On January 1, 2026, the beverage giant Diageo PLC formally welcomed its new Chief Executive Officer. The new CEO, Dave Lewis, aged 60, was appointed by the Diageo board in November of last year. In July of last year, Debra Crew, Diageo's first female CEO, announced her departure after just two years in the role, prompting Chief Financial Officer Nik Jhangiani to assume the CEO duties on an interim basis until the board's external candidate was officially in place. Dave Lewis spent 27 years at Unilever before serving as CEO of Tesco for over six years, earning the nickname "Drastic Dave" for his aggressive cost-control measures, including layoffs, business contraction, and asset sales, which swiftly turned around operations at both companies. The current Diageo is in need of a new captain to steer the company and withstand the downward pressure sweeping the global beverage industry. After hitting new highs just a couple of years ago, Diageo has recently felt a chill—for the 2025 fiscal year (July 2024 to June 2025), while net sales remained at a relatively high level of over $20 billion, its net profit plummeted by 39.1% year-over-year. In the first quarter of fiscal 2026 (i.e., Q3 2025), Diageo's net sales declined by 2.2% year-over-year, largely due to ongoing weakness in the US market and a downturn in businesses like Baijiu in China. Reflecting this in the capital markets, Diageo's stock price has fallen 30% over the past year and is down nearly 60% from its 2021 peak, returning to levels last seen in 2012. Moving from fast-moving consumer goods to retail and now to beverages, can the new CEO, Dave Lewis, stage another reversal and propel Diageo back onto a fast growth track? Under the main theme of "cost reduction," how will this international beverage giant advance its operations in China?
Bringing in an external CEO is a novel occurrence for Diageo. Former CEO Debra Crew joined Diageo back in 2019 and was gradually promoted internally until she assumed the role in 2023. Preceding her, Ivan Menezes served as CEO for a full decade, having been with Guinness even before its merger with Grand Metropolitan to form Diageo; his predecessor also rose through the internal ranks. This is not Dave Lewis's first time being parachuted in as CEO of a major corporation. In 2014, when the UK supermarket chain Tesco was at a low point due to an accounting scandal and losing market share, Dave Lewis, after a long career at Unilever, took the helm. From 2022 until 2025, he served as Chairman of the Board for consumer health company Haleon. This company, established in 2022, was initially a joint venture between pharmaceutical giants GSK and Pfizer, consolidating well-known brands like Caltrate, Sensodyne, Contac, Fenbid, and Centrum. In the appointment announcement, the Diageo board stated that Dave Lewis not only possesses extensive CEO experience but also has proven leadership ability in building and promoting world-class brands, making him the right person for Diageo's current stage of development. Why break with tradition to bring in an external hire? Simply put, Diageo is past its peak; while its performance is better than some peers, the market lacks confidence in its prospects. After years of consecutive growth, Diageo hit a record high in fiscal 2023, with net sales exceeding $20.5 billion (over 150 billion RMB at the time), further cementing its position as an industry leader. However, starting in fiscal 2024, Diageo's net sales saw a slight 1% decline. In fiscal 2025, net sales decreased marginally by 0.1% year-over-year, while operating profit and net profit also turned negative, falling 27.8% and 39.1% respectively. By Q1 of fiscal 2026, net sales fell 2.2% year-over-year, indicating an acceleration of the decline. It is important to note that these are reported figures; excluding external non-operational factors like currency exchange, Diageo's net sales actually grew 1.7% organically in fiscal 2025 and were flat organically in Q1 fiscal 2026. Adjusted operating profit declined 5% organically in fiscal 2024 and 0.7% organically in fiscal 2025. This means Diageo's revenue scale remains high, but profitability has weakened, leading to a correction in the reported figures. For comparison, Pernod Ricard's net sales fell 5.5% in its most recent full fiscal