• Drinks giant targets big savings
  • Working to halve spirits SKUs by 2012
  • To invest GBP100m in Africa
Diageo cut more than one in five staff in North America in its last fiscal year

Diageo cut more than one in five staff in North America in its last fiscal year

[Updated 05/11/2011 with clarification on North America job figures] Diageo will strip more costs out of its business in recession-hit Europe and North America in order to help it invest in emerging markets like Africa, the firm's supply chief has said.

Diageo's head of global supply, David Gosnell, said that the drinks giant will step up its project to reduce supply chain costs as it seeks to adapt to a new economic environment in North America and Europe. 

Savings, including those from global manufacturing, will help the group to meet investment needs for its drinks in faster-growing emerging markets, such as beer in Africa and spirits in Latin America.

The Smirnoff and Johnnie Walker distiller plans to reduce its number of spirits SKUs from 10,000 to 5,000 globally, but believes it can do this "without losing any net sales". It has already achieved GBP10m (US$15.7m) in annual savings from the project and expects to realise another GBP10m in annual savings by the end of June 2012, Gosnell said in a company webcast today (25 October).

Diageo and its rivals have been forced to cut costs and adapt their product offerings in much of Europe and the US following the global economic downturn. Gosnell said that Diageo is targeting savings in all areas of supply, from inventory to manufacturing and transport.

The firm is particularly keen to reduce its glass packaging, which currently accounts for more than a quarter of the group's annual raw materials costs. Gosnell said the firm would switch more of its drinks into plastic bottles in the US, where "we use plastic for a third of spirits and we will be taking that number higher this year", he said, adding that plastic was "significantly cheaper".

Diageo also intends to launch a new inventory tracker system across its European business in its current fiscal year, to the end of June next year. The system, which Gosnell said would "reduce inventories" by giving "more timely data on future demand", has been trialled in Ireland. It is expected to go global by 2014.

The Guinness brewer has already moved to restructure its European beer supply business in the face of lower consumer demand for beer in many markets. Gosnell said that 200 jobs have been cut as part of plans to "simplify and streamline" the division and achieve EUR20m (US$31.5m) in annual savings by the end of this fiscal year.

The firm's 2010 annual report shows that its North America division employed 643 fewer people and its Europe disivion employed 246 fewer people at the end of its last fiscal year. However, Diageo said that the figure for North America reflected the firm's decision to shift the supply operations of its US wine business to its global supply division.

Diageo said that it still employs around 3,000 people in North America.

Yet, the figures offer more evidence of Diageo's increased focus on emerging markets. By contrast with Europe and North America, the group added around 150 jobs to its International division during the 12 months to the end of June, with Asia Pacific staff levels staying broadly level with the previous year.
Diageo also plans to save more money in manufacturing and bottling globally. Gosnell said that Diageo's global "Perfect Plant Programme" has delivered GBP30m in annual savings in the last two years and that "a more ambitious target" was set for the current year.

Efficiency gains will put Diageo in a better position to invest in fast-growth markets. Gosnell said that the firm would spend GB100m on its African beer business in the current fiscal year. It has spent GBP300m on the division in the last four years.

"We are currently assessing further packaging capacity requirements across East Africa," said Gosnell. He added that the group also plans to increase sourcing of local raw materials for its beers in Africa.

To view the webcast, click here. To view Diageo's annual report, click here.