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Changes on tap at Guinness brewery

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

The British beverage maker decided not to close the landmark Guinness brewery, 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 percent of its current brewery work force in Ireland, over the next five years. Brewing staff at the Guinness brewery at St. James’ Gate in west Dublin will be slashed to 65 from 230.

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 current Guinness 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. Few of those workers are expected to relocate. Those breweries produce many other beer brands, but not Guinness.

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 closing the two breweries and paying off staff.

Government and business leaders welcomed Diageo’s plans as a major new investment in Ireland. But union chiefs and opposition lawmakers said the company was greedy and taking Ireland’s drinking public for granted.

Deputy Prime Minister Mary Coughlan said Diageo was planning “a major investment that secures the future of brewing in Ireland.” She said the five-year scale would give workers facing layoffs plenty of time to retrain and look elsewhere.

“People were expecting change, but the actual announcement has shocked people,” said Sean Mackell, general secretary of the Guinness Workers Union. Diageo was “already making huge profits in Ireland,” he said, and vowed to extract maximum payoffs.

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 Anglo-Irish entrepreneur Arthur Guinness began brewing Ireland’s 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.

Diageo said the project’s cost could be minimized 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 of Celtic Tiger boom, 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 versus Guinness over the past decade.

The new suburban Dublin brewery would take over the workload of both closing plants. 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, will continue to produce the “essence” extract. But supply director O’Hagan said staff there would be cut to 18 from 27.

Production of the company’s two world-recognized local spirits — Bailey’s Irish Cream and Bushmills Whiskey — will not be impacted by the brewery shakeup.

Diageo shares rose 1.3 percent to 1,041 pence ($20.27) on Friday in London.

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