Paul Walsh: The Smirnoff Ice man cometh to Slate the drinks industry opposition

Click to follow
The Independent Online

Mr Walsh was undergoing an education at the management school of Sir Allen Shepherd, the Grand Met chairman, which spawned a string of latter-day business leaders using a style of leadership many have copied but few have matched.

"I think Allen was similar to Max Joseph [the corporate legend who founded the company]. Allen was very entrepreneurial. He would give you a huge amount of rope but never quite enough to hang yourself," says Mr Walsh.

In 1986, the year inspectors from the Department of Trade & Industry first went into Guinness, Mr Walsh was appointed finance director of Grand Met's brewing division, home to such classics as Watney's Red Barrel, the beer immortalised in satire by Monty Python.

He certainly had no inkling then that his destiny, two decades later, would be running the world's biggest drinks company, Diageo, the £24bn corporate beast formed by the 1997 merger of the post-Saunders Guinness and its arch-rival Grand Met.

The deal brought together Guinness brands such as Gordon's gin with Grand Met brands including Smirnoff. As well as the Guinness beer business, the enlarged group had substantial food interests including Burger King and Pillsbury.

Now, after exactly five years in the hot seat for Mr Walsh, the company's genealogy seems just a colourful chapter in what received wisdom will tell you is a pretty staid company. Mr Walsh, however, will tell you that life at Diageo is far from staid.

"One of the things I find quite interesting is how analysts and journalists use statements like 'stable cash flow' about Diageo. They don't realise it's like a graceful swan going down the river, they don't realise the activity going on under the water," he says.

These days all that activity is focused on dreaming up new ways to get us to drink more booze, buying up rival brands for the corporate drinks cabinet and expanding sales in the big growth markets of the US and those of Brazil, Russia, India and China - the Bric economies in analyst speak.

Mr Walsh has tried to make Diageo as funky a place as possible for a company steeped in Scotch whisky heritage - it still owns the Gleneagles hotel where Mr Walsh can be spotted now and again playing golf.

The company's London headquarters has some of the feel and look of an internet company - lots of big pictures and bright colours - and Mr Walsh himself is one of the few FTSE 100 chief executives who generally dresses casually and wears a tan leather jacket to the office.

All this creative thinking regularly comes up with new tipples - Orinoco rum is one of this year's US launches - but the success of one of Diageo's biggest creations, Smirnoff Ice, the concocted vodka brand, has turned it into a drink of choice for the UK's binge drinking brigade.

"We don't want them drinking to the point where they're creating such a nuisance that that prompts regulatory changes that affect our business. It's about 1 per cent of drinkers that creates the problem. The licensing authorities and the police should have the powers to revoke licences of problem pubs and do whatever it takes to stop this antisocial behaviour."

Mr Walsh is hoping the company's new marketing message of responsible drinking - "Don't see a great night wasted" is the latest campaign - will keep the Government off his back.

"Marketing is about changing attitudes but it takes time. In the UK 20 years ago, far more people were drinking and driving. It took time to change but I think it [the binge drinking culture] will change."

Actually, governments here and abroad have already clobbered Smirnoff Ice through windfall taxes, accounting for a large part of the company's poor sales showing in Europe revealed at its recent annual results.

"Unfortunately in Europe we have run into regulatory issues. There has been a 60 per cent increase in duty on Smirnoff Ice in the UK and change of regulations that have driven us out of business in Germany. It was anti-competitive behaviour sponsored by the brewers. But it's pointless whingeing about them. We have to get on and do something different."

At this point, Mr Walsh gets up from his sofa and paces his cosy L-shaped office. He grabs a bottle and brings it over.

"If you want to attack the beer market then guys will probably feel good about this bottle, and women will drink what men drink but guys won't drink what women drink."

He hands over his latest assault on the lager market, a bottle of Slate 20, a macho, bourbon-based drink packaged in a typical lager-style bottle. But will it be the next Smirnoff Ice?

"That was the most successful new launch of any beverage company and, arguably, of any consumer goods company. It was just explosive."

Mr Walsh is a 50-year-old Lancastrian brought up in the Oldham area. His pleasing Lancashire burr has been given a slight American twang thanks to the decade he spent in the States, first running Grand Met's InterContinental hotels chain, which he sold to Japanese investors for 55 times its annual earnings, and latterly Pillsbury.

Pillsbury is the giant US food company that is home to the eponymous Dough Man and the Jolly Green Giant. He ran it for Grand Met and then Diageo before coming back to London in 1999 as chief operating officer and chief executive heir apparent. His career up to that point proved he had a safe pair of hands with enough flair to catapult him over a veritable scrum of executive rivals for the top job.

Brendan O'Neill, who ran the Guinness beer business, left to go to ICI where he has since departed. Philip Yea, the former Diageo finance director, has ended up running 3i as well as enjoying a spell on the board of Manchester United, while Denis Malamatinas, who ran Burger King, is no longer a feature of the UK corporate scene.

Since he took over as chief executive at the beginning of September 2000, Mr Walsh has executed phase two of the great Guinness-Grand Met merger strategy which was to jettison all the food businesses and focus on drinks. Guinness has been integrated into the main spirits sales and marketing operation and its Park Royal brewery in west London closed. Every effort has been made to tighten the group's competitive grip on the global spirits market and Mr Walsh's 2003 acquisition of the Seagram drinks business, in a joint bid with Pernod Ricard, extended the company's lead even further. Pernod has since tried to mimic Diageo's swashbuckling deal-doing with the £7.4bn takeover of Allied Domecq.

"We moved in on that Seagram deal and forced their hand very quickly while our competitors were still trying to get their act together. If you look at what we paid it will go down in history as the bargain of the century. It was an $8.1bn (£4.5bn) total price of which our part was about $5.6bn and it was at economic profit break-even at the end of year two. It's produced phenomenal returns. If you look at Pernod's Allied Domecq acquisition, it is 30 per cent higher in multiple terms and you're not getting as good a collection of brands."

Mr Walsh is still on the acquisition trail. If he exercises Diageo's option to acquire the Montana wine business from Pernod next month, his spending this year will reach £1bn including Bushmills, the Irish whiskey, for £200m, the Napa Valley Chalone wine business for £150m and Ursus vodka for £100m.

There is clearly plenty going on at Diageo and Pernod's attempt to catch up is motivation enough for Mr Walsh - his sales force should take note.

"There is now a clear No 2 and I will benchmark against that internally regularly and ruthlessly. It's good to have a clear enemy."

High-flyer with Grand designs

Age: 50

Pay: £2m including £1.3m performance bonus

Education: Royton & Compton school near Oldham and Manchester University

Career: Joined Grand Metropolitan's brewing division in 1982, becoming its finance director in 1986. Sent to New York to run Grand Met's InterContinent al hotels and then its Pillsbury food business. After the 1997 merger with Guinness to create Diageo, he became chief operating officer of the group in 1999, then chief executive in 2000.

Family: Married with one son

Interests: Flying, golf and rugby