Diageo's thirst for wider horizons leaves Europe with jobs hangover

The beer and spirits giant is looking to shed staff as it focuses on emerging markets

THE morning after was a particularly sore one at St James Gate in Dublin, which should have been revelling in the publicity surrounding Barack Obama's state visit. Instead, just 24 hours after the US president toasted his Irish roots with a pint of Guinness in Money- gall, employees at the spiritual home of the country's iconic stout were told to brace themselves for swingeing job cuts. In total, Guinness owner Diageo is reportedly looking to shed 400 of its 1,700 Irish staff.

They won't be the only workers affected, of course - drinks giant Diageo is re-organising all of its European operations to focus more resources upon fast-growing markets in Asia, Africa and South America. The extent of the overhaul won't be confirmed until chief executive Paul Walsh unveils the group's year-end results on 25 August, but it has already paved the way for two high-profile departures.

Stuart Fletcher, who helped build the company's international operation, will leave following the split of the thriving division into autonomous units operating under existing regional heads in Latin America and Africa. The group's Middle East and duty free businesses will be folded into its existing Asia Pacific division, with all changes to take effect from 1 July.

Meanwhile, Ron Anderson, the head of Diageo's central sales and commercial operations, will also leave as these duties are devolved to regional level. It therefore follows, the reasoning goes, that most of the European job losses will be in these areas.

"The regional variation in the pace of economic growth has created significant change and new opportunities for Diageo as a global business," Walsh said last week. "In order to capture these opportunities, Diageo has begun a review of our operating model across the business."

Walsh's decision to focus resources away from ex-growth markets is not particularly unique, either within his industry or others. Across a spectrum ranging from energy and IT companies to consumer goods and service providers, corporations have been re-adjusting their strategic outlook to take advantage of the staggering growth rates clocked up by the so-called Bric (Brazil, Russia, India, China) countries in recent years. "This is the zeitgeist," says Investec analyst Martin Deboo. "Everyone is coming to terms with the potential for growth that these emerging markets represent."

Diageo wants to capitalise upon the rapidly-growing middle classes in increasingly prosperous emerging economies, which has led to rising demand for its whisky brands in South America, while African consumers thirst is, in the main, for the group's beers.

The impact was clear to see in Diageo's half-year results for the six months to 31 December: operating profits from the Asia-Pacific region rose 18 per cent on an organic basis, while those from the international division were 15 per cent higher. North America delivered more sedate growth of 5 per cent, but operating profits in Europe dropped by 9 per cent.No wonder, then, that Walsh wants to raise emerging market revenues from 33 per cent to half of overall sales, and is shifting resources accordingly.

"The principle is surely right," says Deboo at Investec. "It is sensible to scale their investment towards that."

Deboo says decentralised marketing of group mega-brands such as Smirnoff, Baileys, Tanqueray and Captain Morgan is more "evolution than revolution", as activities such as frontline sales have always been orchestrated at a local level.

Diageo employs an estimated 22,000 people globally, including 4,500 across 50 sites in Scotland. Most of these are dedicated to the production and packaging of whisky, though the group's Cameron Bridge distillery makes neutral spirits used in gins such as Gordon's and Tanqueray.

There are also administrative centres in Edinburgh and Elgin, and though these posts would at first glance appear more vulnerable, the general feeling is that this review will not result in the kind of large-scale job losses that plunged Diageo's Scottish operations into the industrial and political furore witnessed two years ago.

The announcement in 2009 that Diageo would close its Johnnie Walker bottling works in Kilmarnock and its Port Dundas distillery in Glasgow prompted a high-profile campaign to save the facilities. This ultimately failed with the loss of about 850 jobs, but with 40 million taken out of annual running costs, Diageo's Scottish operations seem reasonably prepared to withstand the forthcoming financial fitness test.