Diageo, the world's largest alcoholic beverage company known for whiskey 'Johnnie Walker' and beer 'Guinness,' is tightening its belt to escape from the quagmire of poor business performance and reduce its massive liability.
According to Reuters on the 20th (local time), Nick Gianni, Chief Financial Officer (CFO) of Diageo, noted to investors, "We will pursue large-scale asset disposals, which are on a different level compared to the existing small brand restructuring," adding, "We will significantly reshape our business structure and focus on core brands."
Diageo will start reducing expenditures totaling $500 million (about 700 billion won) this year in trade investment, advertising expenditures, indirect costs, and institutional sectors.
Non-core assets will be sold. There is a high possibility that low-growth alcoholic beverage brands or region-specific brands will be sold.
The Financial Times reported, "Diageo is reviewing the sale of underperforming or non-core assets, including East African Breweries, a beer company in Africa, its baijiu business in China, and the rum brand Captain Morgan."
Diageo plans to use the funds obtained from the sales to strengthen core brands such as Scottish whiskey led by Johnnie Walker and premium tequila 'Don Julio,' as well as 'Casamigos,' created by popular actor George Clooney.
Diageo considers these brands to be core growth drivers. They are well-known globally, have lower sunk costs, and are profitable. In particular, tequilas like Don Julio and Casamigos have shown explosive growth in recent years, primarily in North America's largest alcoholic beverage consumer market.
Diageo stated to investors on this day, "We will enhance our premiumization strategy to reshape our portfolio around high-end products and maximize revenue," and added, "We also plan to grow the RTD (Ready to Drink) product line as a core business to adapt to changing consumer tastes."
According to the International Wine and Spirits Research (IWSR), global alcoholic beverage sales decreased by 2% for the first time in 30 years in 2023. The IWSR report stated, "With consumption emphasizing health and wellness after the pandemic, there is a clear trend toward moderating drinking or preferring non-alcoholic products."
Even the premium alcoholic beverage market, which was said to be resilient, is being shaken. According to market research firm Market Data Forecast, sales of high-priced alcoholic beverages over $100 have plummeted by nearly 20% since mid-2022.
IWSR expects the downturn in the U.S. alcoholic beverage market to continue. Additionally, the import tariff increases pushed by the Trump administration are expected to hit Diageo's operating profit by $150 million (about 210 billion won) annually.
Bernstein Securities diagnosed that "the stock prices of beverage companies have fallen to their lowest levels since the financial crisis."