Diageo’s new chief executive, Sir Dave Lewis, is pursuing a strategic shift toward ready-to-drink (RTD) canned cocktails as part of efforts to rejuvenate growth at the global spirits company. This marks a notable change in direction for Diageo, which has traditionally been cautious about expanding into the rapidly evolving RTD market due to concerns over potentially lower profit margins.

Lewis, who joined from Tesco, revealed plans to increase focus on the RTD segment during a recent internal meeting, underscoring the company’s intent to capture a larger share of a category that continues to expand even as overall spirits sales decline. Data from industry analysts indicate that RTDs remain the sole spirits category experiencing growth, driven by demand among younger consumers seeking affordable, convenient alcoholic beverages.

Diageo’s current RTD offerings largely consist of extensions of its established brands, including Smirnoff Ice, Casamigos Margaritas, and Gordon’s G&T. The company made selective acquisitions in 2021 with Loyal 9 Cocktails and Lone River Ranch Water, a hard seltzer brand, signaling a cautious entry into the canned cocktail space. However, Diageo has generally lagged behind competitors who have capitalized on the post-pandemic RTD surge, such as Sazerac’s BuzzBallz and E&J Gallo’s High Noon.

The US market illustrates this trend, where RTD sales recently climbed by 29 percent over four weeks, while traditional spirit categories like tequila and bourbon saw declines. During the COVID-19 pandemic, Diageo’s premium bottled spirits performed well as consumers favored home cocktail preparation. Yet as inflation increased, demand for higher-priced spirits softened, and the company lost market share to more affordable alternatives.

Analysts note Lewis’s recognition that Diageo must adapt rather than wait for broader economic conditions to improve. Barclays analyst Laurence Whyatt said Lewis acknowledges growth pockets within RTDs where Diageo has not fully capitalized. The company’s hesitation partly reflects the fragmented and dynamic nature of the RTD market, which is dominated by newer, fast-moving brands. Some analysts caution about the variable longevity of certain RTD products, though others point to enduring success stories like White Claw’s stabilizing sales.

In the first half of 2023, Diageo reported 17 percent organic growth in its RTD segment. Lewis’s approach appears to mirror strategies he employed at Tesco, including potential price repositioning to boost volume sales. The company is expected to report a third-quarter sales decline of approximately 2.3 percent in an upcoming update.

Diageo has emphasized its ongoing internal communications during the turnaround process, signaling a commitment to changing course amid a challenging market environment.