Diageo : Transcript

Diageo | dbAccess - Global Consumer Conference 2025 | June 4, 2025

Mitch Collett:

Good afternoon everyone. My name is Mitch Collett from Deutsche Bank's Consumer Staples Research Team in London, and I am delighted to be joined on stage by Nik Jhangiani, the CFO of Diageo. Nik, it's only been a couple of weeks since we saw each other in Dublin. I'm aware that at that event you had your very first pint of Guinness.

Nik Jhangiani:

I did.

Mitch Collett:

I guess the first question that I'd like to know the answer to is how was that pint of Guinness?

Nik Jhangiani:

Actually, it was pretty amazing and I wasn't quite sure how I was going to feel about it. It was funny because my son kept telling me, "Do not try your first Guinness in front of the investors. You have terrible ways of controlling your facial expressions and that's not a criticism, but so just be careful." The night before they took me up to the bar and actually poured my own Guinness and it's quite a procedure. It's six steps. It was quite exciting. I actually did quite well. I'm going to say something I'm not supposed to say, so is this being, oh, I shouldn't say that. I'm just saying it already. No, I'm not. Okay. It's being webcast. I won't say it, but if anybody wants to know what happened, I will tell you separately, but so I tried my first Guinness and I tried side by side the Guinness 00, and I swear to you, if someone wasn't standing by me telling me what I should be kind of looking for in terms of the difference in the taste, I would not have known, so good experience. Having said that, I'm still pretty much in love with this brand, so I just added to my repertoire, let's put it that way.

Mitch Collett:

It's a great product, so hopefully the first of many. You're roughly nine months into the role, still a relative newcomer to Diageo. What are your reflections on Diageo as a business? What has impressed you and what do you think needs more work?

Nik Jhangiani:

Yeah, it's been nine months. It's been a long nine months. I've been on the road a lot, which has been really positive because I've literally, outside of getting into Latin America physically, into some of the larger markets there, I had a chance to meet the whole team in Miami. I have been pretty much everywhere from South Africa, to Nairobi, to Nigeria, to Shanghai, to Singapore. I'll stop naming them,

but yeah, I've traveled a lot, but you know why it was really important was to get a really good sense of our people, but also get a chance to meet our customers and get a sense of what they like, what was challenging, what were they seeing in terms of market trends, et cetera. It's been amazing, but what clearly was evident was we truly have some of the world's best brands. We are leaders across multiple categories, if not most of the categories in which we play within the spirit space.

I've been blown away by the level of our marketing, and I think our supply chain capabilities are fantastic as well, and it's quite concentrated when you think about that. So very solid there. Ultimately, it's all fueled by 30,000 very passionate people who really believe in the business, really believe in the brands and want to grow. It's been a challenging time for the last couple of years, I think coming out from what happened in November of '23 with the profit warning and then obviously, just kind of the macro situation, the slowdown and the de-stocking, et cetera. Incredibly passionate people who want to win. A lot to kind of rebuild in terms of that confidence internally, but what we can deliver externally as well.

On the flip side, I think there's lots of opportunities, and I say that with a perspective of, while I think we're really solid on the brand side, I think we haven't necessarily been as solidly synced up when I think about brand and physical availability and commercial execution.

I see that being even more important in a space where it is quite crowded, when you think about TBA and if you even think about the spirits world and whether it is walking into a bar and seeing the back bar display and if you're looking for something, it's hard to find. When you go onto a menu and it's not just going to be one category or one product or one brand that's listed or called out. When you go into a shopping aisle of a liquor store or a retailer, it's a very crowded space. I mean, in terms of the number of brands and actually, what's actually grown even within categories of brands is flavor proliferation, right? Vodka being a clear example of that. I think it becomes even that much more important around how good are we at execution at the point of sale where you're truly able to link up physical and mental availability.

I think there's a lot of opportunity there. Clearly, I think we have opportunities where you think about metrics in terms of how we are focused and measured, and I think, obviously, continuing to look and lead the way from a growth angle, given how large we are in terms of within the industry, particularly in North America. A big part of that, I think, is also how we think about RGM and pricing and mix that continues to be relevant when you link it back to consumer occasions, choices, channel structure, your pack price, architecture, et cetera. There's a lot more in that space, I think, that we can do.

