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Diageo began as a world leader in branded foods and drinks, formed in December 1997 through a merger of Guinness PLC and alcohol and Grand Metropolitan plc (The Gale Group Inc, 2006). In 2000 – 2002, a strategic decision by Diageo was made to exit the company’s food interests by divesting its food companies and exclusively focusing on premium alcohol. A detailed history of Diageo plc up to and immediately after its creation is set out in Figure ??:
Our Business – Diageo History Family Tree
Diageo is currently the world’s largest drinks company by volume, net sales and operating profit (Diageo PLC, 2012) with a large collection of brands which include spirits, beer and wine. There are currently 14 brands which Diageo identifies as global priority brands. These are:
- Johnnie Walker whisky
- Smirnoff vodka
- Crown Royal whisky
- Ciroc vodka
- J&B whisky
- Ketel One vodka
- Captain Morgan rum
- Buchanan’s whiskey
- Jose Cuervo tequila
- Bushmills whiskey
- Tanqueray gin
- Guiness stout
- Baileys liqueur
(Diageo PLC, 2008)
Diageo’s Current Business Strategies
Diageo owns seven of the world’s top 20 spirits brands. Diageo’s beer brands include the only global stout brand, Guinness, and together these beer brands account for approximately 20% of net sales while Diageo’s wine brands represent approximately 5% of Diageo’s net sales. This means that Diageo’s size provides for scale efficiencies in production, selling and marketing. This enables cost efficiencies and the dissemination of best practices in business operations across markets and brands allowing Diageo to serve its customers and consumers better.
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From 2005 to the end of financial year 2011 (ending 30 June 2011), Diageo managed its operations by four regions: Europe, North America, International and Asia Pacific. In financial year 2012 (FY 2012) the International region was split into Africa and Latin America sections, producing five geographical regions globally. This general structure brought about good results. Analysis of Diageo’s annual reports from 2007 to 2012 shows that gross sales rose from £ 9,704,000 to £14,594,000, an annual average increase of 7%.
Due to the level of continued change in global markets and the requisite innovation necessary, it has Diageo completed an operating review in 2011 which recommended changes in structure and focus, and this resulted in a net movement of personnel from developed market regions to emerging market regions. The changes are expected to be fully implemented by 30 June 2013 (Diageo PLC, 2011) (Diageo PLC, 2012) . This restructuring should allow Diageo to improve its effectiveness and the productivity of its operations and to position resources nearer to the market and to the geographical regions where there is a great potential for growth.
Read through and differentiate the different strategies under headings .i.e. Business strategy- Generic strategies (Diageo uses focused and differentiation) and Interactive strategies. Put everything under headings
(Johnson, Whittington, & Scholes, 2011, p. 199) ?? define competitive strategy as being “concerned with how a strategic business unit achieves competitive advantage in its domain of activity.” Therefore a Strategic Business Unit (SBU) creates competitive advantage when it creates value for its users where the cost effectiveness of supplying it is superior to that of rival SBUs. (Johnson, Whittington, & Scholes, 2011) ?? further add that Porter defines three generic strategies which create competitive advantage for a company are; differentiation, cost leadership and focus strategies.
This report has seen that Diageo uses both Focused and Differentiation strategies when pushing its products to its target market. This is because Diageo focuses on premium liquor that is targeted to a particular market. ?? Tools: advertising (localisation), vertical integration, premiumisation, seasonal pricing strategy, first-mover advantage, employee training ?? SABMiller. Diageo’s strategy is to drive top line growth and margin improvement in a sustainable and responsible way, to deliver consistent value creation for shareholders over the long term. It will do this through its geographic breadth, its outstanding brands across beverage alcohol categories and the expertise of its people. (Diageo PLC, 2012).
Production and supply
Diageo’s supply organization is responsible for producing, distilling, brewing, bottling, packaging and distributing its brands. It is committed to efficient, sustainable production. Diageo has created a competitive advantage in both its cost base and in the first class customer service it delivers. Investment in production facilities is focused on building capacity for the production of scotch, beer and rum, with both high speed and high volume, cost efficient production lines and with flexible production facilities to create an industry leading supply chain for innovation, especially in luxury products. The business recognizes that it operates in a world where natural resources are limited. Diageo has set itself challenging environmental targets covering water efficiency; increasing use of sustainable packaging and reduction in pollution, carbon emissions and waste-to landfill (Diageo PLC, 2012).
