Splitting the G: Is Diageo gearing up to sell off Guinness?
Drinks giant Diageo has announced a huge cost-savings programme which may see it shed brands and jobs.
In an update to markets this morning, the Guinness and Johnnie Walker owner said it planned to save $500m (£373m) over the next three years through “appropriate and selective disposals” as well as tighter capital discipline and organic growth.
“It’s interesting to see Diageo flag potential disposals over the coming years,” AJ Bell analyst Russ Mould said.
“We might finally see a sale of Guinness and other beer brands so that Diageo is purely focused on spirits. That would make a lot of strategic sense as it could greatly improve group profit margins, meaning the business might trade on a higher multiple of earnings,” Mould added.
Earlier this year, analysts had speculated that a disposal was on the cards, valuing the business at $10bn (£8bn).
While Diageo denied the gossip at the time – and they continue to do so – the rumours sent Diageo’s share price up four per cent.
Guinness has been billed as a way for Diageo to offset its flagging spirits business – demand for the drink has shot up in recent years thanks to a spike in popularity among Gen Z on social media.
Orders were so high last Christmas that Diageo had to raid its Irish storehouse to supply some pubs in the capital, which had run dry (some were reduced to offering Guinness ration cards).
But the drinks behemoth reported a better-than-expected outlook for spirits in the last quarter: organic sales in Latin America rose nearly a third after plummeting last year, while Asia sales were up two per cent and US sales up seven per cent.
If not Guinness, then what?
If the FTSE100 company chooses not to sell the Guiness brand, it has a host of other options.
It has been slowly exiting non-spirits business in the last decade: the company offloaded its wine business in early 2016, followed by a portfolio of 19 brands to Sazerac in 2018.
It has sold stakes in a range of brands, including Guinness Ghana Breweries, Guinness Nigeria and Seychells Breweries.
The company is betting that whilst younger generations don’t drink as much as older ones, they’re willing to spend more on each drink.
“Investors… believe in the long-term growth trajectory of premium spirits,” Chris Beckett, head of equity research at Quilter Cheviot.
So the most likely contenders for spin-offs are smaller brands which sit outside its core spirits remit – a beer brand or smaller, low-performing spirits brand.
Diageo is set to hold a Guinness Investor and Analyst Day on May 20, 2025.
Guinness declined to comment on the above.