Ireland has been identified as one of four major strategic markets for Diageo, which is selling control of its food business to concentrate on beer and spirits. The group, formed in 1997 through the merger of Guinness and Grand Metropolitan, said yesterday it also planned to integrate its alcoholic beverage subsidiaries into a single business.
Guinness's operations worldwide are to be combined with those of United Distillers and Vintners, the wine and spirits arm of Diageo. In Ireland Guinness Group Ireland is expected to merge with Gilbeys of Ireland, the drinks business that was previously part of Grand Met. The future of R&A Bailey, the other main Diageo subsidiary in Ireland, is less clear. It makes Bailey's Irish Cream and is part of the international arm of UDV, as is the group's one-third stake in Dillons, the Dublin-based wine importer and distributor.
Guinness Ireland Group made profits of £188 million (€239 million) last year on sales of £907 million. It is substantially larger than Gilbeys of Ireland which does not publish figures but according to company sources its sales are roughly £300 million. R&A Bailey does not disclose sales figures but its manufacturing plant in Dublin produces 4.7 million cases for the world market. The UDV operations in Ireland employ 500.
A spokesman for Guinness Ireland said yesterday that it was too early to comment on the detail of the "strategic realignment" as it is being called. Last week, the company announced it was making 290 workers redundant in Dundalk and further job losses are anticipated at its three other breweries in Dublin, Kilkenny and Waterford. The company has already decided to shed 100 marketing jobs from its 3,000-strong Irish workforce.
A spokesman for UDV in London said it was unclear how the Irish operations of UDV would be integrated with Guinness in Ireland. He said different approaches would be adopted in different territories. Ireland is the only state, apart from some African states including Nigeria, in which Guinness is substantially bigger than UDV.
Diageo estimates that the integration will give rise to annual cost savings of £130 million of which £100 million will be achieved within three years. Exceptional restructuring costs are expected to be £170 million of which £145 million will be cash.
Yesterday's news has effectively killed off speculation that Diageo might sell Guinness in order to concentrate entirely on the wine and spirits business. It had been suggested that the brewing business would be sold to an international beer company.
Mr John McGrath, the chief executive officer of Diageo, said yesterday that Ireland, along with Spain, the UK and the US, would be the group's four major strategic markets. They will be expected to deliver 60 per cent of the group's profits. A second group of 15 to 20 countries have been classified as key markets that are individually important and have the potential to become major markets.
The company has also identified a portfolio of eight global priority brands which include Guinness and Baileys as well as Johnnie Walker, Smirnoff and Malibu.
"The new organisation will bring UDV and Guinness together with an integrated strategy in beverage alcohol," said Mr McGrath. Diageo also announced that it was merging its food business Pillsbury with General Mills, the US cereals and cake-mix group.
Diageo will hold 33 per cent of the merged business which will assume $5.1 billion (£4.32 billion) of Pillsbury's debt. The deal values Pillsbury at $10.5 billion and creates the fifth-largest food company with a turnover of $13 billion.
