Menezes upbeat

on 30 July, 2015

Despite some gloomy reactions among city analysts to Diageo’s full year results to June 2015, chief executive Ivan Menezes was very upbeat at his briefing to journalists and city analysts in a top London restaurant today (July 30).

Predecessor Paul Walsh was a tough act to follow. He was extremely adept at managing city and investor expectations. Menezes came in from its North American operation just as various world economies went into an economic downturn.

Now in his second year and third set of results, Menezes seems far more comfortable and confident. One senses this is now his business now.  There were smiles and laughter around the table from Menezes and his key management team who were present, CFO Deirdre Mahlan, soon to head off and sort out the North America operation and John Kennedy, president of Europe, Russia and Turkey. Not characteristics normally associated with Diageo of old.

Menezes expressed his confidence that Diageo was “in good shape” and “getting fitter and executionally more efficient”. He outlined four key elements to Diageo moving forward.

Firstly, brands and marketing. He said the company now had 130 brand ambassadors with “advocates behind the bar” and the job was to “recruit and re-recruit and to engage and communicate”.

Secondly, innovation. Menezes picked out the success of the Orijin beer brand in Africa, Crown Royal Regal Apple, the apple flavoured whisky and Ciroc Pineapple in the US along with the David Beckham-backed Haig Club, single grain scotch whisky. “It is not just about the big brands,” said Menezes. “It is also supporting the next generation of brands.”

Thirdly, sales. The chief executive said to get closer to consumers, Kennedy said Diageo had taken accounts in bars, restaurants and clubs from 45,000 to 78,000 over the last year. As a result the Reserve Brands, which include Ketel One, Tanqueray, Don Julio and Ciroc, had registered +20% growth in sales.

Finally, Menezes said efficiencies in productivity and distribution at and from plants, breweries, distilleries and bottling halls had freed up money to invest in growth and resulted in better returns on investment.

In answer to questions Menezes assured the analysts that United Spirits was now fully controlled by Diageo with 54-55% of shares. As regards the current role and status of former owner, the flamboyant and controversial  Vijay Mallaya, Menezes refused to comment.

Since Menezes took charge he has been on a mission to root out inefficiencies in Diageo’s supply chain, take out cost, de-centralise and streamline its route to market. A key aspect has been better aligning shipments to depletions to stop stock sitting in warehouses, which could result in peaks and troughs in supply and demand. The end game being more responsive to what customers and consumers want.

In that vein, the company has recently received an inquiry from the US Securities and Exchange Commission, which is reported to be probing whether the spirits maker has been shipping excess inventory to distributors in an effort to boost results. Asked about the inquiry, Menezes said they had received a request to which Diageo has responded. He said he was confident of operations across the world and of standards internally.  There are no allegations, he stressed.

With the recent disposal of the Gleneagles hotel and the breakup of the South African joint venture, he was asked about what else was ‘non core’ to Diageo.

Menezes confirmed that Guinness and beer remained core to Diageo’s business with +4% increase in sales, +8% in Africa. He said the Nigeria-based Guinness division was giving the company a platform to develop further into the continent.  He said half of spirits consumed in Africa were illicit. So there is a massive long term opportunity to develop a mainstream spirits category in Africa.

On wine, he described Diageo’s involvement as “small” but it had a role in supporting its US spirits business.

As to regions and countries, Menezes said Latin America was getting stronger but Brazil remained tough. China was returning, posting 15% growth. North America has been tough but the second half of the year had been stronger than the first half. “Smirnoff is getting better,” said Menezes. But he stressed it was about Diageo’s portfolio of key brands including Captain Morgan, Buchanan’s, Crown Royal Regal Apple, Bulleit and Ciroc.

Africa is an “exciting opportunity” and the focus with India was developing a premium position within its huge whisky market. “There are 20 million people reaching drinking age every year in India. Hopefully, the tariffs will come down and scotch is highly aspirational (in India),” said Menezes.

Kennedy said France and the UK had stabilised but Russia was “unpredictable”.

The Diageo management team displayed confidence that the multi-national drinks giant is coming out of the bad times and sailing into calmer waters.

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