We're a global leader in premium drinks, one of the most dynamic consumer categories.
The case for change
I was delighted to be asked to join Diageo in January this year. This is a business I have long admired, a company with an extraordinary portfolio of brands, steeped in history and craft.
There is no denying that fiscal 26 was a challenging year, particularly given the macroeconomic backdrop and continued pressure on consumer wallets. There are some positives, we have seen growth in three out of five of our regions, however, we have been uncompetitive in our largest market, North America, and urgent work is underway to address this.
Between January and April, the Executive team and I looked back to objectively analyse how we were performing. We did this through the lens of four key stakeholders (shareholders, customers, colleagues and our supply partners). This resulted in the revised strategy we recommended to the Board in April.
When we look at the evolutions of our markets, three factors are really important. Demographics and the size of the Legal Drinking Age population, consumer economics and specifically disposable income and consumer attitudes and behaviours. The biggest pressure we see today is economic, with consumers being more selective about their discretionary spending. Moderation and low and no alcohol remain important trends that we stay close to and we continue to watch GLP-1s carefully. Yet, early data indicates that the impact is lower on spirits when compared to beer and wine.
The shape of the spirits sector is also evolving. Premiumisation remains integral to our strategy but this is now more nuanced. We need to keep growing premium and luxury where the opportunity exists, whilst also utilising the full price and format ladder of our brand portfolio. That means better price-pack architecture, more relevant propositions, and formats that meet consumers where they are.
The growth in ready-to-drink (RTD) cocktails is also interesting in this regard. We should not treat RTDs as separate from spirits. Consumers come to many RTD occasions with similar motivations to spirits occasions, and RTDs are increasingly important to how consumers engage with our brands, they are portable, consistent and represent good value for money vs an on-premise purchase. We created this space with Smirnoff Ice 25 years ago, but we lost focus. We are now aligning RTDs with our spirits brands and reassessing the opportunity.
This is why we are changing the way we define the market we compete in. Going forward, our focus is on winning in total spirits, including RTDs, and on Guinness in premium beer.
At our interim results in February, I outlined that customers are a critical part of the case for change. Diageo has too often relied on the strength of its brands without prioritising its customer partnership, category management, service and execution. That has to change. Our ambition is to help grow our customers’ categories and to gain from that growth – winning together.
We also need to think differently about suppliers. We will have clearer expectations, stronger partnerships, more collaborative innovation and better end-to-end processes so that our suppliers can help us build a more resilient, more agile and more competitive Diageo.
We have also listened very closely to our colleagues. They want a clearer, simpler, and more efficient Diageo. This has informed the new operating framework, the rewiring of the business, and the work we are doing on purpose and behaviours.
As an Executive team we are confident that these changes will create stronger total shareholder returns and will allow us to look at the choices we make, the capital we deploy, and the returns these generate. Over the next two years, we will invest $1.2 billion in restructuring to generate $1 billion in annual savings. We will invest this back to advance innovation, our overall competitiveness and to protect underlying profitability.
Strategic choices: people, purpose, performance
Since January, we have undertaken a thorough listening programme with thousands of our employees, including leadership conversations, colleague feedback, focus groups and open-ended input from across the organisation. That work helped us define not just what needed to change but also created a new purpose for the company.
This was built around a simple idea: crafting iconic drinks chosen for life’s moments. This reflects what makes Diageo special. We craft drinks, not just liquids. We build brands that are chosen by name. And we play a role in moments that matter to people.
Alongside this purpose, we have begun to reset the behaviours we need to deliver the strategy. Culture is not separate from strategy. It is shaped by the purpose we pursue, the behaviours we reward, and the way we organise ourselves. The new Diageo behaviours are: One Team, Competitiveness, and Decisiveness.
Our strategic focus is clear. Diageo will compete across a full price and format ladder in spirits, including RTDs, in premium beer through Guinness, and across the on-trade to ensure consistent global visibility. For Diageo to win, we have deliberately designed the business to build and extract the benefits of Diageo’s scale, capability and portfolio.
We have also done significant work on the operating model. We have created five regions and 23 country or cluster organisation, to produce clearer accountabilities between global, regional and market teams. This will allow us to gain advantage from our scale, while preserving the local insight and execution that matter most to consumers and customers.
During the year, the Board took action to create the financial flexibility needed to support the turnaround. We have to strengthen the balance sheet and reduce leverage, while continuing to invest in the areas that will make Diageo more competitive. These are not separate choices. A stronger balance sheet gives us greater flexibility and optionality; targeted investment in the right areas is what will rebuild growth, cash generation and long-term shareholder value. After investing $3.75 billion of capital expenditure and funding the restructuring charges, we expect to generate around $8 billion of cash over 3 years. In 2026 we have reduced leverage to 3.1x, with the expected sale of EABL and the completion of the Royal Challenges Bengaluru cricket team (both expected to close in H2 calendar 2026) we expect to see leverage be around 2.75x in fiscal 27.
We will prioritise investment where it improves competitiveness, strengthens our brands, builds the capabilities we need, and has a clear path to value creation.
Leadership changes
Within the Executive Committee, John O’Keeffe moved to become CEO & President of Diageo North America, Dayalan Nayager became President of a newly combined EMEA region, Sujay Wasan was appointed as President, APAC, and Natalie Bickford as Chief People Officer.
I would also like to thank Louise Prashad, Hina Nagarajan and Sally Grimes for their service to Diageo and for the important contributions they made to the business.
Looking to the future
I am encouraged by the strength of our brands, the passion of our people, and the quality of our craft, but there is hard work ahead.
I want to thank our colleagues around the world for their commitment through a year of change. I also want to thank the Executive Committee, the Board and our Chair for their support and challenge as we shape the next phase of Diageo.
Sir Dave Lewis
Chief Executive