Diageo CEO sets sights on mass market
New Diageo CEO Sir Dave Lewis has highlighted an opportunity to tap into the lower end of the market, where the company is “significantly underrepresented”.
Yesterday, Diageo released its financial results for the first half of its 2026 fiscal year, covering the six months ending 31 December 2025. The London-headquartered drinks firm reported an organic sales drop of 2.8%, which it blamed on a ‘soft’ US market and a decline in Chinese white spirits.
As a result, the business updated its organic sales guidance for fiscal 2026 to a decrease of 2%-3%. It also cut its dividend to shareholders in half to 20 cents per share.
Following his first financial results as Diageo’s CEO, Lewis shared some of his first impressions of the industry, noting that spirits represent more than 80% of the company’s sales.
“The spirits category is a very, very stable category,” the former Tesco boss said during the pre-recorded webcast. “In fact, it’s one of the most stable I’ve ever seen. Between 2010 and 2024, volume growth was around 13%. The significant feature of the market is the strong trend to premiumisation.”
He added that Diageo “deserves great credit here for seeing the opportunity and driving this trend”, backed by a “fantastic strategy” and an “exceptional” portfolio.
Lewis highlighted that consumption dynamics for spirits have remained broadly the same over the past year. “Penetration of spirits is really very stable,” he points out, referencing data for the group’s four biggest markets (US, UK, India and Mexico).
He believes there has been a change in the serves per occasion due to “pressure in the economics that our consumer groups are facing”.
GLP-1s: ‘Small impact on spirits’
He added that factors like “attitudes towards the category” currently show a “very small impact on spirits consumption”.
He played down the impact of GLP-1s, saying “it’s small when you think of spirits specifically”. He added: “We need to keep an eye on the emerging substitutes, but as we speak today, at a global level, these have a small impact on the category.”
Lewis also noted that the business is “significantly underrepresented” in the mass market, pointing to Nielsen data for the year to 28 June 2025 in the US. “This is both a challenge and indeed an opportunity,” he said.
In the US$10-and-below price bracket of US spirits sales, Lewis highlighted growth in small packs. “As economic pressure has found its way into the US category, we see a downtrading to smaller pack sizes. And if you look at US spirits, 9% of the market is now in those pack sizes. But Diageo’s portfolio is only contributing 5% from that particular segment. Again, an opportunity for Diageo.”
Regarding household spend in the US, he notes that the cost of a basket of consumer packaged goods (CPG) staples has increased by more than 25% in the past five years.
“The volume for that 25% increase is some 8% fewer items,” Lewis pointed out. “There’s a very significant squeeze for US consumers, and that’s before you start talking about the cost of healthcare and other costs that US consumers are having to bear.”
In the UK, he highlighted data showing spending on alcohol is flat, despite an increase in costs for essential goods.
Within North America, he also noted that for young people aged between 21 and 34, penetration of spirits is growing slightly, along with the frequency. Lewis also says the serves per occasion has fallen “mainly due to economic factors”.
He also said Diageo’s market share of spirits since 2010 has been stable.
RTDs: ‘Increasingly relevant’
Lewis said the ready-to-drink (RTD) category plays an “increasingly relevant role in the spirits socialising occasion”.
He claimed that Diageo “created the category” when it launched Smirnoff Ice 26 years ago. However, despite driving a “very significant share” of the category back then, Diageo stopped focusing on RTDs “around 2008”.
He added: “We now have a share of RTDs that is below 10% – from a high of more than 25% – at a time when RTD share of the spirits market has increased significantly and is now around 15%.
“If you take those RTDs and see where the growth is coming from, you can see that of the US$8 billion of growth between 2021 and 2024, 50% of the growth is in the higher ABV RTD segment – again, giving some illustration of what is happening in terms of attitude to alcohol.
“Young people are choosing RTDs, but they’re choosing RTDs with higher ABV, which gives some indication of their attitude towards this category. We believe there’s a very significant and profitable opportunity for Diageo in RTDs, but we have work to do.”
He also addressed Guinness, calling it a “phenomenal asset” and a “strong brand”, with a plan to expand its capacity. Earlier reports from 2025 had indicated Diageo was considering selling the brand.
Going forward, Lewis has pinpointed three immediate priorities: build competitive category strategies by winning with relevant brands, a focus on the customer, and a redesign of the Diageo operating framework.
Price-relevant portfolio opportunities
Regarding the first priority, Lewis said the business would keep focusing on “outstanding brands” while adding a “category lens”.
He also reiterated that Diageo will continue to invest in its premium portfolio, which he called a “massive asset”, alongside “exploring new portfolio opportunities”.
Lewis indicated there are some “proposition spaces” that are “relevant” in price point as an area of opportunity, particularly given the current economic backdrop.
“That might involve some price repositioning, and it might open up new proposition spaces,” he added. “In addition, we need to sharpen our price pack architecture and particularly address the opportunity that I’ve already referred to in the growth of small packs.”
Lewis also highlighted an opportunity to reposition the group’s whisky portfolio in the UAE, a market with a “strong premium consumer”.
Regarding his second priority, which focuses on the customer, Lewis said Diageo’s customer service in the off-trade is “really very poor”.
“When we’re looking for growth, the idea that we can’t service the demand that’s there is a source of significant regret, but it’s also an opportunity,” he added.
On his last priority, Lewis said: “The feedback inside of Diageo is really very loud that we could improve the clarity of our operations: global, regional, local. Clear accountability, clear responsibilities; there’s an opportunity for us to be clearer.
“That clarity will help us in our agility. A lot of the time, cycles inside the business are not quick enough. There’s an opportunity for us to design a much more agile Diageo operating framework.”
On a final note, Lewis said the dividend decision was “not easy” to make, but it enables the business to invest and become more competitive.
He stated: “We will make disposals if appropriate, but we will not sell brands cheaply.”
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