Diageo The Worlds Largest Drinks Company Marketing Essay

This report provides a brief description of the Company’s history, its values, and Cooperated responsibility strategy. The report also describes the different types of products the company produces, as well as the company’s strategic position in the market. Three analysis were carried out which are PEST, SWOT and Ansoff Analysis. The purpose of PEST analysis is to find out the challenges that Diageo is facing and to improve its performance politically, economically, socially, and technologically. The purpose SOWT analysis is to find out the company’s strength, weakness, opportunities, and various threats the company is expose to. Ansoff analysis is to explain how Diageo can improve in terms of market penetration, market development, product development and Diversification. The company’s information system strategy, future directions and its three top competitor are also discuses in this report.

INTRODUCTION

2.1 COMPANY HISTORY

Diageo The world’s largest drinks company was formed from the December 1997 merger of liquor and beer giant Guinness PLC and alcohol and food power Grand Metropolitan plc. Diageo’s history begins with the formation of the Guinness Empire In 1759 when Arthur Guinness, an experienced brewer, leased an old brewery at James Gate in Dublin. Soon after the brewery was in full operation, Arthur Guinness began to establish a reputation in both business and civic affairs. The company secured an active trade with pubs in towns surrounding Dublin and also became one of the largest employers in the city. In 1886 Guinness became a public company (under the name Guinness PLC), and by 1920s Guinness had reached the shores of East and West Africa and the Caribbean. (Press 1999).

Diageo plc is located in the United Kingdom and boasts of over twenty two thousand employees situated throughout the world. Besides this, it made close to 7.5 billion in sales during the year 2007. Its principal activity include manufacturing and distribution and marketing of drinks which include Smirnoff vodka, Johnnie Walker scotch whiskies, Guinness stout, Baileys Original Irish Cream liqueur, Captain Morgan rum, J&B scotch whisky and Tanqueray gin. Diageo also own a distribution rights for the Jose Cuervo tequila brands in the United States and in other countries. (Wright 2008)

Through the nineteenth and twentieth Century’s Diageo’s range of brands and business has continued to expand under various parent companies, and has grown to become one of the most influential alcoholic manufacturers in the world. Between 2000 and 2002 Diageo made a strategic decision to exit its food interests – with Burger King and Pilsbury being the two largest divestments and also to focus exclusively on premium beverage alcohol. It was during this period, in 2001, that Diageo acquired additional spirits and wine brands from Seagram (Diageo 2009).

Diageo Trades in approximately 180 markets, and employ over 20,000 talented people around the world. With offices in 80 countries, its manufacturing facilities across the globe including Great Britain, Ireland, United States, Canada, Spain, Italy, Africa, Latin America, Australia, India and the Caribbean. Diageo is at the forefront of industry efforts to promote responsible drinking. The company is listed on both the London Stock Exchange (DGE) and the New York Stock Exchange (DEO) Joshua e.tel (2009)

2.2 COMPANYS VALUES

Diageo has great values and they stand by them, being the set of behaviours that they expect all its people to embrace to further the company’s cooperate goals and objective that will contribute to the development of the business, people and communities. According to Diageo (2009), its company values are listed below:

Acting sensitively with the highest standards of integrity and social responsibility, and as well to enjoy and benefit from diversity.

Constantly set high standards and then try hard to exceed them in other to be the best.

To seek and benefit from diverse people and perspectives and also to strive to create mutually fulfilling relationships and partnerships.

To carry out annual employee values survey in other to demonstrate how serious they are about company values

Being passionate about customers and consumers by constantly searching for new ideas that drive growth and spinning them across the company business.

