Diageo is the world’s leading premium drinks company. It has more category leading brands than any other drinks company and market leadership in many of the major growth markets around the world. Diageo’s unique STP strategy has allowed it develop into a globally renowned brand with an operating profit of over £2 billion in 2005. With its headquarters in London, Diageo has experienced rapid expansion with over 80 offices worldwide employing around 20,000 workers. The firm’s recent success can be largely attributed to its efficient market segmentation and product diversification that have allowed it to meet the specific demands of its global consumer base.
The Alcoholic Beverage industry is one of the largest in the world and is estimated to be comprised of 26 public companies and around 200 private companies, the industry is dominated by five large players. In 2005 Inbev recorded the highest revenue ($13.81 billion) followed by Haniken ($12.79 billion) and Anheuser-Busch ($12.01 billion). Diageo was ranked 4th with annual revenue of $10.9 billion and return on invested capital up 4.4% from the previous year to 14.9%. The global volume of sales of beverage alcohol in 2004 was 182.9 billion litres with a stable 1-2% growth in the previous five years. The market is made up of 3 distinct categories: beer, wine and spirits with branded beers sales accounting for 76% of total branded alcohol sales. These statistics illustrate the huge competition firms face within the industry highlighting the importance of a well defined and aggressive marketing strategy.
Diageo was formed in 1997, through the merger of GrandMet and Guinness and at the time was a consumer goods company with food and drink at its core. However, by 2000 Diageo had realigned its business to focus on its premium drinks. With 76% of alcohol sales comprised from branded beer sales it is no surprise that eight out the top nine global alcohol companies are primarily breweries. Diageo is the only exception to this rule with leadership in the global spirit market with a strong presence in all three categories throughout the world. Diageo manages its brands in terms of 8 global priority brands including Smirnoff Vodka and Captain Morgan Rum, 30 local priority brands including red stripe larger and Gordon’s Gin, and some category brands. Global priority brands account for about 60 percent of total sales volume with all local priority brands having market leading positions in the market they were distributed.
In such a competitive industry where a strong brand identity is essential, Diageo’s marketing strategy has ensured it has excelled in recent years. This can be shown with its economic profit increasing from £227 million in 2000 to £642 million in 2005 with an operating margin of 21.6%. Diageo’s fourfold strategy of complete category participation, growth of global priority trademarks, investment in BRIC (Brazil, Russia, India and China) economies and selective acquisitions has ensured it is grown faster than any of its competitors. With its extensive market research, innovative product development and aggressive marketing strategy Diageo has developed into a globally renowned brand.
To analyse why Diageo has been so successful I will first examine the macro-environment that affects the firm using PEST analysis. The Political landscape surrounding the alcohol industry varies massively across the globe with numerous restrictions on who is able to consume and buy certain alcoholic products. In most developed countries in Europe the legal drinking age is 18, whilst in the North America it is 21 with both areas enforcing strict punishments for those who break the law. On the other hand many countries particularly in South America and Asia have outlines on alcohol consumption with little enforcement in place. Alcohol is also banned in Muslim states with many African Nations also prohibiting the production and distribution of...