Mitch Collett:

Understood, thank you. Two weeks ago you launched Accelerate, where you are targeting $500 million of cost savings, and at the event in Dublin, you gave some context around the four buckets of savings as you see them. Perhaps let's dig into each of those, so the first one is AMP, you-

Nik Jhangiani: We'll start there.

Mitch Collett:

Okay. If that's okay?

Nik Jhangiani: Yeah, absolutely.

Mitch Collett:

Where do you see the biggest opportunities to make your AMP more efficient? What makes you confident you can do that without harming your brands? To what extent does digital and AI play into that opportunity?

Nik Jhangiani:

I would actually take the two buckets together because I think there's AMP spend and there's also trade investment, and I'm going to link them up a little bit so you get a sense. I think let's start with the most simple one around our AMP spend, and I'm just going to give you that first bucket piece in terms of the split, rough numbers, but roughly about 40% of our spend of that bucket of circa $3.6 billion is in what you would call media scale and reach. What are you really doing, whether it's through print, digital, social, TV, et cetera, in terms of back to that mental availability piece? Good dollars there, and I'll come back to how I think we can do that differently. Then you've got linked to that is very much about circa 20%, which is your development costs or your non-working as you might call it, right?

That's everything from your creatives, to your media buying, through content generation, et cetera. That's about 20%. I think when you look at those two holistically first, I think there's a big opportunity to bring down that non-working, and this is where I think AI, to your point, comes in and better digital tools because all of our media buying today is so disparate and so fragmented, and there's no reason why it should be that way. Particularly in a world where we've got great tools and you've got an ability to even narrow down the number of agencies that you work with, even absent tools. The second piece is there's a lot of duplication of costs because in what has been quite a decentralized model within the Azure, even their global brand teams, there's almost been an ability for local teams to content create and actually use some of what their local content creation is, versus what is the global brand? Even though they might be sticking to brand parameters of what are the intrinsics or the extrinsics you want to talk about, but they're driving duplication.

Why? Because they've been allowed to, right? In some ways, I almost say, well, if we change the way we work in terms of that development where there's co-creation between the local brands, local companies or local markets and the global teams, and it doesn't have to be in every area or category. Gin for instance. Well, we know the UK is very big in gin. We know for instance, Spain is very big in gin. We know there are certain countries in Latin America, they're very big in gin. If their content co-creating you avoid that duplication of costs and then you get the benefit around the fact that that content that has been created gets better [inaudible 00:09:39] and aware out, because running it more through a larger number of markets, so your returns on that are a lot better as well. I think both in terms of non-working through tools, content creation, co-creation, the virtual studio that we've created that allows you to actually take something and do it with AI within seconds, where you actually don't even need to bring another agency ...

Nik Jhangiani:

... within seconds, where you actually don't even need to bring another agency in when you're thinking about what's going to be relevant for GD versus what's going to be relevant for Spain, for instance, and how you can customize that within seconds.

I was with the CEO of WPP a week ago and he was in our office having drinks with us, and he was showing me literally on his screen two ads that were running side by side. One that it costs tens of millions to build and create, and one that had been created by AI. I actually got it wrong in terms of which one was which.

So, it just tells you the power of what's available out there that allows us to think about that development cost. But the media scale and reach piece, I don't think we've been very good at how we're allocating that spend back to a full cohesion across the line when you're looking at that mental and physical availability, but sufficiency of spend behind a brand and also returns both on a short-term and a long-term metrics. I think you've got to look at it holistically, and I don't think we've been very good about doing that. So, I think there's been a lot of money put. And some of it's great, but there's an opportunity to really rework that.

And then you've got your commercial ANPPs, which is really about your commercial execution and what you're doing. Point of sale material, for instance, what you're offering in terms of promo activity. But that also links to your gross to net, which is your trade investment. And both of those have been outpacing our top line growth. Well, that's not acceptable for me. So, I think there's a big opportunity in terms of how we look at rationalizing that spend in a more effective way to drive more pay for performance as well. But that's a multi-year journey. That doesn't happen overnight.

So, I think when I look at those two buckets in combination, that clearly is an opportunity for us to go after. And actually, to your point, not compromise our brand equities and actually invest better dollars with better returns around growth.