2.3 COMPANY’S COOPERATE STRATEGY

According to Diageo (2009) .The Company’s business strategy is to deliver sustainable organic growth (which contributed 58% of total volume in the year ended 30 June 2009) through the stewardship of its outstanding range of premium drink brands, this is supported by strong financial discipline, cash management, and where appropriate will be supplemented by selective acquisitions. Over the years, the company has built a great mix of strengths and resources which are manage to target growth in both favourable times and unfavourable times. This range of capabilities has enable Diageo to be agile in response to global and local market conditions, and as well supports the company scale and diversity, which in turn provides the company with resilience and growth opportunities. Diageo have great passion towards its consumers and customers and the company has continually sought ways to understand the need of its consumers and shoppers. Diadeo uses world-class marketing capabilities to combine the benefits of global scale with local insight, and act with flair and agility to delight consumers with both their trusted brand favourites and the introduction of new and exciting innovations. They strive to execute everything they do to the highest possible standard, and continue to invest in the skills of its leaders in other for them to become leaders today, and for tomorrow. Diageo seek to be at the forefront of industry efforts to promote responsible drinking and work with other stakeholders to combat alcohol misuse, and this is reflected in the company treat its people, the culture they promote internally, how they we live their values. “Diageo approach to business is based upon three principles and they are:

Combating alcohol misuse

Setting world-class standards for responsible marketing and innovation

Promoting a shared understanding of what responsible drinking means in order to reduce alcohol-related harm.” (Diageo 2009)

2.4 COMPANYS PRODUCTS.

Diageo produce a wide variety of brands, and every day, everywhere customers and consumers rely on Diageo to help them celebrate life, and have made customers as well as consumers to be passionate about the company’s legacy. According Diageo (2009) Diageo brands can be categorised into three main products and they are:

Spirits: Diageo brand range includes 17 of the top 100 premium distilled spirits brands worldwide (2009), and eight of the top 20 premium spirits brands. Its heritage and strong characteristics across collection of spirits have made the company to earn its place as the world’s leading premium drinks business.some of the spirit brand produce by Diageo include Brandy, Cognac, Gin, Liqueurs, Rum, Schnapps, Spirit Drink, Tequila, Vodka, Whisk(e)y.

Beer: Diageo beer brands account for approximately 22 per cent of net sales in the last financial year. Its collection includes the only global stout brand, which recently celebrated the 250th anniversary of signing of lease on St James’s Gate Brewery, Dublin. Other collection of beer brands include: Harp Lager, Kilkenny, Smithwick’s Ale, Tusker Lager, Red Stripe Lager, Satzenbrau, Senator Keg, Windhoek Lager.

Wine: Diageo’s wine brands account for approximately 6 per cent of net sales.Diageo produce a range of both new world and old world wines including Barton & Guestier, Chalone, Blossom Hill, Justerini & Brooks, Piat d’Or, Rosenblum Cellars, Sterling Vineyards.

Recently Diageo has introduced three new products to its RTD portfolio which include Smirnoff Ice Light, Smirnoff Ice Strawberry Acai and Captain Morgan Parrot Bay Mojito (Beverage Dynamics 2008)

2.5 COMPANY’S COOPERATE CULTURE

Before we talk about Diageo’s cooperate culture, let’s talk about what cooperate culture is all about.

Corporate cultures are issues like objectives, personal interests, behaviours that are embedded deeply in an organization and in the behaviour of the people working there. It can also be defined as the way things are done in an organization. Corporate culture are artefacts, management styles, Norms, values, believes and, assumption of an organization. Corporate culture influences the performance of an organization, since it determines the way the organization tackles problems and questions, Peoples’ attitude to changes, the way people interact with each other, the way the organization interacts with stakeholders, and the way people commit to cooperate strategy. (Recklies 2001)

Diageo is a company with strong corporate culture, and has been working hard to help create the right conditions for an enduring, successful business for employees who reach their full potential, communities that are fulfilled and prosperous, and a stable environment .this is reflected in the way the company communicate with its employees, consumers, customers and the communities. For example Diageo has made the subject of responsible drinking the heart of all its communication, Diageo has done this by creating a more positive role for alcohol in society, minimising the harm from misuse and promoting the social benefits of responsible drinking, Diageo also partner with government departments, civic organisations and the media to encourage stakeholder endorsement of responsible drinking (Diageo 2009).

Communication is about trying to align the organization with what the business is trying to do, and it is therefore important for organisation to made sure that business approach communicated, are in line with the company’s strategy. The communication at Diageo reflects the company’s personality and what it stands for; it also shows that Diageo’s culture is an open one, well-mannered and quite positive. (Business communicator 2005).