For a company to use this strategy it should prove unique products for which their customers will be prepared to pay a premium price. This is seen in Diageo’s recent launches which focused on the consumers’ wish for luxury, the tastes and increasing affluence of the emerging middle class consumer which ultimately increased the accessibility of spirits through flavor extensions and packaging and drink formats (Diageo PLC, 2012). Premiumisation [jubilee scotch] innovation around RTD products, adult progressive drinks.
Customer care and Retention
When it comes to customer care and sale of its products, Diageo works in collaboration with its customers to drive profitable category growth, by building partnerships with retailers and on-premise customers. The ‘Diageo Way of Selling’ program equips both Diageo and its customers with the tools to be the best sales force in the industry and to create commercial and strategic value for all parties. The European Customer Collaboration Centre provides a state of the art facility to bring consumer, shopper, retailer and distributor insights together to facilitate integrated planning with customers. These tools enable Diageo to realize its ambition to become an indispensable business partner to its customers (Diageo PLC, 2012). This means that when the customers go to buy their products it’s a fulfilling experience and they get all their questions or suggestions met and this works well with Diageo as they use this as feedback.
Environmental and socially responsible
Diageo being the socially and environmental responsible company, it has a history of being a sustainable and responsible company dating from Arthur Guinness who was responsible for philanthropic community programs and through the 1930s when its predecessor companies marketed their brands in a responsible manner. Diageo understands the social, environmental and economic impact of its activities and has adopted a structured approach to manage these impacts, to build engagement across stakeholders, to create value, especially in emerging markets; and to protect Diageo’s license to operate (Diageo PLC, 2012).
Balance of alcohol in the community
(Diageo PLC, 2012) states that the company is not all about profits and losses, it ensures that even the employees are proud of the responsible manner in which its brands are marketed and the role that moderate consumption of its brands can play as part of the balanced lifestyle for millions of people. Diageo seeks to be at the forefront of industry efforts to promote responsible drinking and works with key stakeholders to combat alcohol misuse.
Diageo’s production teams have created award winning technologies to meet these targets with the aim of reducing Diageo’s environmental footprint, delivering business efficiencies and securing supply into the future. Diageo is committed to generating prosperity in the communities in which it operates, especially in the emerging markets by integrating its supply chain into the local community and via direct community initiatives such as ‘Learning for Life’ and ‘Water of Life’ (Diageo PLC, 2012).
Development of the workforce
Diageo believes that industry leading performance will be delivered through a talented and diverse workforce and great leadership. The company has active programs that ensure the development of its management and leaders. Great leadership combined with a culture of good governance and ethics protects Diageo’s reputation and supports the sustainable efficient growth of the business (Diageo PLC, 2012).
(Johnson, Whittington, & Scholes, 2011) state that focus strategy focuses on a particular segment of market and modifies its products and services to fulfill the needs of that exact segment while excluding others. In terms of relationships with distributors and suppliers Diageo has strong routes to market which leverage local expertise. In the United States Diageo is required by law to operate via a three-tier distribution system which separates suppliers, distributors and retailers.
Diageo works with distributors who provide a substantial dedicated sales team of over 2,900 people. Outside of the United States Diageo owns and controls the route to market in many markets, and where Diageo has not established its own subsidiary, the route to market is through joint ventures, associates and third party distributors (Diageo PLC, 2012). This kind of command on distributorship and supply is why Diageo is known for its quality products and this ensures customers get what they pay for.
The Strategy process
Intended Strategy Development
Strategic Leadership: the role of vision and command
In 2000, the newly appointed CEO of Diageo, Paul Walsh, embarked on a strategic review of all operations and was determined to recreate Diageo as the world’s leading premium drinks business (Davidson, 2004). By selling off the company’s food concerns and concentrating on the marketing and innovation of its core premium drinks brands, Paul Walsh refocused and reenergized the company (Encyclopedia of Business, 2012). Walsh’s leadership gravitates towards the visionary style since it more closely follows one that “motivates others, helps create the shared beliefs, and shapes more detailed strategy” (Johnson, Whittington, & Scholes, 2011, p. 400).
