Why would Diageo look to exit beer entirely – including Guinness?

Diageo’s refusal to comment on reports it plans to sell off its beer business is not suprising. Such a decision would be a bold move that would undoubtedly alter the course of the spirit major’s future.

But if it were true, why would Diageo offload its beer brands? 

American news website Axios this week claimed unnamed sources revealed Diageo sought to sell brands including Smithwick’s, Kilkenny and Harp Lager in the Republic of Ireland, and Tusker in Kenya, while keeping hold of Guinness. The brands are said to be dragging on margins that are coming under pressure from two years of runaway inflation.

Speculation aside, the rumours make sense. Beer has long-since ceased to be a priority for the Johnnie Walker, Casamigos and Baileys owner.

The group sold its controlling interest in Red Stripe to Heineken in 2015, and in recent years has offloaded breweries in Africa as part of a more agile and “asset-light” operating model. Beer still makes up 14% of total sales at a group level, but that’s more a reflection of the global might (and success) of Guinness.

Diageo’s business strategy centres on spirits

Spirits, on the other hand, are central to Diageo’s more recent good fortunes. The Smirnoff brand owner has been at the forefront of the category’s premiumisation movement, which – until very recently – has delivered consistent value and volume growth for its business.

Even with signs that certain trends may be abating, spirits remain the priority. Diageo insists there’s long-term profitable growth in the category, and continues to invest in high-end brands like Australian coffee liqueur brand Mr Black and Don Papa Rum, a dark rum from the Philippines.

While spirits production is not immune from the cost pressures facing other alcoholic drinks, it is easier to ramp up the rsp on higher-value bottles of whisky, rum, vodka and gin than with beer.

Hence, it’s logical Diageo could consider an offload, especially at a time when its own profitability is under scrutiny from investors.

Could Diageo even look to sell Guinness?

Recent beer innovation like Hop House 13 and Guinness Cold Brew Coffee Beer have been far from successful, so stripping back to focus on spirits makes a lot of sense.

Guinness, long the crown in Diageo’s beer portfolio, is going nowhere for now. Diageo has recently committed €200m to build a second brewery in Ireland to brew more of the black stuff, and is also opening a £73m, 50,000 sq ft Guinness venue in London’s Covent Carden.

But it wouldn’t be a total surprise – further down the line – if Diageo was tempted to flog the brand and exit beer entirely, should a suitable offer be forthcoming.

Heineken and AB InBev would likely be the only two brewers with pockets deep enough, and undoubtedly either would love to add the famous stout to their portfolio.