Apart from communication, Diageo also uses marketing techniques etc to inform consumers about t heir brands and to compete for market share. Examples of marketing techniques used are promotions, media such as mobile phones, websites and social networking channels. Diageo also uses strategies like providing community, good infrastructure, reducing the impact on the environment, and reducing waste. This has made Diageo to have a good relationship with teams, customers and partners that will lead to Business Leadership in market share and profits. (Diageo 2009).

STRATEGIC POSITION

Diageo is the leading premium spirits business in the world by volume, by net sales and by operating profit and it manages eight of the world’s top 20 spirits brands. Its size provides for scale efficiencies in production, selling and marketing. This has enabled cost efficiencies and the dissemination of best practices in business operations across markets and brands, thus allowing Diageo to serve its customers and consumers better. Diageo market participation comes under four business geographical areas and they are North America, Europe, International and Asia Pacific in these regions, Diageo uses its business strategies to attract and retain talented individuals who have the capabilities to contribute to the delivery of Diageo’s strategy. Diageo makes use of extensive strategy like the use of magazine, newspaper, point of sale, poster, billboard advertising, and use of radio, cinema, television and internet where appropriate and permitted by law. Diageo also runs consumer promotional programmes in licensed bars and restaurants. Diageo also uses sponsorship to market its brands and currently Diageo is a sponsor of Formula One Team Vodafone McLaren Mercedes, a NASCAR racing team and the Johnnie Walker golf championships.

Diageo’s performance in the market

First half F’09

First half F’08

Reported movement

Organic movement

Volume in millions of equivalent units

78.5

78.9

(1)%

(2)%

Net sales after deducting excise duties

£ million

5,068

4,287

18%

3%

Operating profit before exceptional items

£ million

1,649

1,414

17%

6%

Operating profit

£ million

1,636

1,414

16%

6%

Profit attributable to parent company’s    equity shareholders 1

£ million

1,137

975

17%

Basic eps 1

pence

45.6

37.6

21%

From the figures stated above Diageo’s performance in this first half demonstrates the resilience the company has from its different brand. Despite the problem the market is facing, Diageo has been able to maintained financial strength by raise 3% organic net sales growth, 6% organic operating profit growth and 9% underlying Earnings per share (EPS) growth. Diageo has also benefited greatly from the exchange rate movement and this has resulted in 21% growth for the period. All this figures put together has given Diageo more confidence in the market. (Walsh 2008)

Diageo’s Competitive Advantage

Diageo primary competitive advantages are its strong brands and global distribution network and because of that Customers are willing to pay a premium for brands such as Smirnoff, Johnny Walker, Baileys, and J&B.(Gaudet 2008).

A firm is said to possess a competitive advantage over its rivals when profit sustained by the firm exceed the average for its industry. A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. Competitive advantages are basically y of two types: Cost and differentiation advantages and they are known as positional advantages since they describe the firm’s position in the industry as a leader in either cost or differentiation. A resource-based view emphasizes that s firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation. (Porter 2010)

Diageo has three top competitors and they are listed below.

Beam Global Spirits & Wine Inc: is the fourth largest premium Spirits Company in the world, with eight of the world’s top-100 premium spirits in our portfolio and $2.5 billion in revenue .Building Brands People Want to Talk About is the company’s vision. (Beam Global Spirits & Wine, Inc 2010). Beam Headquartered in the US, it offers libations with global origins: Canadian Club Whiskey from our neighbour country just to the north; Courvoisier Cognac from France; Kummerling Liqueur from Germany; VOX Vodka from The Netherlands; Laphroaig Scotch from Scotland; and Sauza Tequila with roots dating back to the Spanish conquistadors in Mexico. The company’s Jim Beam is the number one selling branded bourbon in the world; its DeKuyper, from The Netherlands, is the number one cordial brand in the US (2010, Hoover’s)

