As a shareholder in Diageo (LSE: DGE), am I likely to raise a glass to the distiller’s performance any time soon? So far this year, the company has announced a big dividend cut – and Diageo shares have gained only slightly more than the FTSE 100 index of which the company is a member. The share price is up 10%, compared to 8% for the index.

So, for now at least, my Champagne is on ice.

Looking ahead though, some investors reckon a significant strategic realignment at the company could see Diageo shares soar. Some 54% cheaper than five years ago, they currently look more attractively priced than they did for years – if we believe the turnaround narrative.

However, my plan is to hold on to my shares for now without buying even one more.

That is because I reckon that from a medium- to long-term perspective, the turnaround strategy might not be the firecracker for the Diageo share price that some investors are hoping it is.

Financial wins in the short term

The approach so far has emphasised cost-cutting.

Sharply reducing the dividend saves money. Cutting jobs through layoffs and plant consolidation to streamline the supply chain can also do the same, even though in the short term it can actually add one-off costs.

Cost cuts could potentially help boost Diageo’s financial performance and therefore its shares. In the medium term, it is targeting “attractive” growth in earnings per share ahead of organic operating profit growth (ignoring exchange rate movements).

But while investors may like the sound of cost-cutting financially, it can bring other problems.

Permanently closing iconic Canadian whiskey Crown Royal’s bottling plant in Amherstburg, Ontario earlier this year went down badly in the town, where it was the largest employer.  Recent weeks have seen Diageo trying to avoid strike action at its Cameronbridge grain distillery in Fife.

The company’s success has come from decades-long efforts to build premium brands and justify their prices to consumers.

A key risk I see is that, over time, the negative impact of cost-cutting may hurt its capability to do that, for example by weakening the sense of place that is core to many of its premium whisky brands.

The bigger challenge may be long term

Still, if cost cuts can combine with sales growth in the next several sets of results, I think the City would like it. That could potentially help boost the shares over the next year or two.

My deeper concern is the longer-term outlook. One reason the shares have more than halved over the past five years is industry-wide challenges. Cognac distiller Rémy Cointreau is down 71% over that period and Chivas owner Pernod Ricard has tumbled 67%.

Younger consumers are drinking less and a weak economy is hurting demand for pricey premium spirits.

Diageo has other arrows in its quiver, hoping to ride on the success of Guinness in both its alcoholic and non-alcoholic versions as well as expanding its offering of pre-mixed cocktails.

But pre-mixed cocktails is a competitive market where I think it has limited competitive advantage.

I remain to be convinced that this turnaround strategy will sustainably boost Diageo shares. Fortunately, other shares in the market right now have growth stories I believe are much more compelling.

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Christopher Ruane owns shares in Diageo and Rémy Cointreau.