes would be as celebrated on his exit.

Shares in the company fell by about 12 per cent in his first year in charge, with investors concerned about a lack of “big ideas”. His predecessor, Paul Walsh, had over the previous 13 years reshaped what was an unwieldy conglomerate, formed out of 1997 the merger of Guinness and Grand Metropolitan, by selling off the likes of Pillsbury foods and Burger King and aggressively marketing its stable of drinks brands.

However, Menezes would tie his tenure to the belief that premiumisation in western spirits markets – the idea where consumers would be prepared pay more for high-end drinks, which began to set in around the turn of the decade – was here to stay.

In 2014, he unveiled a tie-up with David Beckham to launch Haig Club, a single grain whiskey, and joined forces with rapper Sean “Diddy” Combs to buy ultra-premium tequila brand DeLeón, which retails at up to $1,000 a bottle in the US.

[ Diageo chief Menezes to retire after nearly a decade in role ]

That year also saw Menezes reach a deal to swap Bushmills with Mexican company Casa Cuervo for full control of Don Julio – giving it a bigger share of the fast-growing market for top-shelf tequilas (even if it were to miss out on the subsequent boom in Irish whiskey).

The following year, he sold most of the group’s wine business to focus on sprits and beer, and followed up in 2018 with the disposal of 19 brands, including Seagram’s VO whiskey and cinnamon schnapps Goldschläger, to focus on more premium and higher-growth brands.

Menezes upped his bet on tequila in 2017 with a $1 billion deal to buy Casamigos from actor George Clooney and Rande Gerber, best known to many as husband of 1990s supermodel Cindy Crawford.

And the drinks group moved in late 2020 to a high-end gin brand co-owned by another Hollywood big shot, Ryan Reynolds, in a deal worth up to $610 million.

While Diageo’s sales were initially hit by the onset of Covid-19, they quickly recovered as people took to premium spirits during lockdown and as bars began to reopen after the worst of the pandemic. Revenues are on track to top £17 billion (€19.3 billion) for the financial year to the end of June – about a third more than where they stood before the pandemic.

However, the group’s interim results published earlier this year showed a marked slowdown in North America, its largest market, amid concerns about the state of consumers in a weakening economy and signs that the premiumisation story has slowed.

Overall North American sales volumes dropped 4 per cent for the six months to December, while US spirits slid 6 per cent – even if price increases, amid general inflation, lifted actual revenues.

Analysts, including Nik Oliver at UBS, reckon a drop in household savings and potential recession in the US – the risk of which has increased recently as a result of a fresh banking crisis – will weigh on sales growth this year.

Guinness was a strong spot in the group’s beer business, with volumes growing 2 per cent globally and net sales expanding by 17 per cent amid price increases – driven by double-digit growth in Ireland, the UK and North America.

Still, Deutsche Bank sees group figures coming off sharply in its next financial year, with sales growth falling back to 1 per cent from 11 per cent this year and earnings before interest and tax slowing to 2 per cent from 8 per cent.

Crew, who brings the number of women bosses on the FTSE 100 into double-digit figures when she takes charge in July, was president of Diageo North America between 2020 and last October, leaving her as well-placed as anyone to try to get to deal with the US slowdown. She is currently chief operating officer.

Menezes set targets in late 2021 for Diageo’s organic sales to grow by 5-7 per cent and operating profit expand by 6-9 per cent a year between 2023 and 2025. He leaves as the market questions whether the company will come anywhere near those goals next year.

But for all the lionising of Menezes this week, shares in Diageo have only grown by a little over 80 per cent in the decade that he has been in charge – leaving it around midtable among FTSE 100 stocks, even after spending billions on share buybacks. Hardly dazzling. Will Crew give investors more reason to raise a glass when she’s done?