Diageo Cuts Nearly 2,000 Jobs as New CEO Begins Cost-Cutting Overhaul

(Photo by Pavlo Gonchar / SOPA Images/Sipa USA)(Sipa via AP Images)

Diageo cut nearly 2,000 jobs in its latest financial year as new CEO Dave Lewis begins a sweeping restructuring of the world’s largest spirits company.

The maker of Guinness, Johnnie Walker, Smirnoff and Captain Morgan had an average of 27,938 full-time employees during the year ended June 30, down 1,922, or more than 6%, from 29,860 employees a year earlier, according to its annual report published Tuesday.

Diageo did not provide a specific explanation for the reduction in its workforce.

The job cuts come as Lewis, the former CEO of Tesco, works to reverse several years of declining profits at the spirits giant. Lewis took over as Diageo’s chief executive in January and has pledged to cut $1 billion in costs over the next three years.

The restructuring is expected to result in thousands more job cuts as Diageo implements a new operating model and overhauls its supply chain. The company has not said how many positions could ultimately be eliminated, although analysts have estimated the total could reach between 3,000 and 5,000 jobs.

Lewis has already begun changing Diageo’s regional management structure and has instructed senior executives to reduce headcount and other expenses within their departments.

The cost-cutting push comes as Diageo deals with a difficult environment for the global spirits industry.

Alcohol consumption has declined in some markets as health-conscious consumers drink less, while inflation has increased the price of alcoholic beverages. Diageo is also dealing with the aftermath of a pandemic-era boom that boosted demand across much of the drinks industry.

The company’s most recent financial results highlighted the pressure.

Diageo reported $19.6 billion in revenue for the year ended June 30, a 2% decline on an organic basis. Operating profit fell 27% to $3.2 billion after the company recorded $900 million in restructuring charges and a $1.5 billion impairment related to its business in Turkey.

Despite the workforce reduction, Diageo’s average staff costs increased during the year, rising from $2.48 billion to $2.55 billion. The company noted that the increase came during a period when the U.K. government raised employers’ National Insurance rate and lowered the threshold at which companies begin paying the tax.

Lewis has been nicknamed “Drastic Dave” for his reputation for aggressive cost-cutting during his time at Tesco.

At Diageo, the company says the savings are intended not only to reduce expenses but also to free up cash for investment in parts of the business with greater growth potential.

That includes mass-market brands such as Smirnoff and Captain Morgan, which the company says were deprioritized by previous management as Diageo focused more heavily on premium spirits.

Diageo is also investing in ready-to-drink cocktails, a category that has attracted younger legal-drinking-age consumers and has continued to expand across the global beverage market.

The company is targeting low single-digit organic sales growth and mid-single-digit operating profit growth over the medium term.

The latest workforce figures provide an early indication of the scale of Lewis’ restructuring, but they do not represent the full extent of the cuts expected from the new operating model.

With Diageo targeting another $1 billion in savings over the next three years, thousands more employees could ultimately be affected as the spirits giant attempts to restore growth and improve profitability.