Diageo chief shaken, not stirred

If you look at some of our brands they have seen it all: wars, revolutions, coup d'etat. They have seen more economic cycles than we will ever see

PAUL Walsh is sipping from a glass of Guinness, just a half pint as he's mindful that this is a working lunch and he needs a clear head to handle a media pack who are keen to pin him down on the issue of responsible drinking.

Diageo, better known for Dublin's finest, Johnnie Walker whisky and Gordon's gin, is a giant of a company and the chief executive has to answer to a lot of people, including the Government and the health lobby who want to see companies like his take a lead against the so-called binge-drinking culture.

He's risen to the challenge, pouring millions into advertising and leading from the front in his role as chairman of the Scotch Whisky Association. But he insists there is only so much the industry can do and is concerned that in its desire to be seen to be tackling the problem the Government is punishing the many in its attempt to reform the few.

As such he's dismissive of higher prices ("it wouldn't stop habitual drinkers") and separate tills in supermarkets ("I can only see that adding to retailers' costs and it wouldn't have the desired effect").

He hopes that the industry has dissuaded ministers from imposing so-called "end frames" in television adverts which would provide a responsible drinking message at the end of every commercial. Instead, Walsh has offered to devote one in six commercials to the issue, continuing with some of those currently showing. He says they are having the desired impact in helping to change attitudes.

He doesn't want to pass the buck, but he's unequivocal in the way he'd deal with problem drinking. "You need to give more bite to enforcement," he says. "If a club or pub is putting people out of the street in a drunken state then close the outlet. You would only need a handful of outlets to close and the message would get through."

The tough-talking is also a reminder to well-meaning ministers that while they all share a desire to cure the worst excesses, the Government must not bite the hand that feeds it. "I would hope the Government remembers that Scotch whisky represents £100 a second in export revenues."

In response to questions about the Chancellor's climbdown on duty last week, he's more forgiving. Alistair Darling reduced a proposed 8% hike to 4%, but Walsh gave him the benefit of the doubt, saying it was "a correction rather than a U-turn". Whatever the case, it gives the industry a breather before VAT returns to its current level in 2010. He is equally willing to give credit to the Government for its attempts at rescuing the economy. "The Government is making a pretty good fist of it," he says.

Walsh, who describes himself as "a sales and marketing guy", has been in the top post at Diageo since September 2000 when he emerged from a pool of talent thrown together when the company was formed by the merger of Guinness and Grand Metropolitan three years earlier.

Walsh spent his early years dreaming of joining the RAF and while he never did sign up he did at least get a pilot's licence. He was born in Lancashire and retains a Lancastrian twang despite spending a number of years in America where he retains a home.

After college in 1982 he joined GrandMet's brewing division and four years later, at the age of 30, became its finance director. Following a brief spell with InterContinental Hotels and the GrandMet food sector he switched to the Pillsbury division, moving the family to America, and eventually becoming chief executive of the Pillsbury company. The merger with Guinness brought further promotion and, as chief operating officer at Diageo, he won the battle with Phil Yea, the Guinness finance director, and Dennis Malamatinas, the Burger King boss, for the top job when John McGrath retired.

Diageo had just sold Pillsbury – best known for Haagen-Dazs and the Jolly Green Giant – and Walsh later offloaded Burger King, thereby getting out of food manufacturing altogether. By then he had engineered the break-up of Seagram which further strengthened Diageo's status as the world's biggest wines and spirits group.

But that rapid growth hasn't made it immune from criticism. Five years ago it was drawn into a huge controversy when it attempted to rebrand its Cardhu single malt as a vatted or pure malt. It caused uproar in the Scotch sector and the brand eventually reverted to its original status. But the outcry was one step towards current moves to provide clear definitions in the Scotch category.

Apart from trying to sell more Scotch overseas through his role at the SWA, Walsh is now focused on achieving 7% to 9% growth in Diageo's operating profits and delivering on projects, including the launch next spring of the Roseisle distillery which will be one of the biggest in Scotland and represents the sector's recent renaissance. There is also a new Guinness brewery in Co Kildare, confirming the company's commitment to the brand which some believed it may have been tempted to sell. It is a regular source of amusement in the sector that Guinness sales are now higher in Nigeria than Ireland, but that merely points to opportunities in Africa and beyond.

Walsh spends 40% of his time travelling, making regular trips to the United States, the company's biggest market, and increasingly to Africa and South America, the two biggest growth regions. He was at the Scottish headquarters in Edinburgh last week getting an update on the company's progress in one of its spiritual centres. Diageo accounts for 20% of Scotland's overseas food and drinks sales making it the country's biggest manufacturing exporter. Johnnie Walker, which alone accounts for £1bn of annual sales, is Scotland's biggest brand.

Walsh admits the coming year will be difficult and that the company is taking an uncompromising approach to anyone who looks like a credit risk, but he argues that the positive features in the economy are being overlooked. "I'm not sure we're getting a balanced perspective," he says. "It is tougher, but not cataclysmic. If you look at some of our brands they have seen it all: wars, revolutions, coup d'etat. They have seen more economic cycles than we will ever see.

"As stewards of those brands it for us to make sure we emerge from this even stronger. We have to make sure we get the upside."

He says a company as big as Diageo, operating in 180 countries, cannot apply a uniform response. Markets differ, some have labour shortages, supply issues and so on. This diversity also means the company can play to its strengths, focusing on those markets that offer the greatest return.

Borrowing a familiar refrain from the prime minister he says the company will be run on more prudent lines and that staff will be urged to think about such things as whether they need to catch a flight somewhere. While cuts are not on the agenda, "what happens next year I don't know," he says.

"It is the biggest issue business leaders are facing. There is a lack of visibility about what is happening. I have never seen our figures oscillate so much. We just have to be more agile."

But brand building remains at the core of the company and he indicates a desire to continue with big-ticket sponsorships. He is in no doubt about the value of its Formula One sponsorship, and points for evidence to the Brazilian Grand Prix that handed the world championship to British driver Lewis Hamilton and exposure of Diageo's brands to 400 million worldwide viewers.

Walsh has his eyes firmly on a number of key sponsorships coming up as distressed companies are forced to offload them. He expects the banks to be among them. Could he have his eye on rugby's Six Nations tournament sponsored by RBS?

As for the immediate future, Diageo expects to be among the winners at Christmas. "The consumer may defer buying a new plasma television or a camcorder, but for affordable indulgences he will continue buying. That pattern of purchasing will continue."