The UK's global alcoholic beverage corporations Diageo has initiated a major restructuring by selling its local operations and production facilities in Italy. After several years of poor performance, Diageo is expected to accelerate fixed cost reduction and business restructuring through this asset sale.

Diageo facility near Glasgow, Scotland. The photo is unrelated to the article./Courtesy of Reuters.

On the 24th (local time), Diageo said, "We have agreed to sell our Italian operating subsidiary and production facilities to the Italian food and beverage corporations New Prince." New Prince is the company that changed its name from Newlat Food in May. Notably, this transaction includes the disposal of the entire operating corporation, not just the factory sale.

The transaction amount has not been disclosed, but final sales are expected to be completed once the regulatory approval process is finalized this year. Diageo described the transaction as part of "optimizing the global production network to provide better services to the market." All 349 employees previously belonging to Diageo will be retained by New Prince. Promises to maintain production levels and continued product development have also been made.

The corporation and production facilities being sold are located in the Santa Vittoria d'Alba region of northwestern Italy. Diageo did not disclose specific product names, but indicated in its 2024 annual report that it produces vodka, rum, and non-alcoholic beverages in Italy. New Prince also stated when announcing its factory acquisition plans in May that it is expected to be used for the production of various formats of beverages, including alcoholic and non-alcoholic products, and ready-to-drink (RTD) beverages.

This sale is interpreted as the beginning of a full-scale restructuring phase for Diageo. Last month, Diageo noted, "We will initiate a large-scale asset cleanup that goes beyond the existing level of small brand sales," indicating a strong business restructuring plan. Diageo has gradually phased out fruit liqueur brands such as "Safari" and rum brands like "Pampero" last year. The sale of the Italian corporation is seen as significantly larger in scale.

Consolidation of production bases is also underway. In January 2024, the Chase Distillery in the UK was closed, with production capabilities transferred to Scotland, and in February, a 160-year-old manufacturing facility in Hyderabad, India, also closed. Diageo aims to save $500 million (approximately 700 billion won) from trade investments, advertising costs, and supply chain operating expenses between this year and 2028.

An industry insider said, "Diageo's restructuring goes beyond restoring financial health and is also connected with the strategy of upgrading its brand portfolio," adding, "Each factory or brand should not be seen merely as a cleanup but as a signal of a long-term global strategic change."

Diageo reported sales of $10.9 billion (14.87 trillion won) from July to December last year, marking a 1% increase from the same period the previous year. During the same period, operating profit decreased by 5% to $3.1555 billion (4.3 trillion won), falling short of analysts' expectations of $3.31 billion (4.51 trillion won). Net profit dropped from $2.21 billion (3.06 trillion won) to $1.935 billion (2.64 trillion won) during the same period.

Due to worsening performance, stock prices have also been declining. Diageo's shares are listed on the London Stock Exchange (LSE) and traded as American depositary receipts (ADR) in the U.S. Over the past three years, Diageo's stock price has fallen by 47%. Last year, it dropped by 26%.

While there may not be significant immediate changes in the Korean market, there are projections that impacts may appear in the medium to long term. If Diageo continues its brand restructuring globally, there is a possibility that some products currently distributed in the Korean market may be discontinued. Earlier this year, some whiskey products, including "Glen Elgin 12 Year Old" and "Talisker Storm," were discontinued in the domestic market. Diageo Korea has also conducted voluntary retirements six times from 2009 to last year.

Professor Seo Yong-gu of Sookmyung Women's University stated, "Just because the headquarters sells overseas corporations or production facilities does not mean it will directly impact the Korean market in the short term," adding, "If Diageo consolidates its brand portfolio, there could be effects on the Korean market as well." Diageo owns over 200 brands, including Scotch whisky "Johnnie Walker," Irish stout "Guinness," vodka "Smirnoff," and cream liqueur "Baileys."