Four key pillars of the formulated strategic plans can be identified as:
- Promotion of the global strategic brands
- Vertical integration
- Cost reduction
- Acquisitions, mergers and divestments
Exploring new territories
Promotion of global strategic brands
Strategic brands (formerly global priority brands) have always been a key pillar of its strategy. In 2007 there were eight of these
- Johnnie Walker whisky
- Smirnoff vodka
- J&B whisky
- Captain Morgan rum
- Tanqueray gin
- Jose Cuervo tequila
- Guiness stout
- Baileys liqueur
(Diageo PLC, 2007)
These are brands which Diageo considers “to have the greatest current and future earnings potential” (Diageo PLC, 2007, p. 9). By 2012 the number of brands in this category had risen to 14 as set out in Table ??.
Although the company was structured into four distinct geographical regions, the global priority brands took precedence over the regional divisions. ?? ref Since the eight brands constituted the lion’s share of earnings, it was considered important to manage these products at the highest level. Growth strategy and promotion was engineered at the corporate level. However that did not mean that regional business units were spoon-fed material from corporate level. There was a great deal of localisation in promoting these products. An example of a major long-running campaign which has been progressively adapted to different regions is the ‘Walk with Giants’ campaign which in FY 2012 featured the respected long distance Olympic champion Haile Gebrselassie in an Africa campaign.
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Diageo has taken considerable control of the supply chain, being involved in developing, brewing, distilling, bottling, packaging, distributing, and marketing. It has physical plant which covers the previously listed activities as well as specialised functions such as malting, packaging plants, vineyards, maturation warehouses, cooperages, distribution warehouses, and bottle manufacturers (Diageo PLC, 2007). In Kenya the process goes as far as involvement in the growing of input cereals to brewing ?? ref. In the USA, total vertical integration is moderated by law, which states that there should be three levels of supply: manufacturing, distribution and retail. In that market therefore, Diageo works to identify solid partners in distribution, usually only one partner per state.
Acquisitions, mergers and divestments
Strategic acquisition and sale of unfocussed business units was in Diageo’s business genes, as it was formed from a succession of such moves. It has continued to be a key part of its growth. Since 2000 the organic growth of th
Exploring new territories
Although Diageo had possession of many of the world’s strongest liquor brands, and could have been satisfied with continuing to depend on this ‘cash cow’ business, it has as a company been quite adventurous and curious in enacting a deliberate policy of exploring emerging markets. “Part of Diageo’s growth strategy includes expanding its business in certain countries where consumer spending in general, and spending on Diageo’s products in particular, has not historically been as great but where there are prospects for growth” (Diageo PLC, 2007, p. 17). This arm of the business was only delivering 20% of the revenue in 2007, despite representing considerable complexity in management. Emerging markets can be difficult to manage due to the relatively low purchasing power, poor infrastructure, and traditional local involvement in distribution channels. However this persistence has clearly paid off for the company. From a small but hopeful difference in growth compared to developed country markets in 2007, the emerging markets have increased in strength and importance, until in 2012 they represented 40% of revenue, which is expected to reach 50% by ??.
‘Diageo’s strategy is to drive top line growth and margin improvement in a sustainable and responsible way, to deliver consistent value creation for shareholders over the long term. It will do this through its geographic breadth, its outstanding brands across beverage alcohol categories and the expertise of its people.’ (Diageo PLC, 2012)
Emergent Strategy Development
Advertising in US about spirits on TV – product change
Levels of distribution.
2008 credit crunch – emerging market growth – smarter at localised promotion? Diageo hiding behind EABL – my country my beer.
Managing Strategy Development
[figure with the five regions and amended brand strategy]
Reconfigured structure – concentrating more on emerging markets.
Overall growth highlighted – graph showing growth.
Evaluation of Innovation and Entrepreneurship Practices
Diageo is always innovative and this is in its strategies all through the company. All the stakeholders know what is expected of them and there is always something new that Diageo is coming up with. Below are some of the new ideas that have been rocking Diageo:
Innovation unlocks growth in developed markets. In Ireland, for example, we have introduced new dispense technology to bring perfect cocktails to bars which do not usually serve cocktails. Smirnoff Mojito is available in over 600 Irish outlets which are now selling a total of nearly 40,000 cocktails a week (Diageo, 2012).
