If things had gone according to plan, by this time two years ago Debra Crew would have been just over a fortnight into her term as Diageo CEO. In the event, the plan for her predecessor, Sir Ivan Menezes, to retire on 30 June 2023 was subverted by his untimely death just over three weeks earlier.
Crew, who had been named interim CEO as Sir Ivan’s health deteriorated over the weekend of 3-4 June, was catapulted into the hot seat almost a month ahead of schedule, running a business that was united in grief and collective shock at the loss of its hugely popular leader. The often brutal world of business doesn’t really do omens but some might suggest that her leadership was ill-starred from the beginning.
The news that Crew has stepped down as Diageo CEO with immediate effect, to be replaced on an interim basis by CFO Nik Jhangiani while the business hunts for a replacement, doesn’t come as a huge shock, given the difficulties the company has endured over the past couple of years and some of the commentary that has accompanied it.
Things started more promisingly. The company’s fiscal 2023 results announcement, unveiled by Crew at the beginning of August that year, looked pretty positive: net sales up 6.5% to £17.1bn ($22.94bn) and most regions reporting growth. But the seeds of future difficulties were there too, particularly in the revenue decline in North America, blamed on post-pandemic market “normalisation”.
Those rumblings of uncertainty grew louder and fiercer in November 2023, when Diageo issued a profit warning on the basis of a predicted 20%-plus slump in sales across the Latin America and Caribbean (LAC) region during the first half of fiscal 2024. To a world accustomed to post-pandemic consumer splurges on expensive hooch, the warning came as a shock; but the real damage came in the accompanying detail.
Only six weeks before the warning, Diageo had released a trading statement asserting that its outlook for fiscal 2024 was unchanged. Now, to the outside world, it seemed that the company had utterly failed to identify shifting consumer trends in one of its most important regions; worse still, it had continued to pump product into the supply chain, resulting in swollen inventories which would prove expensive to unwind.
The problems faced by Diageo, and by most of its rivals, over the past two years are much bigger and more complex than a loss of consumer confidence in South America but the whiff of incompetence attached to the affair was enough to make investors nervous – and nervous investors are never good news for CEOs of publicly quoted companies.
So if there was a single event that set the scene for Crew’s departure, this was it. Within a year, CFO Lavanya Chandrashekar had stepped down, to be replaced by former Coca-Cola Europacific Partners CFO Jhangiani – widely perceived in City circles as a sound appointment to inject some hard-headed pragmatism. By May this year, Jhangiani’s influence was apparent: a plan to cut costs by US$500m and to sell off substantial assets by 2028.
Take into account all of the above – and the fact that Diageo’s shares lost roughly 40% of their value during Crew’s tenure – and her departure starts to look even less surprising. Some might wonder why it took the Diageo board this long to get here; cynics might suggest that the intervening period has given Jhangiani time to get his feet under the table and become better acquainted with the business.
But nobody should be fooled: whoever becomes Diageo CEO in the longer term – whether that’s Jhangiani, which has to be a distinct possibility, or someone from outside the business – the problems that Crew had faced over the past two years have gone precisely nowhere.
The two behemoths of global alcohol, the US and China, are still looking decidedly fragile, as are many markets in western Europe, while moderation (prompted by both health and financial concerns) has taken root among consumers the world over, many of them spooked by the post-pandemic economic hangover into prioritising essentials and other discretionary purchases over booze. India can’t counteract all of that gloom on its own.
As RBC Capital Markets points out in an analyst note issued hours after Crew’s departure was announced, Diageo’s share performance under her is better than that of Pernod Ricard and Campari (helped, however, by Diageo’s absence from the woebegone Cognac category).
The note also offers a useful summary of the City’s recent frustrations with Diageo – talking of the company’s “perceived passivity” and failure to find “solutions to drive growth, rather than bemoaning the lack of it” – alongside an appreciation of the broader context. Whoever gets the job, “we don’t think Diageo’s problems will be easily resolved”, RBC’s analysts wrote. “The spirits sector has been, and remains, a troubled place in our view, and it is not clear to us that a new CEO will be able to do much better till the sector perks up.”
Crew isn’t the only high-profile consumer goods CEO forced to update her LinkedIn profile in recent times. The past year has witnessed the departures of Nestlé CEO Mark Schneider and Unilever boss Hein Schumacher (who, incidentally, had an even briefer tenure than Crew). Only this week – and in a move that has echoes of the Diageo announcement – Johnson & Johnson spin-off Kenvue ousted its CEO for the past two years, Thibaut Mongon, replacing him on an interim basis with director Kirk Perry.
In a wonderful example of corporate-speak, Kenvue said its board was “implementing a set of actions to enable the company to unlock shareholder value and reach its full potential”. Well, yes, Unilever, Nestlé and Diageo might reply. Aren’t we all?
When Diageo announced Crew’s departure today, the company’s shares moved up by close to 5%. As the City absorbed the news – and pondered the market context that surrounded the move – that gain vanished. Looking at the Diageo ticker as I write these words at 4.20pm BST, the company’s share price has risen by 0.4% since opening.
That’s a clear recognition that, however inevitable a change of CEO may have become, the problems facing Diageo and other beverage alcohol businesses run much deeper right now. Whoever inherits Crew’s office will also inherit all of the same challenges that she was facing – and solutions, at this moment in time, look frustratingly elusive.
“Don’t be fooled by Crew’s exit: the next Diageo CEO will face the same problems” was originally created and published by Just Drinks, a GlobalData owned brand.
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