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For many years, Diageo (LSE:DGE) shares were seen as part of a ‘no-brainer’ portfolio. The type of FTSE 100 stock may sleep easily at night is the owner, knowing that every few seconds someone, somewhere in the world, was slurping one of our strong drinks.
That would be a Guinness in a country pub, a G&T (with Tanqueray or Gordon’s) at the New York bar, or a The Baileys at Christmas. Or even baijiu at the official fair in China, where Diageo owns about 63% of the distiller Sichuan Swellfun.
The company’s growth strategy was based on cash flow. This was summed up by its mantra: “Drink better, not more.” Drinking better, of course, involved paying a premium for Diageo products, thereby fattening the profit margins.
However, as revelers ushered in the New Year of 2022, the stock fell a staggering 55%. A bitter cocktail of factors has hurt sales, from liquidity and high interest rates to Gen Z wellness trends and GLP-1 weight loss drugs.
Cash-strapped drinkers are starting to trade down to bad things in 2023, especially in Latin America. With its premiumisation strategy on the ropes, Diageo ended up abandoning its medium-term annual sales growth target of 5%-7% by 2025.
Where are we now?
Diageo doesn’t report H1 2026 earnings until February 25, but November’s Q1 update was a surprise. Management said they expect organic net sales growth to be flat or slightly lower this year due to weakness in China and the US.
But quietly, there has been a slight recovery, with the share price up 14.7% in 2026.
Granted, it’s not visible in the graph above and it’s nowhere near the champagne exit. However it is enough to turn £15,000 invested at the start of the year into around £17,200.
So, what happened? Yes, it has to do with new CEO Dave Lewis, who started in January. Nicknamed ‘Drastic Dave’, he is known as an expert at changing things, as he has been plagued by scandals. Tesco in the mid-2010s.
Diageo has already loaded its stake East African Breweries about $2.3bn. More merchandise may follow, including a baijiu brand in China. The company is working on this, according to the Bloomberg News. It is worth noting that Lewis sold Tesco goods in China.
Additionally, Diageo has a 34% stake in Moët Hennessy, which RBS analysts think could be worth €4bn. In a way, there’s also the Indian cricket team, which is probably worth $2bn, and the underperforming spirits labels that could be slapped.
These disposable items can significantly improve a company’s balance sheet. And it is already on track to deliver nearly $625m in cost savings over the next three years.
Diageo Diagonal
Of course, those challenges I mentioned above – consumer pressures, GLP-1s, alcohol moderation, and the weakness of the US – still exist. Drastic Dave can’t wave a magic wand and make them disappear.
However, he has great product and marketing experience from his time Unilever. And Diageo has narrowed its focus on growing brands like Guinness, Johnny Walker again Smirnoff Ice they can still reward shareholders well in the years to come.
CFO Nik Jhangiani recently said that Diageo does not even have “we scratched the surface of what we can do with Guinness” all around the world.
For investors looking for a replacement stock, I think this one should be considered while it’s down 55%.
