Johnnie Walker maker Diageo brings in former Tesco chief Dave Lewis to revive growth

By Yadarisa Shabong

(Reuters) -Diageo appointed former Tesco boss Dave Lewis as its CEO on Monday, ending a months-long search and turning to an outsider to revive growth at the world's largest spirits maker during a challenging period.

Lewis, 60, will be tasked with turning around the Johnnie Walker whisky and Guinness beer maker, which is grappling with tariff hikes in the United States, its biggest market, high debt levels, and a move away from alcoholic drinks by younger consumers.

He will join Diageo, which last week downgraded its sales and profit outlook for fiscal 2026, in January.

Shares in the drinks group, which also makes Don Julio tequila, jumped nearly 8% on news of Lewis' appointment on Monday.

"We think this is a good move," RBC Capital Markets analyst James Edwardes Jones said in a note, calling Lewis' appointment a "pleasant surprise".

The shares were still hovering near decade-lows, having lost about 27% of their value this year, underperforming peers.

'DRASTIC DAVE' TAKES THE HELM

Diageo investors have been seeking debt reduction and growth revival.

The drinks maker's net debt stood at $21.9 billion at the end of June. Credit rating agency Fitch in September downgraded Diageo's long-term rating outlook to "negative" from "stable" due to a prolonged high leverage and uncertainties stemming from the global tariff environment.

Lewis was CEO of UK supermarket group Tesco from 2014 to 2020. Tesco was on its knees shortly after Lewis joined in 2014 due to an accounting scandal that knocked millions off its profits and billions off its share price, but four years later he declared Tesco's turnaround complete, its position as clear market leader reinforced.

Prior to that, he spent three decades at Unilever, where he earned the nickname "Drastic Dave" after fixing businesses through cost-cutting and innovative marketing.

"It may not require drastic change at Diageo, but the brands' appeal needs to be revitalised at a time when the industry is facing structural headwinds," said Kai Lehmann, senior analyst at Flossbach von Storch, a top 20 Diageo shareholder.

Lehmann said the appointment was a surprise but Lewis was an ideal candidate, who had managed to significantly increase profits and initiate a sustainable cultural change at Tesco.

Lewis overhauled Tesco's relationship with suppliers, lowered prices, simplified product ranges and improved store standards. While he withdrew from overseas markets he pursued growth at home by buying wholesaler Booker.

"Dave Lewis is unusual in combining a deep understanding of brands with objectivity, pace and grit," said a person who worked closely with Lewis at Tesco.

Not many sector leaders could have turned Tesco around but Lewis did, this person added.

"The market faces some headwinds but there are also significant opportunities. I look forward to working with the team to face these challenges and realise some of the opportunities in a way which creates shareholder value," Lewis said in a statement.

KEY CHALLENGES  

Some investors had previously expected that Nik Jhangiani would become permanent CEO at Diageo, having been regarded as potential CEO material for a while.

But Diageo said on Monday that Jhangiani, who has served as interim CEO since July following Debra Crew's abrupt departure, will resume as finance chief next year. 

Crew took over in June 2023 after the sudden death of predecessor Ivan Menezes, who had presided over a period of extraordinary growth for the industry as drinkers splurged on spirits after the COVID-19 pandemic. 

Crew, however, failed to win over investors as Diageo struggled to revive growth in key markets like the U.S. amid a drop in alcohol consumption from pandemic levels and as its debt levels rose. 

Lewis, who served a brief stint as the UK government's supply chain adviser during the pandemic, was knighted in 2021 and is currently chair of consumer healthcare group Haleon. He will step down as Haleon chair at the end of the year.

(Reporting by Yadarisa Shabong in Bengaluru; additional reporting by James Davey in London; Editing by Subhranshu Sahu, Lisa Jucca and Susan Fenton)