Guinness owner brews up a shock for Ireland

DUBLIN -- Guinness beer owner Diageo rattled an Irish icon Friday, announcing plans to lay off more than half of its brewery workers, close two breweries and shift most beer production to a new, high-tech plant in the Dublin suburbs by 2013.

The British beverage company decided not to close the landmark Guinness brewery St. James' Gate, one of Dublin's oldest businesses and a top tourist attraction, after concluding this would do too much damage to its brand image and customer sentiment.

Diageo expects to lay off about 250 people, or 58% of its current brewery workforce in Ireland, over the next five years. Brewing staff at the flagship Guinness brewery at St. James' Gate in west Dublin will be slashed from 230 to just 65.

Half of the riverside St. James' Gate site will be sold for private development, and the volume of Guinness brewed there will be cut by about a third — to about 500 million pints annually. This will exclusively supply the Irish and British markets, where demand has slipped over the past decade in line with pubgoers' diversifying tastes.

David Gosnell, Diageo's managing director of global supply, said the move to a new suburban mega-brewery was necessary to compete with the rise of lower-cost breweries in Eastern Europe, Russia and China.

"The business is hugely competitive. ... Smaller breweries are consolidating and closing in Western Europe," Gosnell told a news conference inside Guinness' panoramic Gravity Bar, which offered a 360-degree view of a mist-shrouded Dublin.

The new plant is expected to employ about 100 people, many of whom could come from the central Dublin brewery. Two other breweries employing more than 170 in the towns of Dundalk, north of Dublin, and Kilkenny, to the south, would close by 2013, and few of those workers would be expected to relocate.

Gerry O'Hagan, supply director for Diageo in Ireland, said the current production capacity of the Dublin, Dundalk and Kilkenny breweries was less than 1.25 billion pint glasses of beer annually, while the new plant would be able to produce more than two-thirds of that on its own.

Diageo executives said they planned to spend 800 million euros ($1.25 billion) on the plan. Nearly three-quarters would go on building the new plant at an as-yet-undisclosed location, most of the rest on the costs of closing the two breweries and paying off staff.

About 100 million euros ($150 million) has been earmarked to build a new brewhouse and refurbish other facilities at the St. James' Gate brewery, where English entrepreneur Arthur Guinness began brewing Ireland's hallmark dark brown, creamy stout in 1759.

Brian Duffy, who travels the world promoting Guinness as its global brand director, said Arthur Guinness was a visionary but unsentimental businessman who negotiated a bargain 9,000-year lease on the St. James' Gate site. He noted that Arthur Guinness had moved there from another location in search of better profits.

"I firmly believe if Arthur was here today, he would tell us to hurry up and get on with it, and would endorse it as the right thing to do," Duffy said of Diageo's plan.

The company estimates that much of the cost of the project can be reclaimed by selling land at the Dundalk, Kilkenny and Dublin sites valued at an estimated 500 million euros ($775 million). Property prices in Ireland have soared over the past decade as the economy has grown, but have dropped this year in line with the global credit crisis.

Officials in the two towns losing breweries expressed shock at the news.

The Great Northern Brewery in Dundalk mainly produces Guinness' sister beers — Harp lager and Smithwick ale — as well as continental European lagers under license, including Denmark's Carlsberg and Germany's Warsteiner.

The St. Francis Abbey Brewery in Kilkenny produces Irish-brand ales and U.S. brand Budweiser for the Irish market, where lighter beers, ciders, wines and vodka-based drinks have made steady inroads against Guinness over the past decade.

The new suburban Dublin brewery would absorb all of the beer production currently carried in Dundalk and Kilkenny. It also would produce Guinness for continental European and global export, as well as the secret-recipe "essence" extract that Guinness ships to its nearly 50 breweries worldwide.

Diageo's smallest beer-related facility in Ireland, in the city of Waterford, also will continue to produce the "essence" extract. But supply director O'Hagan said staff there would be cut from 27 to 18.

Production of the company's two world-recognized local spirits — Bailey's Irish Cream in the Irish Republic and Bushmills whiskey in the British territory of Northern Ireland — will not be affected by the brewery shakeup.

Diageo shares slipped 0.5% at 1,023 pence ($19.99) on the London Stock Exchange.