In its Annual Report 2026 released on August 18, Diageo plc (NYSE:DEO) revealed that it had an average of 27,938 full-time employees by the end of June, indicating a decline of more than 6% from the 29,860 workers a year ago. The cuts are part of the company’s new CEO Dave Lewis’ broader restructuring efforts, with further layoffs expected to be completed by September 1.
The job cuts come as ‘Drastic Dave’ launched a program to lower the company’s costs of operations by close to $1 billion over the next three years. The initiative is intended to free up money to invest in growth, including by reducing prices on some brands and expanding in fast-growing areas including Guinness and canned cocktails.
The restructuring efforts come after a lackluster year for Diageo. The spirits-maker reported revenues of $19.6 billion for the year ending June 30, down 2% YoY on an organic basis. Operating profits also fell by 27% YoY to $3.2 billion, weighed down by $900 million in restructuring charges and a $1.5 billion impairment linked to the company’s business in Turkey.
North America remains a challenge for the London-based company, as sales in the region fell by 8.4% in fiscal 2026, more than the 8% that analysts had predicted. As a result, Diageo abandoned its previous medium-term growth target of 5% to 7% in favor of a more modest low-single-digit outlook.
Diageo’s Cost-Cutting Blitz Could Pay Off:
Although harsh on the employees getting laid off, the decisive action should help Diageo fix its cost structure and improve operational efficiency. The magnitude of the job cuts already executed demonstrates that Mr. Lewis is moving swiftly with his overhaul program.
If the company achieves its $1 billion cost-savings target, it could significantly improve margins even if the revenue growth remains stagnant. More importantly, Diageo’s management intends to use the savings on growth initiatives rather than simply boosting near-term earnings. The lower prices could help the spirits giant win back consumers who have shifted to cheaper alternatives, while the increase in investment could help bolster the company’s leading brands.
Moreover, Diageo’s bet on canned cocktails could pay off big. Despite an overall declining booze business, sales of “ready-to-drink” cocktails have been shooting up. According to IWSR, US sales of premixed cocktails have increased more than six times from $489 million in 2020 to $3.8 billion last year. Acknowledging their potential, Dave Lewis said that he would introduce canned cocktail products for all of Diageo’s core spirits brands.
Diageo Risks Cutting Too Deep, Too Fast:
The biggest risk for Diageo is that cost-cutting alone cannot make up for its underlying demand problem. The firm’s North American business remains weak, while a broader consumer shift away from alcohol and towards healthier alternatives threatens its core business.
There is also a serious execution risk as the restructuring program is expected to cost $1.2 billion and is already weighing heavily on profitability. Diageo reported severance costs of $514 million for its fiscal year ended June 30, up sharply from $73 million in the previous year.
Moreover, the aggressive workforce reductions can also undermine the turnaround, as excessive reductions could hurt areas like marketing and innovation at a time when Diageo needs to rebuild consumer demand. A Reuters report indicated in July that some Diageo teams were facing up to 30% reductions.
Conclusion:
Diageo’s aggressive turnaround efforts could help improve profitability and reignite growth, but significant challenges remain. The company must successfully convert its $1 billion savings into sustainable revenue growth without weakening its brands, particularly amid the persisting weakness in North America.
Market Sentiment:
Diageo plc (NYSE:DEO) was held by 31 hedge funds at the end of Q2 2026 in the Insider Monkey database, down from 34 hedge funds in the previous quarter. However, while the overall number of hedge fund investors declined, their cumulative stake value increased from almost $507 million at the end of Q1 to $606 million in the second quarter.
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Disclosure: None. This article is originally published at Insider Monkey.
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