The detail behind Dave Lewis’s $1.2bn Diageo turnaround plan

Diageo chief executive Dave Lewis lifted the lid on his plans to turn around the struggling drinks giant yesterday (6 August), announcing a $1.2bn restructuring plan that was greeted with optimism by analysts and industry watchers.

It comes after three years of upheaval at Diageo, following the untimely death of former CEO Ivan Menezes in 2023. Menezes’ successor Debra Crew struggled to inspire confidence after a shock profit warning early in her tenure, eventually departing by mutual consent last summer. Lewis stepped into the top job in January – becoming Diageo’s third CEO in the space of three years – and has now set out his vision to return the business to growth, after sales declined 2% to $19.6bn in the year to 30 June 2026.

So, what exactly is in Lewis’ plan, and will it be enough to restore Diageo to its former glory?

Organic turnaround

At its heart, the turnaround plan is an organic one. Despite much speculation Diageo may look to refresh its portfolio via acquisitions or divestments, Lewis is confident the group already has the tools he requires. “We’re not buying, we’re not selling,” he says. “We have what we need to turn the business around.” Instead, the new strategy is about “rolling our sleeves up and doing the best job we can with the assets we’ve got.”

That means adopting a sharper category, format and pricing focus than in the past, and innovating harder to meet evolving consumer needs. Lewis points to price repositioning on Casamigos tequila in the US and Bell’s whisky in the UK, but insists the adjustments are less drastic than has been reported. “Its about being disciplined about the equity and price point through the lens of the consumer, as opposed to margin protection through either a Covid or inflationary cycle.”

When the former Tesco and Unilever boss talks about making Diageo more “competitive”, it’s clear he intends to do more than just slash prices. “Every time I say competitiveness, everybody says price… that’s not what I mean,” he says. “I’m talking about brand strength, quality of brand mixes, innovation, things like that.”

Smaller formats, including RTDs, have been underutilised by Diageo in the past, Lewis points out. “Part of it is a capacity constraint. We didn’t put the capacity into those pack sizes.” Amid a squeeze in consumers’ disposable income, that is now changing, with Diageo investing $20m in capacity to produce half-sized bottles in the US. It also recently unveiled a partnership with Asda in the UK that will see it promote smaller spirits bottles in its stores.

On RTDs, Diageo has the ambition to launch canned cocktails for every one of its core spirits brands. This forms part of a wider goal for the business: to have a portfolio that is “occasion-led and channel-specific”, says chief finance officer Nik Jhiangiani. “We’ve got a massive opportunity to be much better about giving consumers what they want with our brands,” adds Lewis.

Guinness – one of the bright spots in an otherwise underwhelming three-year cycle for Diageo – will also receive greater investment, with up to $1bn earmarked to double capacity by FY29. A new nitro-surge style Guinness mini-keg product will also launch next year.

Is there a risk this glut of innovation could make Diageo more complicated in the eyes of its consumers and customers? Lewis doesn’t think so. “If you look at the complexity we have today in terms of SKUs and innovation, it’s colossal. The SKUs are going down as we simplify. So actually, with bigger, more impactful innovation, we’re taking a massive amount of complexity out of Diageo.”

Cost savings

Of course, all this additional investment has to be funded, with Diageo revealing it will cut costs by $1bn over the course of three years (including FY26). The group’s Accelerate programme has already delivered $540m in savings, thanks to “a focus on driving efficiency and effectiveness from A&P investment, supply and overheads”, according to Jhangiani. A&P spend fell to 15% of revenues in FY26 from 21% in FY24, but this has mainly come from removing waste and reallocating existing resources to higher-return opportunities, Diageo’s CFO insists. “We have been returns focused,” he says. “We have pulled back on investments where it was losing money for us and for our customers.”

Meanwhile, with $514m in severance costs being recorded in FY26, Diageo has already culled thousands of jobs worldwide. A new, simplified global operating model – which will be in place in 90% of Diageo’s markets by September – will see overheads fall from over 14% to 10.5% of net sales over two years. Lewis defends the deep cuts, insisting the majority of have come from stripping out duplication in back office functions, rather than removing boots on the street.

“If you ask Diageo colleagues if we needed to change, I think pretty much every one of them would say we did,” he says. “Whilst the impacts are big, nobody is saying to me this is the wrong thing to do.”

Investor reaction

Investors have responded positively to the restructuring plan, with shares in Diageo closing up 5.6% to £17.33 on Thursday (6 August) – their highest level since February. Analysts too, signalled their approval, with Bernstein’s Trevor Stirling praising the operating framework overhaul as “very far advanced and wide-reaching”. The share price was trading up further at £18.06 as this piece went to press today (7 August). 

Barclays analyst Laurence Whyatt is similarly enthused, praising the move to standardise roles and operations across Diageo’s 23 go-to-market organisations. “You have one person who’s in charge of marketing in North America, and then you have a different person who’s marketing in Europe, and in India,” he says. “So not only does everyone knows what they’re doing, you can also move people around.”

Meanwhile, increased stratification of product proposition should eliminate the need for costly bolt-on M&A, he points out. “You can use an individual brand to produce a number of products under one umbrella. You don’t need to go out and buy a Cutwater [RTD brand] because you’ve got a few tequila brands you can make margarita cocktails with.”

Diageo now comes across as a “a highly professional organisation that wants to operate as a business,” the Barclays analyst says. “It reminds me of when Cees ’t Hart took over at Carlsberg. He took a brewer that had underperformed in the past few years and professionalised it. A similar sense of professionalism came through from Dave Lewis.”

With headwinds including inflation, moderation and GLP-1s far from in the rear-view mirror, however, Lewis recognises the challenges ahead remain significant.

“We’re confident that this delivers value for our shareholders, and puts Diageo back in the place we all want it to be,” he says. “We’ve got some work to do. But that’s OK.”