Few investors would have described Diageo (LSE: DGE) shares as a generational opportunity three years ago. Back then, the stock traded at a premium valuation and was widely regarded as one of the FTSE 100’s highest-quality businesses.
Today, sentiment could hardly be more different. After losing more than 60% of its value, many investors have given up on the drinks giant altogether. I think that’s exactly why it’s worth another look.
The investment case is changing
For the past two years, the Diageo story has largely been framed around recovery. US spirits demand weakened, inventories built up, and investors waited for conditions to improve.
But increasingly, I think that’s the wrong lens.
What stands out from the recent trading update is that management appears less focused on waiting for the market to recover and more focused on improving the company’s competitive position.
In the US, the group is testing new pricing strategies, repositioning key brands such as Casamigos and taking a fresh look at where it can compete most effectively.
The upcoming August strategy update could therefore be more important than the next set of sales figures. If Diageo can emerge as a leaner, more competitive business, future growth may depend less on a cyclical recovery and more on management execution. For long-term investors, that could ultimately prove the more important catalyst.
Strategy refresh
Since taking the helm, Dave Lewis has moved quickly to simplify the business and improve financial flexibility. The Accelerate programme remains on track to deliver around $300m of cost savings by the end of 2026, while asset disposals are helping reduce debt and strengthen the balance sheet.
More importantly, management appears willing to challenge long-held assumptions. Rather than simply blaming weak US spirits demand, it’s reviewing pricing, portfolio positioning, and customer strategy across key categories. Early changes are already being tested in tequila, where Diageo is attempting to improve competitiveness without sacrificing brand strength.
Investors will learn more at the August strategy update, but the direction of travel is already becoming clearer. The focus appears to be shifting from defending market share to building a more efficient and adaptable business capable of delivering growth even in a tougher consumer environment.
What’s the verdict
Of course, none of this guarantees success. The US remains challenging, tequila competition is intense, and consumer spending is still under pressure in many markets.
However, what interests me is that management appears increasingly focused on the factors it can control. These are delivering meaningful cost savings, reducing debt, and repositioning the portfolio.
For me, the August strategy update now looks like the key event. Investors don’t need evidence that Diageo owns great brands — that’s never been in doubt. Instead, they need confidence that those brands can return to sustainable growth in a changing market.
After years of disappointing share price performance, I think that question matters far more than whether the next quarter’s sales rise or fall.
That’s why I see Diageo less as a recovery play and more as a potential turnaround story. If management can deliver on its strategic ambitions, today’s valuation could eventually look far too pessimistic. That’s why I view the stock as one to consider.
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Andrew Mackie owns shares in Diageo.
