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Diageo cuts around 200 jobs to help hit £200m savings target by 2017

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By Ben Bouckley+

10-Jun-2014
Last updated the 10-Jun-2014 at 11:21 GMT

cmd112/Flickr
cmd112/Flickr

Diageo has confirmed circa. 200 job losses across its head office and regions as the Johnnie Walker and Guinness producer targets annual cost savings of around £200m by 2017.

Responding to a report that appeared in UK newspaper The Telegraph this morning, which mentioned this number, a Diageo spokesman told BeverageDaily.com: “That’s not the absolute definite number, but approximately 200 people are affected”.

“This is obviously a period where we’ve been liaising closely with our employees,” he added.

The spokesman refused to say how the job losses were weighted between Diageo’s London head office and its regional operations.

Devolving resources and decision making

For some time now Diageo has followed a strategy that involves devolving accountability to its 21 markets and focusing on the right resourcing structures for these.

In January CEO Ivan Menezes announced a review of the company's organizational structure above those markets, looking at how the company can best support these markets by saving money but also increasing its agility.

In a formal statement this morning, Diageo said: “We announced back in January a review of the organisation to support our evolving global footprint. We’ve put in place a structure whereby resource and decision-making is deployed at a local level wherever possible, closer to customers and consumers and enhancing our responsiveness and agility. Savings identified will be put back into the growth of our brands and markets, as well as fund future efficiency programmes.”

Marketing spend won't suffer

Given The Telegraph's mention of cuts to head office roles in areas such as marketing - as part of the drive to save £200/year by June 2017 - we asked Diageo's spokesman whether this meant the marketing spend behind brands could also suffer.

“It doesn’t mean that at all," he said. "The cost savings will come from overheads, driving efficiencies in systems and processes, and IT,” he said.

“The £200m saving involves a number of things. The reorganization is one part of it, but is by no means the bulk of it at all,” he added.

In a recent note Shore Capital analyst Phil Carroll reported back on an investor lunch with Diageo CFO Deirdre Mahlan, on May 29.

Menezes pursues more focused sales strategy

One thing that had changed under Menezes leadership (Diageo's last CEO was Paul Walsh) was a shift to a more focused sales strategy via the implementation of 'six do's', of which one is driving out costs to invest in growth.

Carroll said that Diageo is now broadly split between developed and emerging markets. The latter were circa. 42% of net sales prior to the United Spirits consolidation.

Menezes other five pillars include: accelerating premium core brands, winning in reserve spirits in every market, innovating at scale to meet consumer needs, improving Diageo's advantage in its route to consumers and ensuring staff talent to back performance.

"We continue to see Diageo as our preferred play in large-cap beverages with a more attractive valuation than SAB Miller," Carroll wrote.

Emerging market volatility worries analyst

Structurally, Shore Capital preferred spirits over beer, Carroll said, "but the volatility of emerging markets has and continues to weigh on both companies' trading performances".

To be more positive on Diageo's stock, Shore Capital needed stronger visibility on sales momentum returning, Carroll wrote, reiterating a 'hold' rating.

"This may not be far away, but we remain cautious on the impact of imported inflation on consumer demand following the devaluation of many emerging market currencies in the short term," he added.

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