Diageo will spend around £100m refocusing its global supply and procurement operations to reflect acquisitions in key emerging markets, but says the streamlining operation will probably mean job losses.
Beer, wine and spirits giant Diageo announced today that it will transfer responsibility for local operations to 21 individual markets, while reducing the role of five regional structures worldwide.
Although Diageo said it expected the restructure to cost around £100m (circa. $150m) the firm said an initial review suggested that efficiency, footprint and cost reductions – vis-à-vis its current setup – would save around £60m per year, and that it hoped to achieve these savings in three years.
Asked if the restructure would involve job losses, the spokeswoman told BeverageDaily.com: “That’s likely, though we’re not yet at the stage of working where we can share any information on that. But given that by and large we will be removing those regional structures, there is likely to be an impact.”
Stripping-back regional role
Diageo plans further work to finalize the exact nature of the reorganization, and the spokeswoman said that she expected a further update when the company reported its full-year 2013 results.
Explaining the rationale for the latest review, the spokeswoman explained that it stemmed from Diageo’s 2011 operational level review, where the company had a global structure and five regions, with countries below that.
“What that did was really stripped back the role of the regions. That review was primarily focused on what you might call the ‘front end’ of the business, what we call ‘demand’, marketing and sales.”
The latest review aimed to bring Diageo’s supply or manufacturing base in line with that model, the spokeswoman said, having ensured that the company’s front-end changes bedded down post 2011.
“Essentially, it’s stripped out the regions, so now we’re going from global right down to local. The way the company is structured now, we have 21 markets, some with more than one country in.”
Mey Içki, Ypióca, Shuijingfang
The company’s emerging market focus reflected acquisitions such as Mey Içki in Turkey, Ypióca in Brazil or Shuijingfang in China, the spokeswoman said.
“The local companies that we’re buying into have quite significant supply operations for their own manufacturing base, and they’re often quite unique to that part of the business, particularly in something like local spirits,” the spokeswoman said.
She added: “We’re giving the 21 leaders of these local businesses more control over their business plan on an end-to-end basis. So we’re adding supply into their remit as well as the front-end, so they are involved in creating demand as well as managing supply.
There were a few exceptions to this rule, the spokeswoman said, citing Scotch Whiskey a good example, which despite its Scottish roots was a “wholly global” and as such would be managed by the global team, which would also retain responsibility for supply standards across all operations.
“But there are many examples where supply is already very close to the end consumer demand,” the spokeswoman said. “So we’re essentially just closing that loop and ensuring that local management has the ability to look at their business from end to end.”