Pernod Ricard: According to (Pernod Ricard n.d) the company was created in 1975, and it is the world’s largest co-leader in wines and spirits. The company has experience rapid growth since it establishment, and the purchase of the Swedish group V&S in July 2008 is the most recent sign of the Group’s worldwide ambitions. It success over the years is as a result of its highly-talented teams, a decentralised organizational structure, a product-based culture, outstanding sales and marketing strategies, And its ethical commitment. Pernod Ricard’s strategy and ambitions are founded on 4 key values that have guided its development since the beginning and they are conviviality, entrepreneurship, integrity, commitment.

its most popular global brand is the premium Scotch whisky, Chivas Regal. The company also sells libations ranging from anise drinks and liqueurs (Pernod, Ricard, Zoco) to clear spirits (Wyborova vodka, Havana Club Cuban rum, Beefeater and Seagram’s gin). In addition, Pernod Ricard offers Jameson Irish whiskey, Martell cognac, and Jacob’s Creek wine. (Hoover’s 2010)

SABMiller plc: is one of the world’s largest brewers, and has brewing interests and distribution agreements across six continents. Its brands includes premium international beers such as Pilsner Urquell, Peroni Nastro Azzurro, Miller Genuine Draft and Grolsch along with leading local brands such as Aguila, Castle, Miller Lite, Snow and Tyskie. Six of the company’s brands are among the top 50 in the world. Presently The Company has grown into a global operation, developing a balanced and attractive portfolio of businesses since it was listed on the London Stock Exchange 10 years. Over the years the company’s markets ranges from developed economies such as the USA to fast-growing developing markets such as China and India. (SABMiller plc 2010).

CHANGE MANAGEMENT ISSUES FACING DIAGEO.

In this world where change is permanent, most companies in the world today are affected by change management issues and Diageo is among these companies that are affected. According to Diageo annual report (2009) there are lots of ways Diageo is affected but for the purpose of this report I will limit it to three areas of change management issues facing Diageo and they are:

Changes in system programmes and system failure: changes in programmes designed to improve the efficiency and effectiveness of the day – to – day operating, administrative and financial process, like moving transaction processing from a number of markets to business service centres can affect a company. For example this can affect Diageo in the sense that it can disrupt production processes, administrative and financial systems. This can also lead to adverse customer reaction. As regard system failure, this can affect Diageo in carrying out business process efficiently, there is the possibility that outsiders could penetrate Diageo’s information system or extract information, corrupt information and disrupt business processes. Such unauthorised access could disrupt Diageo’s business activities or lead to loss of assets.

Changes in the legal and regulatory environment: changes in regulatory requirement can affect Diageo’s business operations. Areas where these changes could affect Diageo include; production, distribution, import, marketing, promotion, adverting, labour labelling, and other environmental issues .changes in government policies can cause Diageo to incur additional cost that can affect the business. For example, governmental bodies in countries where Diageo operates may impose new labelling, product requirements, limitations on the advertising, and restrictions on retail outlets.

Changes in product to meet consumer preferences and tastes: in other for Diageo to meet up with the need of it consumers, there are lot of changes that need to be done especially when it has to do with the product itself. This because Consumer preferences may change due to a variety of factors such as changes in demographic and social trends, public health regulations, changes in travel, vacation , weather and downturn in economic conditions . In other for Diageo to maintain its competitive position the company’s need to offer products that have a strong appeal to consumers, and in other to achieve this Diageo need to change some of its business process or production activities and that too can affect the management in various ways especially in terms of cost .

PEST ANALYSIS: (POLITICAL, ECONOMIC, SOCIAL AND TECHNOLOGYCAL).

POLITICAL:

One of the major political factors facing Diageo, is inflation rate which is continues rise in price as a result of change in government policies and this have affected the market stability. Inflation can lead to high interest rates that can affect GDP. Also inflation can disrupt business plan because when the future is not certain, it can make planning difficult and this may have adverse effect on the level of planned capital investment. Inflation can also distorts the operation of the price mechanism and can result in an inefficient allocation of resources (tutor2u n.d)

Also change in taxation laws has also affected the company. For example when tax on a particular product is high it can make the price for that product to be high, this can affect the sale of that product. Even the two chief executives of Diageo and Unilever threatened to leave Britain for tax reason (Pratley 2010).Also there are countries that are generally not investor friendly. Their policies and regulation impede their development. Diageo needs to watch out for these particular characteristics in the countries they operate and find ways to avoid them. (Melda 2010).

