The end of an era is approaching at one of the UK’s biggest companies.
Diageo, the global drinks giant behind Johnnie Walker scotch whisky, Gordon’s gin, Smirnoff vodka and Guinness, said on Tuesday that Sir Ivan Menezes, its chief executive of the last decade, is about to step down.
To call it a distinguished tenure would be an understatement.
Shares of Diageo – that rare beast, a British company that is an undisputed world leader in its field – have come close to doubling during his time at the helm. And, as the group noted, it is now the number one player by net sales value in Scotch whisky, vodka, gin, rum, Canadian whisky, liqueurs and tequila.
Possibly most remarkable of all is that Diageo now, on its own, accounts for £1 in every £10 of the UK’s total food and drink exports.
Not all of that is down to Sir Ivan. He received a solid inheritance from his predecessor, Paul Walsh, who himself was chief executive for nearly 13 years.
Mr Walsh laid the foundations for the modern Diageo.
The business was founded by the 1997 merger of Guinness, which included Scotch whisky brands such as Johnnie Walker and Bells, with the food and drink combine Grand Metropolitan.
The latter, at the time, owned a disparate collection of food businesses including Burger King, Green Giant, Old El Paso, Haagen-Dazs and a clutch of spirits brands including Smirnoff, Gordons and Baileys.
Under Mr Walsh, the non-drinks parts of the business were, one by one, sold and Diageo became a focused drinks company.
To Sir Ivan fell the task of building on that business and growing it. It was a task for which, initially, not everyone in the industry thought he was equipped.
His first presentation to the City, just a month after becoming chief executive, was criticised in some quarters for a lack of ‘big ideas’. The following months saw the share price drift due to specific issues in some markets, such as a take-off in inflation in Nigeria and, critically, a political crackdown on gift-giving to officials in China – many of whom, it transpired, were recipients of Diageo’s wares.
The share price fell by some 12% during his first year and sales growth continued to slow into Sir Ivan’s second year.
Commentary pieces about the ‘curse of the successor’ – very much in vogue at the time following the mishaps Philip Clarke suffered after succeeding the long-running Sir Terry Leahy at Tesco – began to appear.
If Sir Ivan was feeling uncomfortable at the time, it did not show.
Instead, he cranked up the company’s marketing spend, doubling down on his instinct that ‘premiumisation’ – the idea that consumers would be prepared to trade up to more expensive spirits brands – was a change in behaviour that was here to stay.
Sir Ivan, who was born in India and whose father ran the country’s railways, also accurately predicted this was a trend that would become established not only in markets such as Europe and the United States but also in the emerging markets, like India, that Diageo was increasingly targeting.
Where Mr Walsh had ambitiously expanded the size and scope of Diageo’s portfolio of drinks brands, Sir Ivan proved just as comfortable in offloading businesses that he felt were not delivering the returns he was looking for, including Diageo’s wine business, the Irish whiskey brand Bushmills and the company’s stake in the Jamaican brewer of Red Stripe, Desnoes & Geddes. Long-term followers of the company were also dismayed when he sold Gleneagles, the luxury Scottish hotel and golfing resort, to Ennismore, the owner of The Hoxton hotel brand.
This pruning of Diageo’s portfolio probably saw its zenith when, in 2018, Diageo sold a portfolio of 19 spirits brands to the US drinks firm Sazerac.
By then, Sir Ivan had already shown himself to be astute at navigating treacherous political waters, for example by staying out of the Scottish independence referendum in 2014. A bigger challenge, though, came when in 2020 the Trump administration slapped tariffs of 25% on a range of EU products, including Scotch whisky, in retaliation for EU subsidies awarded to the aircraft maker Airbus – the key competitor to the US giant Boeing.
Diageo’s lobbying of all the governments concerned to get the dispute resolved proved quietly effective.
Shortly afterwards, another crisis emerged in the shape of COVID, laying waste to sales in airport duty free outlets, bars, hotels and restaurants around the world.
Diageo’s profits initially took a hit but it quickly re-thought its marketing to promote the idea of drinking cocktails at home and quickly clawed back a big chunk of the sales it lost earlier in the lockdowns.
That was partly a reflection of the company’s fortune that in its biggest market, the US, four-fifths of its sales were in the off-trade (home) rather than the on-trade (bars and restaurants).
But in this game you make your own luck. It is a remarkable fact that Diageo, today, is 36% bigger than it was going into the pandemic.
One of the legacies of which Sir Ivan is most proud – highlighted in the stock exchange announcement – is building Diageo into the world’s biggest player in tequila.
It was a category in which the company had little presence when he became chief executive, having just months earlier pulled out of a deal to buy a stake in the Jose Cuervo brand, which it had previously distributed but not owned. Yet, backed by intuition that tequila was set to enjoy explosive growth, Sir Ivan struck a deal in November 2014 with Mexico’s wealthy Beckmann family, the owners of Jose Cuervo, in which they agreed to trade their premium Don Julio brand for Bushmills.
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That was one strand of the tequila strategy. The other came when, in June 2017, Diageo agreed to pay George Clooney and his business partners up to $1bn for their Casamigos brand.
There was a good deal of scepticism about the deal but Don Julio and Casamigos are now among the fastest-growing spirits brands in the world, while tequila now accounts for 10% of Diageo’s overall sales, as high as vodka.
Underpinning that growth was a belief in not scrimping on advertising or marketing. The other big achievement singled out in today’s announcement was that, in December, Guinness became the number one brand in the on-trade in Great Britain for the first time.
It is some turnaround – not so long ago, in the drinks trade, there was open talk that Guinness could be offloaded by Diageo – but, supported by an imaginative advertising campaign influenced by extensive customer polling, the brand has just reported a 32% rise in sales.
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Now the baton passes to Sir Ivan’s successor, Debra Crew, who, like him, steps up from the post of chief operating officer.
Ms Crew, whose career began as an officer in the US Army, brings with her a long pedigree in fast-moving consumer goods at companies such as Reynolds American, PepsiCo, Kraft, Nestle and Mars.
Her objective will be to keep sales growth motoring. Late last year Sir Ivan said that, by the end of the decade, Diageo was aiming to raise its share of the world’s Total Beverage Alcohol (TBA) market from 4% at present to 6%.
It is an ambitious target – but, on current form, one would not bet against the company hitting it.
