Manufacturer of Guinness and Smirnoff wants to save a billion dollars: will fire thousands of employees

Diageo, the world's largest alcohol company, has unveiled an efficiency plan that is expected to lead to savings of one billion dollars over three years, following several years of declining profits. The company's stock strengthened after the announcement and rose by more than 7%.

"This new strategy, which will be implemented through a new, more competitive and cost-effective operating model, gives us the confidence that we can restore the business and create value for our shareholders," said CEO Dave Lewis.

Diageo owns brands such as Johnnie Walker, Smirnoff vodka, and Guinness beer. The strategy includes changing the company's operating model and improving its supply chain. Lewis intends to improve financial performance by expanding Guinness sales worldwide, investing in neglected brands like Smirnoff and Captain Morgan, and offering smaller, cheaper bottles in the US, where consumers are facing inflation.

"These are important brands that, frankly, we haven't done a good job with," said Lewis, who became the group's third CEO in three years last July. Furthermore, the plan will lead to the cutting of thousands of jobs. The company did not provide an exact figure for the number of planned layoffs, but estimates suggest it will be between 3,000 and 5,000 out of 30,000 employees worldwide. While the company's stock reached a peak in January 2022, giving it a market value of nearly 90 billion pounds (about 121 billion dollars), about half of that value has since been wiped out. Over the last 12 months, the stock has lost nearly 13% of its value.

"The savings will allow us to invest in innovation in areas where we need to improve competitiveness, and it will also allow us to do so without reducing our operating profit," added Lewis. The plan is being launched after the company reported a 2% decline in sales for the fiscal year ending June 30, to 19.6 billion dollars. Operating profit fell by 27% compared to the previous year to 3.2 billion dollars, partly due to a 1.5 billion dollar write-down of its business in Turkey. On the positive side, the company reported that thanks to the World Cup, sales of ready-to-drink cocktails rose by 35.1%. This increase was largely due to the launch of a ready-to-serve cocktail series from the Casamigos brand. However, Lewis, who took office a year ago, said that the company still has "a lot of work" to do, especially in North America, where organic sales fell by 8.4% in the last fiscal year.