ECONOMIC

Currently The U K’s economy is growing rapidly. This shows that customers as well as consumers have greater purchasing power, and that they can afford to engage in social arrangements where they consume a wide range of alcoholic drinks that are produce by Diageo. However, these same factors can turn against the company when considering other regions of the world. Certain markets may look upon Diageo products as expensive ones and too sophisticated for their taste. This could deter their sales in some of these countries. Such countries are normally characterized by low GDP and poor economies.(Melda 2010).

Salaries of staff can also affect Diageo. Where staff are not well paid they become less motivated, it can make them not to meet up with target, and set cooperate goals and objective ,this can affect sales and at the long run reduce the company’s profit. Some staff might seek employment elsewhere which can be very disastrous, because these staffs has thoroughly trained by Diageo, this experience will now be taken out to other companies, and there is no doubt that is staff will use this experience gained from Diageo to add value to the company that have employed with a very good pay. So my advice is that Diageo should increase their salary structure so that staff can be motivated to work.

SOCIAL:

In the United Kingdom; most consumers are well educated and they know what they want in their alcoholic products and therefore this must be incorporated into the way the company deals with their marketing. They must use all the avenues available to them to influence such an informed market. (Horbach, 2005 cited in Melda 2010).The culture of drinking alcohol is something that is spread all over the world. This is a huge advantage to the company because they are not restricted; they can exploit as many outlets as they can (Melda 2010).

Socialising in developed countries especially in the UK is done in the pubs where the culture is taking alcoholic drinks like Guinness stout. Diageo has to find ways to suit the needs of these consumers especially those who like consuming alcoholic. If this is not taking into consideration it might affect the sale of that product

TECHNOLOGICAL:

Advancement in technology has changed the way marketing is done or conducted by most companies especially in developed countries. For example the internet, Diageo can use this means by introducing feedback systems into their company website. This could serve as a rich source of information for them about their consumer’s preferences. Besides, they have already started securing some procurement though the internet. In addition, it will help the company to manage supplies and procurement through the internet. This could be a fast and efficient way for the company to improve its supplies. Lastly, the distilling industry is always susceptible to new technological advancements in production. This is something the company needs to incorporate and deal with adequately (Melda 2010)

SWOT ANALYSIS (STRENGHT, WEAKNESS, OPPORTUNITY AND THREAT)

STRENGHT:

One of the most outstanding features of Diageo plc is its brands, and some of the company’s brands have been around since the eighteenth centuries. That goes to show that the company has maintained its brands loyalty. Diageo has a large size with branches all over the world, and the advantage of such a large size is that the company can appeal to numerous market segments, in addition it can give the company opportunity to make up for weaknesses in one area with strengths in another country. (Hill 2005 cited in Melda 2010)

Another aspect of Diageo strength is the good quality of its beer. Beside Diageo adopting different strategies to market is product, the product ‘sells itself’ because of the good quality. Diageo also has confidence because of the efficient and fast manner their products are delivered. Infect, most bars and pubs in the United Kingdom rely heavily on supplies from the company, and Such an arrangement is only possible if the supplier has developed a high level of trust and loyalty. Another source of Diageo’s strength is the fact that the company has developed a good customer’s relationship with its clients through efficient customer care and cooperation between the sales team and the consumers. Diageo has also adopted technological advancements in its production processes, and has also introduced the latest bottling technologies. This have helped to speed up production (Melda 2010)

WEAKNESSESS:

Because Diageo is located in different part of the world, the company has not been successful in some countries the major reason is because some branches do not effectively implement the company’s policies and procedures. Diageo has not achieved its full potentials when it comes to product innovation. The Company’s employee motivation skills are also wanting. Not only that the method adopted by the company to motivate their client is not good enough. Finally, Diageo does not give good bonuses and other forms of encouragement to its employees. (Melda 2010)

OPPORUNITIES:

According to Global Markets Direct(2009) Diageo Opportunities lies in its biggest RTD market in Europe, favourable trends in the wine market, strategic acquisitions and partnerships, growing demand in the Asia pacific region.

