View from City Road: Guinness on a plateau

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The Independent Online
Most companies would dearly love to have a problem like Guinness. This is a hugely successful, highly respected, well managed, cash generative company. Having come so far since its takeover of Distillers in the mid-80s, it also appears to be a company with few places to go.

Guinness has become a classically 'plateaued', mature business. Most of its large markets are stagnant or declining; opening up new ones is proving troublesome. While the company doggedly, and rightly, sticks to its premium pricing strategy in spirits, margins remain under attack with little sign of recessionary pressure on volumes easing.

The most pressing corporate problem, the group's relationship with LVMH of France, has been neatly and cleverly cleared up. Meanwhile the company continues to generate cash faster than it can come up with ideas on how to spend it. So where to go from here?

An acquisition would be the obvious solution but having got its fingers burnt so badly on the Spanish brewing operation, Cruzcampo, Guinness is right to tread carefully. Pushing forward with the existing business, even at a gentle pace, is becoming steadily more difficult.

Most of what can be done in the way of internal reorganisation and cost cutting has already been done. While there is a big task in re- acquainting Western consumers with the habit of buying higher-priced branded drinks, the company's decision significantly to pump up the marketing spend on just six brands such as Johnnie Walker, Dewar's and Bell's, at the expense of dozens of others seems unlikely to be a panacea.

Emerging markets offer only limited potential in the short term. Volumes in the Far East, excluding Japan, are growing strongly. But sales in Venezuela have slumped.

In these circumstances, it seems absolutely right that Tony Greener, the chairman, has opted for an outsider, Finn Johnsson, for what is arguably the most important job in the company after his own, managing director of United Distillers. Fresh ideas are what Guinness needs in abundance. In the meantime Mr Greener has the far from enviable task of continuing to ram home the message that investors will have to be patient.