Crisis at Diageo: New CEO Dave Lewis Cuts Dividend and Sales Forecasts

The British alcoholic beverage giant, Diageo, is currently going through one of the most difficult periods in its recent history. The new CEO, Dave Lewis, who took over in an atmosphere of urgent need to fix the finances, made a drastic decision to reduce the dividend. This is an unprecedented move for a company that for years was considered a safe haven for dividend investors. The main reason for the company's structural problems is weakening sales momentum in its two most important strategic markets: the United States and China. In the US, consumers, grappling with higher living costs, are increasingly abandoning luxury alcohol brands in favor of cheaper alternatives, which hits the group's premiumization strategy. Meanwhile, in China, the economic slowdown directly translates into lower consumption of expensive imported spirits. An analysis of operational results shows that the biggest disappointment has been the tequila segment, which in recent years had been driving the conglomerate's profits. The decline in interest in brands like Casamigos or Don Julio indicates market saturation and a shift in consumer preferences. CEO Lewis announced that Diageo must become a more agile and cost-efficient organization. Plans include not only simplifying the brand portfolio but also solving production capacity issues for Guinness beer in London, where demand exceeds the current plant capabilities. However, investors fear that the recovery process will take longer than initially assumed, as confirmed by another profit forecast downgrade within a few months. The company faces the challenge of regaining shareholder trust, who were surprised by the scale of the cash payout cuts. Diageo was formed in 1997 from the merger of Grand Metropolitan and Guinness. For decades, the company built its power by acquiring luxury brands, creating a portfolio of over 200 brands available in 180 countries, thus becoming the world's largest producer of spirits. Financial markets reacted to this news by selling off the company's shares, and experts point out that Lewis faces a challenge similar to the one he tackled during the restructuring of Tesco. The conglomerate must now balance the need to invest in marketing and distribution with the need to maintain financial discipline in conditions of global trade uncertainty. An additional risk factor remains potential import tariffs, which could further burden margins in transatlantic trade. The coming quarters will be crucial for assessing whether the new strategy focusing on organic growth and operational efficiency will bring the desired results in a world where the consumer is becoming increasingly frugal. „U.S. spirits performance reflected pressure on disposable income, and competitive pressure from more affordable alternatives addressing a more stretched consumer wallet.” — Dave Lewis