Menezes steps up at Diageo

on 31 July, 2013

Listening to BBC Radio 4 this morning (July 31), I heard the voice of the new chief executive of Diageo. Ivan Menezes coped well with the busy, bustling questions from the Beeb’s city correspondent in the minute or so allotted to the interview.

The voice with a slight Indian lilt, sounded confident. He trotted out all the things his predecessor, Paul Walsh, would have to keep city analysts, pension fund holders and shareholders happy and confident that the leviathan global drinks group remains on course to meet targets and pay dividends.

Later on I attended the Diageo office in London’s St James’s Square and saw the man in the flesh. Resplendent in a shiny grey suit that matched perfectly his hair, Menezes went through the results – net sales growth of 5%, operating profit growth of 8%, emerging markets are now 42% of Diageo’s business, see news story, confidently and seemed completely at ease among city and business-to-business journalists and analysts.

The theme of the presentation was “making a strong business stronger”. Diageo is so big and so well dispersed that if it was a ship being torpedoed, it would take the hit below the waterline and just keep cruising along. The reverses it has taken in countries such as Turkey, Brazil and China, having invested heavily in each by buying companies with leading brands and significant distribution networks, might have severely damaged a lesser company. Should all else fail, Diageo can always fall back on its North American operation which remains the engine room of the business.

Walsh’s strategy of decentralising the business and buying into key emerging markets is and will pay off. The acquisition of United Spirits, after an immense tussle, is another huge step forward for the company. So large in scotch whisky, it now has control of the largest whisky producer in one of the most important whisky markets in the world. It just doesn’t get much better than that.

For Menezes, the challenge is to maintain the momentum and take Diageo to the next level – whatever that may be. Now in China with Shuijingfang and working with Vijay Mallaya at United Spirits in India will certainly be occupying his management time in the short to medium term.

The acid test for Menezes will be the next major acquisition. What will it be and can he pull it off?

The developments at Diageo puts pressure on Pernod Ricard. How will it respond? It had taken a quieter, long term approach to developing emerging market. It must look at Diageo’s acquisitions in China, India and Brazil with dismay.

At Pernod results meetings the analysts always want to know how much the French-based multi-national has lowered its debt levels and is it ready to buy again? With Pierre Pringuet retiring and Alexandre Ricard about to step up, analysts, observers and journalists will be looking for a possible step change and maybe a new surge.

Patrick Ricard took a Franco-centric pastis company to massive global drinks company close to rivalling Diageo. Can his nephew, who attended an American business school, close that increasingly yawning gap?

The drinks industry’s hottest hot seats have, or are about to have, new occupants. It is going to be interesting to see if and how they continue to develop their businesses.


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