Diageo entered the Indian made foreign liquor segment (IMFL) with the launch of Rowson’s Reserve, a premium IMFL whisky. It is a blend of selected premium Indian whiskies and reserve stocks of the finest aged Scotch whisky matured in American oak casks that are mellowed to give a rich smooth finish. It has a well-rounded and balance flavour profile, with a soft, lingering aftertaste. Its distinctly superior liquid and premium packaging allows it to stand out as a premium offering (Diageo, 2012).
Smirnoff, the world’s number one vodka, revealed an exciting new flavour variant, exclusive to travel retail. Smirnoff Gold Collection – with the luxury of gold in every drop – is unique, cinnamon spiced vodka. Gold cues feature prominently in all executions and the gold etched bottle itself showcases a flurry of real, edible gold leaf flakes, magically suspended in this truly indulgent vodka (Diageo, 2012).
Guinness Black Lager has the refreshing taste of lager, but all the character of Guinness which consumers love. We take immense pride in the quality of our product and ensured that we built on the Guinness legacy. The refreshing taste is locked in by the bespoke amber Guinness bottle. The contemporary packaging design combines premium, detailed silver and blue colour with hallmark symbols of Guinness’ brewing provenance and heritage (Diageo, 2012).
This March saw the launch of Orijin, the latest drinks innovation from Guinness Cameroon. Perfect for all social occasions, this authentic ready to drink alcoholic beverage ,an alternative to beer, is made from a blend of traditional African herbs such as kola nuts, ginger and cloves, and sweet tropical fruits, giving it a refined, bitter-sweet and uplifting taste (Diageo, 2012).
We need to offer more choices to female consumers. In Kenya, we launched Snapp. Women there told us they didn’t like drinking beer, particularly in the on trade because both the packaging and the liquid were viewed as too masculine. Snapp is a premium, crisp apple tasting drink that provides women with a more stylish and sophisticated alternative to beer (Diageo, 2012).
As a darker, spiced rum from Captain Morgan, Captain Morgan Black Spiced expands the brand’s footprint into the bolder, more masculine whiskey occasion. The brand honors the legend of the real Captain Morgan, whose spirit is said to still roam the waters of the Caribbean today. Captain Morgan Black Spiced Rum is best enjoyed on the rocks, but is also delicious as the key ingredient in edgy, new twists on classic cocktails, such as Henry Morgan’s Old Fashioned (Diageo, 2012).
The new frozen Ready to Serve pouch format from Parrot Bay offers consumers an easy and affordable way to enjoy the drinks they love. Parrot Bay frozen tropical drinks are your favourite tropical drinks perfectly mixed every time, available in Piña Colada, Strawberry Daiquiri, and Mango Daiquiri. Just freeze, squeeze and enjoy (Diageo, 2012).
Offering a credible, exciting new alternative to beer for British males, Jeremiah Weed Brews is a range of two products Mash and Root Brew. The combination of an authentic American brand, independent positioning, simple design and a unique jam jar serve over ice has helped deliver the masculine credibility of beer with an enjoyable taste. Jeremiah Weed has now been rolled out to 7,000 on trade outlets in Great Britain (Diageo, 2012).
Harp Lime is Nigeria’s first flavoured beer. With a clean and crisp taste, and just a hint of lime, it is uniquely refreshing. Harp Lime has been well received, with distribution growing steadily, and the distinctive Harp Lime advertising impacting positively on the Harp Trademark equity. Harp Lime is available in both sleek 30cl bottles and cans (Diageo, 2012).
The Tusker brand has been enjoyed in Kenya since 1922, and now new Tusker Lite keeps the brand innovative and relevant by addressing today’s consumers’ balanced lifestyle choices with a refreshing low calorie beer. Tusker Lite is positioned within the same mainstream segment as the parent brand Tusker Lager (Diageo, 2012).
This year’s Asian Festive season gifting design was inspired by the characteristic big, bold flavors of the Johnnie Walker brand. The packs were launched in stages, from India for Diwali and then across Asia Pacific for Chinese New Year. The eye-catching limited edition gift boxes boast a beautiful design that allows each variant to stand out on shelves, with impressive and refined packaging including an embossed box and gold foiling (Diageo, 2012).
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