Mitch Collett:

And if we can dig in, I know you covered trade spend optimization then, but how do you think about managing trade spend such that it doesn't impact affordability, given that affordability is clearly something that consumers are very focused on now?

Nik Jhangiani:

Yeah, but I think that the challenge in your question there is you are thinking that I'm going to cut trade spend. I am actually talking about optimizing my trade spend and linking it to more pay for performance. So, I don't want to take it away from my customer, but I want to link it to what is consumer-facing and what is ultimately reaching them as opposed to funny money that they just get to deduct and keep in their pockets. That's the difference.

So, it's not necessarily about reduction, it's about optimization. With optimization, that could be better allocation and some reduction as well. But there's duplication of trade spend both in trade investment and commercial ANP as well. And within commercial ANP, the other piece that we're not doing very well is how well we actually do our POS [inaudible 00:13:03]. And clearly, that's an opportunity too. So, I don't see us in any way risking our brand equities. In fact, I see us being over-indexed on investing around brand development, around brand equities, particularly where growth is.

Mitch Collett:

Understood. Thank you.

And then maybe the next two parts, we'll try and do those together. So, overheads is part of it, but I've always thought Diageo is actually a very efficient business. So, interested to know how you can take money out or make cost savings on overhead. And then also, supply chain because you had the supply chain agility program, which I think is still running. Are these savings incremental to that or is it all woven in together?

Nik Jhangiani:

I'm not going to get into what's incremental or what because I'm drawing a line in terms of what was in the past. I can't really talk about that, and I'm talking about what we can do for the future.

I think to your point around overheads, you are absolutely right. Actually, when you look at it on the element of how our overheads are and how they have been as a part of our revenue, actually we run pretty lean. My challenge back would be I don't think we necessarily have invested in the right places. And in some places, again, we've got excess and fat and duplication.

What do I mean with that? With the fact that we have a very decentralized model, we build a lot and invest a lot, in terms of capability tools, very much at a local level. We don't leverage our scale. We haven't truly defined clear operating principles, because I think Diageo particularly in the last five, six years has grown tremendously. And we haven't really defined what is the role of a country or a market, a region and group. What needs to stay very close in the market is consumer and customer. You don't want to lose that relevance. You have to have that localness.

But that doesn't mean that everything needs to be tailored or done differently. And I think that's where we need to leverage our scale on how we build capabilities and look at our business end to end. And for me, it's not so much around savings there. It's about reallocation and how do we invest smarter.

One of the areas, for instance, that I talked about was I don't think we have best-in-class commercial execution, where in a crowded space you probably need that even more. I don't think we've been structured as we think about marrying up a consumer choice framework with our brand portfolio strategy, with our market growth framework, with how we need to think about outlet occasion segmentation.

And a lot of that last piece, and bringing that all together also, the rubber hits the road when you have really good feet on the street, so to speak. The feet on the street that are not in there order-taking and/or merchandising. Feet on the street that are actually helping the customer upsell and drive their margin and ultimately drive our distributor and our margin as a result of, but only if it's linked to clear occasion channel pack-price architecture. RGM is another area where I think we need to build capabilities at a central level and have some element of that local.

So, I think that's the operating model piece. That might mean, back to that point that I made earlier or when we talked about this, where some of that might need to be reinvested in different areas to build capabilities that we don't have as strong today.

Mitch Collett:

Okay, so you talked about how the operating model is changing and how that's all being done as part of Accelerate. I guess can you talk about how you are ensuring that employees are engaged and behind the Accelerate initiative? Because it sounds like quite a big change in your approach.

Nik Jhangiani:

Yeah. Listen, I've been actually very positively surprised by the level of engagement, both from when I've been out in markets, but also as I've talked with the senior leadership group. We've had the opportunity to do two large meetings with them. These are 130 odds top leaders, then also with the exec and then with the board as well. And I think bringing clarity and structure and being very clear on the deliverables and the outcomes and the metrics and the incentives all link up. So, it's not doing one without bringing it all together.

I think we've got incredibly passionate people, as I said, who are excited about the brands and what we can do. It's not great that they feel pretty beat up in terms of what's happened the last couple of years