According to (Business teacher n.d) Diageo’s trends in the UK wine market are proving to be more resilient against other private label in the retail sector. The rapid growth in both red and white wines is forecast in the US market over the 2004-2009 periods. No doubt, this will help to boost sales in the company’s most significant overseas market. Red wine sales are likely to continue to benefit from medical and scientific research findings indicating that it offers health benefits to regular, moderate drinkers. Research has shown that red wine is use for curing coughs, and reduces blood pressure, and this have led to considerable growth in the sale of red wine in Norway and Ireland. Diageo is currently well represented in Europe, it is in a strong position to further exploit these markets. The trend towards premium wines offers growth potential to several of Diageo’s brands including Sterling Vineyards, Beaulieu Vineyard and Barton & Guestier.

THREATS:

Diageo is facing competition from other beer and distilling companies in the United Kingdom, and some of these companies have been mentioned earlier. Diageo has to struggle to be on top, and the company has done this through mergers and acquisitions done in the past. Another way Diageo has struggled to be on the top is through the employment of technological advancements, which Diageo believe will help to develop the company. Now that the economy is experiencing rapid growth, Diageo need to watch out for competition from both internal and international markets, as well as governmental policies that will favour more investments. (Melda 2010)

ANSOFF GROWTH MATRIX

The Ansoff Growth matrix is a strategy that helps businesses decides their product and market growth strategy. Ansoff’s growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. (tutor2u n.d).

According to (tutor2u n.d) Ansoff’s matrix is based upon four possible strategies which businesses are advice to follow and they are:

Market penetration: Another name for market penetration is growth strategy. Here business focuses on selling their existing product on existing market. In market penetration, there are four basic objective businesses tends to achieve and they are:

Increasing and maintaining the market share of current product, this is achieved by combining competitive price strategies, advertising, sales promotion and resources committed to personal selling

Securing prominence in growth markets

Restructuring the market by driving out competitors. This can be done by carrying out more aggressive promotional campaign, which is supported by a pricing strategy designed to make the market look unattractive for competitors

Increasing usage of existing customers.

Market Development: Here businesses tend to market their existing product in a new market. For business to accomplish this, they have to sell their existing product in new geographical market like exporting the existing products to another country, improving the product packaging, maintaining new distribution channels and creating new pricing policies to attract customers.

Product development: under this form of growth strategy, businesses introduce new product into an existing markets. To achieve this businesses have to modify their product so that it can attract the customers.

Diversification: Here businesses market their new products in new markets. This is a risky strategy because the business is moving into new markets that has little or no experience. So for business to adopt a diversification strategy, they should have clear cooperated goals and objective.

DIAGEO’S ANSOFF ANALYSIS:

1). Market penetration: Diageo the world leading multinational alcohol company has penetrated nearly all market in the world, by selling alcohol in over 180 countries, with a substantial presence in 30 countries. In 2004 Diageo became the 11th largest publicly quoted company in the UK in terms of its market capitalisation, also in 2004 the company made a turnover of £8.89 billion , with a total profit of £1.87 billion after exceptional items and tax.( Corporate Watch UK 2005).the growth strategy adopted by Diageo to achieve all of this include Increasing and maintaining the market share of current product combining competitive price strategies, advertising, sales promotion, Securing prominence in growth markets by maintaining brand loyalty with consumers, carrying out more aggressive promotional campaign to drive out competitors or carrying out strategies designed to make the market look unattractive for competitors, Increasing usage of existing customers. (tutor2u n.d)

2). Market Development: Diageo has adopted growth strategy that aims to develop the market, by been one of the leading producers of RTD products, with its brands such as Smirnoff Ice, Smirnoff Mule and Archer’s Aqua. For example in Spanish market, Diageo has already launched its flagship ready-to-drink (RTD) brand Smirnoff Ice. The success of these products has now convinced the company that this is the way forward in developing the Spanish market, and other market where its product are sold. Diageo has also had great deal of success with these RTD products in numerous o