Diageo, the global spirits giant behind Johnnie Walker and Guinness, is getting a fresh start under new CEO Dave Lewis. But according to investment bank Berenberg, the turnaround will take time—at least 18 months of revenue pressure, in fact—before any meaningful growth returns.
Berenberg, which recently upgraded Barratt Redrow to Buy after a 43% drop, says Lewis's strategy makes sense but warns that the company's biggest headache, North America, will keep dragging on results. Shoppers there have been trading down to cheaper bottles, and retailers are pushing for more promotions, squeezing Diageo's margins.
What's the Plan?
Dave Lewis, who took the helm earlier this year, is focusing on two key areas: competing better below the 'super-premium' tier and building up ready-to-drink cocktails. These are segments where demand has held up, even as consumers tighten their belts. Berenberg thinks this is the right move, given the shift in consumer behavior.
But the catch is 'price/mix'—a measure of how much Diageo earns per bottle after accounting for what it sells and at what price. If more sales come from lower-priced spirits or heavily promoted ready-to-drink cans, average selling prices can fall even if unit volumes stabilize. That's why Berenberg says the timing of a return to top-line growth is uncertain.
Why August 6th Matters
Diageo is set to release a strategy update on August 6th, and the market will be watching closely. For investors, the key question isn't just whether volumes are recovering—it's whether the recovery is happening in cheaper products. 'Mix dilution' (selling a higher share of lower-priced items) and higher promotional intensity can keep net revenue weak and squeeze margins, even when more product is moving off shelves.
Berenberg has lowered its forecasts for sales, profit, and earnings per share for fiscal 2026 through 2028, alongside a slightly lower price target. This reflects the view that revenue pressure could last at least 18 months, as the company works through its supply chain and execution problems.
What It Means for Investors
For everyday investors, this is a reminder that a turnaround story often takes time. Diageo is a well-known name with strong brands, but even giants can face headwinds. The focus on ready-to-drink cocktails and lower-priced spirits makes sense in the current economic environment, where consumers are more price-sensitive.
But the path to growth is not straightforward. As Berenberg notes, 'volumes are back' isn't enough if the recovery is happening in cheaper products. Investors should watch the August 6th update for signs of whether price/mix is still subtracting from growth expectations. That will be the real test of Lewis's strategy.
In the meantime, Diageo's stock may remain under pressure. The company's challenges in North America are not unique—other consumer goods companies have faced similar headwinds as shoppers trade down. But Diageo's strong brand portfolio and global reach give it a solid foundation to weather the storm.
For those holding Diageo shares, patience will be key. The next 18 months may be bumpy, but if Lewis's plan works, the payoff could come later. As always, it's important to consider your own investment goals and risk tolerance before making any decisions.
