Stout defence of brand Guinness
A price rise seems counter-intuitive but that is what Diageo pushed through a fortnight ago, with the cost of a pint increasing by five cent.
“The cost of ingredients is going up, the cost of fuel is going up. And therefore we are obliged to pass that through. If you don’t, you end up just suffering a permanent margin diminution, which in turn leads to a lack of investment in the brand,” Walsh says, explaining the rise.
He assures me it wasn’t a matter of the company getting its retaliation in first with the budget just around the corner.
“No, it’s just a matter that we’ve got these increases hitting us and therefore now is the time to pass it on,” he says.
On a broader point, what is Diageo exactly? To many in the industry, it’s a premium spirits group with Guinness and some other beers tagged on.
“I can see how you might apply that lens,” Walsh says. “But if you go to Ireland, they would say we’re a beer company with spirits tagged on. It depends which end of the telescope you’re looking through.”
Walsh says Guinness is one of only two truly global beer brands. And the other?
“I hate to throw bouquets at the competition but it’s green and begins with H. They have done a very good job marketing it,” he says, leaning back in his chair.
Walsh was born in the town of Chadderton near Oldham in the north of England. His schoolboy dream was to be an RAF pilot but colour blindness put paid to that.
“I did get a pilot’s licence but unfortunately instead of the government paying for it I had to pay for it. So I had to regroup and studied finance/economics.”
He still retains an interest in aviation, serving on the board of Federal Express, but time pressures meant he could not keep up the pilot’s licence.
Walsh joined GrandMet in 1982 in a finance role before moving into sales and marketing. He worked his way up the ranks, joining Diageo’s board in 1997 when it was formed from the merger of GrandMet and Guinness.
Walsh landed the top job in 2000 and has moved the group out of hotels and food to concentrate on alcohol.
He makes no apologies for his £11.2 million remuneration last year, of which £8.2 million was based on long-term incentives.
“A lot of that has been driven by an appreciation of our stock price,” he says. “If you’d invested in Diageo over the past three years, you’d have had an 80 per cent return or something like that.
“In large part, that’s what has driven my compensation. And by the way, there were years when we didn’t have that return when I didn’t get any long-term incentive and that’s the way it should be.”
With a name like Walsh, it’s no surprise to discover that he has Irish roots. “My great grandfather,” he explains, “emigrated to England. Actually, he set up a number of off licences. The apple didn’t fall too far from the tree.”
Uniquely, for a chief executive of his stature, Walsh has publicly indicated his retirement date – some time in 2014. Normally, CEOs try to keep people guessing to avoid becoming lame ducks.
“Time marches on. I’ve been in this job for 12 years. I’m 58 next [birthday]. The standard retirement age is 60. I have an obligation not only to grow this business and deliver for our shareholders but also to provide for a clear succession plan,” he says, matter-of-factly.
The recent creation of a chief operating officer role was a nod in the direction of succession.
“The board and myself will now have to figure out the finite timing of that. But, yeah, it’s going to be in that zone. It might be a year later, but that’s the zone.”Name: Paul Walsh
Job: Chief executive Diageo Plc
Family: Engaged. One adult son from previous marriage.
Lives: West Sussex
Something you might expect: A pint of Guinness is his drink of choice in his local pub.
Something that might surprise: He wanted to join the RAF