- Diageo shares soar after appointing former Tesco CEO to lead the company
- Dave Lewis is ‘Mr Fixit’ and made his name saving Tesco
- What are the problems that have pulled down Diageo?
Dan Coatsworth, head of markets at AJ Bell, comments:
“Diageo has pulled a blinder by hiring the man who saved Tesco. Dave Lewis is ‘Mr Fixit’ as far as the market is concerned, joining the grocer with no retail experience and putting it back on track after a difficult period.
“Convincing him to return to CEO life will have been a challenge. Lewis has only held chair and advisory positions since leaving Tesco in 2020, so there must have been something special about Diageo for him to put on his CEO boots again.
“The £1.5 million salary is certainly tasty, but Lewis is more likely to have been driven by the size of the task. Pull off a second business recovery of this scale and he’ll become a legend in the business world.
“This is a significant hire and a pleasant surprise. The 7% share price jump on the news says it all.
“Investors are clearly excited about Diageo’s prospects under Lewis. The stock is unloved after several years of disappointment and the appointment of a highly respected CEO could be enough to win over many investors. However, Lewis knows he will ultimately be judged on results, not hope.
Big challenges to overcome
“Diageo is juggling two key problems, one internal and one external. Issues in Latin America pointed towards poor management insight, as Diageo appeared to take its eye off the ball and didn’t know how much stock was in the supply chain. That suggests poor oversight of important information.
“Shifting consumer habits also caught the company off guard, with weaker demand for premium spirits and the rise of younger people less interested in alcohol.
“Former CEO Debra Crew struggled to steady the ship, and a prolonged period of share price weakness meant she had to go. Longer-term sales targets were abandoned, and shorter-term ones were downgraded.
What’s Lewis’s style?
“Dave Lewis needs to put Diageo back on track quickly. His style is to listen closely to customers and suppliers and work out what’s gone wrong. The focus will be on repair work, not long-term growth.
“At Tesco, he walked away after saying his job to stabilise the business was done, rather than sticking around to take the business to the next level. One might suggest the same approach will apply to Diageo.
“He earned the nickname ‘Drastic Dave’ while at Unilever, because of his ability to make bold decisions without simply tinkering at the edges. Some of his decisions were unpopular at the time, but many were the right ones to get the job done.
“Diageo has a vast distribution network, and Lewis will have to spend time talking to all the key parties intertwined in this network. He cannot afford to have any weak links.
“Investors will be keen to know if Lewis will split the company into two – beer and spirits. There is a lot of talk about Guinness potentially being sold, but that’s not a decision that will be taken lightly, and Lewis might argue that asset sales are the second phase of a turnaround after sorting out day-to-day problems.”