year, with operating profit down 5.3%. Brown-Forman's net sales declined 5% in its latest fiscal year, with operating profit down 22%, and Rémy Cointreau saw even steeper declines. Yet the market remains unsatisfied with this performance. Since 2023, Diageo's stock price has clearly entered a downtrend, currently down nearly 60% from its historical peak at the end of 2021. This is partly due to a global slowdown in beverage alcohol consumption, and partly due to proposed US tariffs on European-produced alcoholic beverages, casting a policy-related shadow over future growth. To halt the dual decline in performance and stock price, Diageo initiated steps to sell assets and reduce leverage. In May 2025, then-CEO Debra Crew announced an "Acceleration Plan" aimed at achieving $500 million in cost savings by 2028 to reinvest in future growth. In fact, from the beginning to the end of 2025, Diageo was consistently "selling off," with the scale of asset disposals exceeding the original plan. In January 2025, Diageo announced the sale of an 80.4% controlling stake in Guinness Ghana Breweries for $81 million, completing the deal in July; in March, it announced the divestment of its drinks incubator, Distill Ventures, reducing investment; in April, it announced the sale of a 54.4% stake in Seychelles Breweries for $80 million; in June, it announced the sale of all shares and some production facilities of Diageo Operations Italy S.P.A., completed in September; in July, it announced the sale of the Venezuelan rum brand Pampero; in September, it announced the sale of the Portuguese coffee liqueur brand Sheridan's; in December, it announced the sale of a 65% stake in East African Breweries and a 53.68% stake in Kenya's United Distillers and Vintners (UDVK) to Japan's Asahi Group for $2.3 billion, expected to close in 2026. Operational activities also continued to contract. In 2025, Diageo suspended production at the Dublin-based Roe&Co distillery, the Scottish Teaninich Distillery, and the Roseisle Maltings malt house in Europe, and halted production at the Lebanon, Balcones, and George Dickel distilleries in the US. As the first externally appointed CEO in over two decades, the new CEO is highly likely to continue the "cost reduction" theme to boost the stock price and enhance shareholder returns. In the appointment announcement, Dave Lewis mentioned, "I look forward to working with the team to tackle challenges and seize development opportunities with the goal of creating shareholder value." A review of his track record at Unilever and Tesco reveals that the new CEO employs more aggressive tactics in cost control. While overseeing Unilever's UK operations, he pushed through a controversial plan to drastically reduce product SKUs from over 1,600 to just 400, while laying off hundreds of employees, ultimately reducing expenditure by 40%. He reinforced this style during his tenure at Tesco, launching a large-scale cost control plan shortly after taking charge, which involved cutting tens of thousands of jobs, significantly simplifying product lines, closing unprofitable stores, and scaling back international operations, including selling Tesco's Chinese business, Gain Land, to partner China Resources Enterprise in 2020. These decisions, of course, sparked dissatisfaction among employees. The initial large-scale layoffs at Tesco provoked strong backlash from UK trade unions and led to low employee morale. However, these measures did indeed reverse the financial situation on paper, gaining support from shareholders and investors. The series of cost-cutting actions shed burdens and freed up resources for Tesco, turning losses into profits within just two to three years, and its market share in the UK recovered somewhat, helping to fend off competition from discounters like Aldi. Having just taken office, Dave Lewis has not yet publicly detailed his operational strategy for leading Diageo; clarity is expected when interim financial results are disclosed. However, from the new CEO's perspective, while the current market faces challenges, it also holds significant opportunities, as Diageo possesses a portfolio of very strong brands. Diageo owns over 200 beverage alcohol brands, including well-known names like Johnnie Walker, Guinness, Baileys, The Singleton, and Don Julio.
