It takes time to assess the true value and legacy of a long-serving CEO such as Sir Ivan Menezes at Diageo; even more so, given his shocking and untimely death at the age of 63, just as he was on the threshold of leaving his post after a full decade at the helm of the world’s leading beverage alcohol business.
Any full appreciation of Menezes’ time has to encompass a comprehensive view of his career, rather than solely focusing on his ten years as CEO. This, after all, was the man who was there at the beginning of Diageo, overseeing the integration of Grand Met and Guinness back in 1997.
He was also credited with developing the ‘Keep Walking’ campaign for Johnnie Walker soon afterwards – arguably the most successful piece of brand marketing yet devised for a spirits brand. Keep Walking was due to be retired in 2015, replaced by ‘Joy Will Take You Further’ – only to be quietly reinstated when the latter failed to fly.
Stripping away the emotional impact of Menezes’ death, any fair and objective assessment of his time at the top of Diageo would have to characterise his tenure as successful. As the company itself puts it: “During his decade as CEO, Ivan oversaw an outstanding period of change, growth and high performance.”
Undeniably true. But turn the clock back to his early days at the helm in and around 2014/15 and questions were being asked about the successor to Paul Walsh as company CEO. The nadir came in fiscal 2014, when global sales were essentially flat at £10.25bn ($12.77bn), thanks to a lacklustre performance in the US and revenue declines in emerging markets.
For some, those doubts were exacerbated by the move in late 2014 to sell Irish whiskey Bushmills to the Beckmann family, in return for full ownership of Don Julio Tequila. I recall some whisky insiders being absolutely dumbfounded by the decision, which came less than a decade after Diageo had paid £200m to buy Bushmills from Pernod Ricard – following that up by investing tens of millions of pounds more to expand production and inventories.
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Menezes saw things rather differently. Speaking a couple of years later, he told Just Drinks that the company had “tried very, very hard” to make Bushmills a success in the US especially, but had failed thanks to the ubiquity of Jameson. “It’s not the Irish whiskey sector that is up, it’s certain brands that are up,” he said, somewhat ruefully.
Bushmills was – is – a wonderful brand but it couldn’t compete with Don Julio in balance sheet terms. How could it, when (at the time) Don Julio’s unaged blanco iteration was about the same price as Bushmills core 10-year-old expression?
By coincidence, both brands were selling about 230,000 cases in the US in those days; globally, Don Julio had only about 75% of Bushmills’ volumes – but almost double its value. And, although Irish whiskey has had a good run, we all know what has happened to agave spirits since then in North America.
That said, Menezes had inherited a rather messy situation with Tequila. Diageo had been desperate to acquire Jose Cuervo from the Beckmanns via a mooted $3bn deal, but that fell through. In 2001, Diageo had acquired Don Julio in its entirety as part of the Seagram acquisition, only to sell a 50% stake to the Beckmanns three years later, giving the latter control over the brand in Mexico.
Buying that stake back again with Bushmills was a pragmatic strategic move – in some respects, simply making the best of a bad job – and one that has paid for itself many times over in the years since. That Diageo now has a leadership position in Tequila constitutes a remarkable transformation of fortunes.
That, of course, is not entirely down to Don Julio. Again, when Diageo paid a potential $1bn to George Clooney and pals for Casamigos in 2017, eyebrows were raised, and not just over the price tag. Didn’t Don Julio and Casamigos compete at similar price points? Again, events have proven the strategy to be correct. That $1bn price tag now looks close to a bargain.
By fiscal 2019, Menezes was able to hail Diageo’s full-year results as the “highest-quality” he’d ever seen, capping a return to growth after the lows of 2014/15 with a 6.1% revenue increase to £12.87bn. The Covid-19 pandemic took a wrecking ball to those numbers in fiscal 2020 but the company has since emerged from that crisis in even better shape.
Maybe one of the reasons why the Don Julio/Bushmills deal stands out in my mind is its relative boldness in a period of Diageo’s history mainly characterised by relative conservatism: bolt-on, strategic deals and disposals of low-value assets, or non-core activities such as the Gleneagles Hotel in Scotland.
And plenty of healthy caution, too. Menezes was famously sceptical about getting too heavily involved in hard seltzers a few years ago, expressing his doubts about an “overcrowded” category and voicing a belief that more sustainable growth might come from his beloved Guinness.
This refusal to get carried away extended to Diageo’s hesitancy to spend big on cannabis as restrictions were relaxed in Canada and parts of the US – in obvious contrast to Constellation Brands and others – and an air of patient realism when it came to the future potential of certain categories and geographies. In 2019, Menezes predicted that meaningful growth for Tequila outside North America would be a “ten-year journey”.
The overriding feeling is one of calm, practical, dispassionate decision-making, devoid of ego and with an inherent wariness of anything that smacks of volatility. As one analyst commented on seeing those stellar fiscal 2019 results: “I don’t see anything earth-shattering but that’s part of the attraction of the story.
“It’s kind of dull and boring, but consistent in delivery. As an investor, that’s what you want. Diageo are like the Nestlé of the beverage world, but most investors will take that. There are worse places to be.”