Guinness goes back to its Irish roots

The London brewery was the first outside of Ireland to brew Guinness, but the need to cut costs and improve production efficiencies has prompted the decision to shift production back to Dublin, Diageo said. The closure will mean the loss of 90 jobs in the brewery itself, but the company will still use London as its sales and marketing headquarters.

"A major review of our brewing business in UK and Ireland has shown very clearly that the best option for the future would be to consolidate production for the GB market into Ireland",​ explained Gerry O'Hagan, supply director for Diageo's brewing business.

St James's Gate in Dublin is one of the world's most modern breweries, producing in the region of eight million kegs of beer annually. Diageo believes that with just a minor increase in investment it will be able to increase its production by 50 per cent, compensating for the four million kegs currently brewed at Park Royal in London.

"We know that it will take only a limited additional investment to build the already substantial capacity of St James's Gate to the level where it can supply the GB market with the draught Guinness currently supplied from Park Royal,"​O'Hagan said.

"Our Dublin brewery already supplies international markets including Europe and the US,"​ he added.

However, the closure of the Park Royal brewery comes at a time when Guinness's UK sales are declining, suggesting that the decision may herald a change in Diageo's attitude towards Guinness, the only beer brand in its highly successful spirits and wine business.

Although the drink is becoming increasingly popular in places such as America and Africa, and globally more than 10 million glasses are consumed in more than 150 markets, UK consumption dropped by 3 per cent in 2003, while sales in its home market dropped by 7 per cent. Despite last year's fall in consumption, however, the drink is still the fifth most popular beer brand in the UK.

But some observers are now beginning to suggest that the beer does not necessarily fit into Diageo's future business portfolio. With 80 per cent of the group's profits generated from its wines and spirits operations, and with a raft of world beating brands such as Smirnoff, Bailey's and Johnnie Walker to its name, a dwindling interest in the brewing business is a distinct possibility, especially with declining consumption in core markets.

Should Guinness eventually be put up for sale - and there is nothing to suggest that Diageo is planning on doing so any time soon - there would be plenty of interest from the global brewing industry. The world's largest brewer, Anheuser-Busch is already thought to be interested in the brand.

But for now, it is business as usual for Diageo, with a £150 million marketing budget for the brand this year aimed at restoring consumption growth.

"We have the opportunity to get our business into the best shape to support the long-term growth and development of the Guinness brand. Between the two breweries in London and Dublin, we currently have more brewing capacity than we need",​ O'Hagan concluded.