How will Diageo advance its operations in the Chinese market? Diageo's business in China can be broadly divided into two segments: imported spirits and Baijiu, with the operation of Shuijingfang being relatively independent. Furthermore, with the completion of the Yunuo single malt whisky distillery, a new localized business is taking shape. Imported spirits are the core of Diageo's business portfolio, although some categories have previously experienced slower inventory digestion in China. A review of 2025 indicates that Diageo is adjusting its strategy in China, primarily advancing in three directions: targeting younger consumers, promoting lighter offerings, and exploring new channels, to adapt to trends like a downward shift in the price point of alcohol consumption and a move from nightlife venues to at-home consumption. At the end of 2024, Johnnie Walker launched a new product specifically created for the Chinese market, "Johnnie Walker Shining Gold." Positioned as a base spirit for cocktails targeting young consumers, it featured K-pop group member Seo Myung-ho as its China ambassador. Priced at around 150 RMB on its official flagship store, it is significantly cheaper than Johnnie Walker's Blue Label, Gold Label, and Green Label, only slightly higher than the entry-level Red Label and Black Label. Another direction is small-format packaging. Last year, Diageo's renowned tequila brand Don Julio launched 50ml mini bottles for both its Reserva Blanco and 1942 expressions, with official prices on Tmall's flagship store around 80 RMB and just over 120 RMB respectively. Additionally, brands like Johnnie Walker and Talisker have been more actively promoting their 200ml small-format products in China. These trends align with the evolving consumption occasions for imported spirits in the Chinese market. Diageo's China management has noted that the occasions for consuming international spirits in China have expanded in recent years from traditional KTVs and nightclubs to include bars, restaurants, small gatherings, and even home settings. To capitalize on this, Diageo has partnered with JD.com and Meituan for instant retail services, collaborated with convenience stores like 7-Eleven to launch ready-to-drink cocktail kits, and promoted whisky and food pairings for weddings and family meals, aiming to capture the trend of "having a casual drink at home." In contrast, the Baijiu business currently faces greater challenges, even sparking external speculation: might Diageo simply let it go? In recent earnings reports, Diageo has discussed the weak performance of its Baijiu business in China. In the most recent Q1 FY2026 report, Diageo pointed out that volume and net sales in Greater China both saw double-digit declines, primarily due to reduced consumption occasions for Baijiu, impacting its sales volume. In Q3 2025, Shuijingfang's revenue fell nearly 59% year-over-year, with net profit attributable to shareholders down 75%; for the first three quarters, the declines were 38% and 71% respectively. Shuijingfang is certainly not the only Baijiu company experiencing a downturn, as Baijiu enterprises generally saw performance declines starting in Q2 last year. Its uniqueness lies in being the only A-share listed Baijiu company controlled by foreign capital, yet its presence within Diageo's global portfolio is relatively low. Shuijingfang's revenue exceeded 5 billion RMB in 2024, its best performance to date, but its contribution to Diageo's global revenue remains small, only in the single-digit percentage range (less than 5%). As Diageo continues its asset disposals, speculation that Shuijingfang might be sold has intensified, culminating in rumors in December that Jiannanchun intended to acquire Shuijingfang. Shuijingfang has repeatedly denied this. At the company's annual shareholders' meeting in June, management responded to media inquiries by emphasizing that China has always been one of Diageo's two key strategic global markets, and that the major shareholder places high hopes on deepening its roots in China and participating in the long-term development of the Baijiu category through Shuijingfang. Following a surge in its stock price triggered by the acquisition rumors in late December, Shuijingfang issued a clarification announcement on December 26th, stating that the related reports were untrue. However, the effect was minimal. It was noted that despite the direct denial in the announcement, funds continued to bet on Shuijingfang, with its stock price remaining above pre-rumor levels as of January 7th. The reason is that there are no signs yet of Diageo stopping its asset disposal pattern. Will the new CEO, known for his aggressive style, alter Diageo's long-held strategy in the process of vigorously cutting costs and turning around operations? This awaits the new CEO's reiteration of his views on the Baijiu business. Investing in Baijiu was once an important way for Diageo to penetrate the Chinese market and expand its share. It first entered the scene over twenty years ago through indirect shareholding, gradually increasing its stake to achieve control of Shuijingfang. Diageo lacks a Cognac product like the "Big Three" brands that are widely recognized in China, while brandy long held the top spot among imported spirits in China. Diageo's strengths lie in whisky and tequila categories; the former has only recently gained momentum in China, and the latter's market is still being cultivated. Logically, choosing to reduce investment or exit the Baijiu category could result in long-term losses far outweighing short-term gains, as it would not only mean sacrificing years of long-term investment but also signal a lack of confidence in the future of Chinese Baijiu, in addition to losing a listed vehicle. Furthermore, it is still too early to make judgments on the performance of Diageo's local whisky project in China. In November 2024, Diageo's first whisky production base in China, the "Yunuo Single Malt Whisky Distillery and Visitor Centre," was established in Eryuan, Dali. Whisky is one of the few imported spirit categories that has seen continuous growth in recent years, showing potential to overtake brandy. However, the entire Yunuo project has only been completed for just over a year, its products have not yet been launched, and its planned total investment is 800 million RMB over nine years. Even if saved, this amount of capital would not significantly improve Diageo's overall cost structure. Similar to the situation with Shuijingfang, a directional shift in the operational strategy of this project would also send a signal that is not necessarily positive. This awaits a clear signal from the new CEO: amidst the sweeping changes, which of Diageo's strategic commitments will remain unchanged?
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