Diageo - Challenges and Changes in Delivery and Marketing of Services and Products - Case Study Example

Student Name: Tutor: Title: DIAGEO data analysis and report Course: Data needs analysis-report DIAGEO Introduction and the company’s background Diageo is a company which has been in existence since 1997 but its business and brands possess a rich heritage. The earliest ancestor company to Diageo was established in 1749 and was known as Justerini & Brooks, they were wine merchants and blenders of the renowned J&B Whisky range. A global iconic brand was created after Arthur Guinness of the brewery of ST James Gate in Dublin. Many of the company’s distilleries expanded during the eighteen century. In the twentieth and nineteenth centuries business and brands attributed to the company steadily expanded and went through innovation under the parent companies (Thompson, 2010). Diageo was created in 1997 when Guinness PLC and Grant Metropolitan Public Limited Company merged resulting into a conglomerate of food and drinks which consisted of premium brands’ greatest collection (Wakely, 2008). Diageo is of one the largest companies manufacturing alcoholic drinks in the world. Diageo leads in the market worldwide in the manufacture of flavoured beverages that are alcoholic like Smirnoff Ice and Spirits. Other premium beverage alcohol drinks include Crown Royal, John Walker, Windsor, J&B, Bushmills and Buchanan’s whiskies, Captain Morgan, Guinness, Tanqueray, Jose Cuervo, Ketel One and Croc vodkas, Diageo produces some of the leading premium drinks in the world and posses outstanding brands (da Silva Lopes, 2007, p.117). The company made a strategic decision to exist the food interest from 2000 to 2002. A decision was reached of focusing exclusively on premium beverage alcohol. Challenges and changes in delivery and marketing of services and products There are various challenges that Diageo faces in its delivery and marketing of its products. The greatest challenge is competition from established companies as well as new entrants. Substantial competition comes from international companies and regional and local companies from countries where it has its businesses. Diageo faces competition across a range of occasions of consumer drinking. Rising level of competition and unexpected actions from consumers or competitors could force Diageo to lower its prices as well as lose its market share in the categories of premium brands that it had hitherto performed impressively (Armstrong & Kesten, 2007, p.117). Secondly, it is not possible for Diageo to draw anticipated benefits from its strategy of focusing on premium brands or its restructuring and cost-saving programs which have been developed to enhance earnings (Tremblay & Tremblay, 2007). The decision by Diageo to focus on premium brands cannot assure the company of opportunities for improved margins or growth. The Spanish market for wine is slower since it suffers from maturity and change in family habits that has impacted negatively on the wine industry in France. Static growth rates are expected to be witnessed. Thirdly, Diageo is a global company which has its brands being sold in many places all over the world. Consequently regulatory decisions and subsequent changes in the regulatory and legal environment could escalate the liabilities and costs of Diageo or limit its business activities. The extensive regulatory needs consist of marketing, importation, distribution, product liability, production, pricing, sales, promotion, packaging, labeling, labour, pensions, advertising, environmental issues, control and compliance systems (Collier, 2005, p.114). Any changes in regulations, laws, and regulatory and governmental policies or practices will cause Diageo to incur additional costs of material or liabilities that can affect its profitability. Countries where Diageo has its operations may come up with new labeling, production or product requirements, constraints on advertising or related promotional activities that are used to market alcohol. There have been countries in Africa which and other parts of the world which have legislated production requirement asking alcoholic beverage companies to increase the warning label on the package (Greene, 2005, p.3-13). This translates directly into additional costs. Restrictions on retail outlets and other marketing and promotional activities hinder the performance of the company. Counterfeiting and increase in the cost of raw material will affect the growth of Diageo in the negative way. Opportunities available in the next decade The growth opportunity for Diageo in the United States market is good since consumption of wine is relatively new. US consumers are becoming steadily interested in wine and its respective sophisticated tastes. The red wine market is expected to grow in the United States. In the growth in the United States market is expected to be faster than in the mature United Kingdom market. The sales of the company in the US are expected to grow progressively as many people warm up to wine and the sophisticated brands. Diageo CEO has pointed out markets which need expansions such as China, Russia, Brazil, and India (Nag, Hambrick & Chen, 2007, p.374). The red wine market in Brazil is expected to grow by about 14%. The wine market in the UK is described as being resilient as compared to private labels although this not reflected in the private labels growth. Moreover, the domestic market of Diageo in the UK is a show case market whereby customers are happy and willing to experiment with new wines. This provides an opportunity for Diageo to develop new product lines that will cater for changing needs of consumers. The company can use pricing strategy to maintain its market share of premium alcoholic drinkers in the high end market. Having established and respected brands will make its products to be chosen over those of competitors who are less known although they offer cheaper prices. The scientific and medical research findings that indicate that red wine is beneficial to moderate and regular drinkers will boosts sales (Mulcaster, 2009, p.77). Studies have indicated that red wine is capable of reducing lung cancer risk, lower blood pressure, and improves coughs. There are more opportunities for growth in Ireland and Norway. The market in these countries has not been fully exploited. There is also still room for growth in the European market although Diageo is well represented in this region. Recommendations There is need for Diageo to study its current markets and evaluate those areas that are not fully exploited. Global expansion of Diageo is possible. China, Russia, Australia, India, and Brazil offer possibility of expansion for wine business. Where the channels of the company are well distributed, it should be able to take advantage of economies of scale. Large scale production due to the resources that it possesses makes the company to have a competitive advantage over the others. There is also room for expansion in countries like Chile and Argentina. Diageo is a leading producer that can take advantage of its well established brands and are widely recognized. The company should set aside funds for marketing and promotional activities to campaign for increased market share (Ireland, Hoskisson & Hitt, 2008, p.73). Vibrant advertising is needed particularly in markets that are not fully exploited. The increased competition in the wine and spirit industry will require the company to carry out thorough promotional activities to create awareness for its brands. Unexploited need more concentration in terms of marketing and promotional activities. Studies that indicate health solutions are a result of using wine should be supported by the company and promoted to increase the regular and moderate consumers to continue using wine. People will be forced to use wine for health reasons. Acquisitions and Joint ventures that the company wants to be undertaken should be thoroughly scrutinized to determine their net worth and the possibility for expansion. Acquisitions that are not carefully considered can lead to loss and misuse of the company’s resources. Diageo has to increase its branding and marketing expenditure in the wine sector. Alliances and joint ventures can be used to penetrate new and emerging markets. The acquisition of established brands has helped Diageo company to expand its business since its formation in 1997 (Armstrong & Stephens, 2005, p.382). The small brands of the company should be made global brands through vibrant advertising and marketing. There is room for the company to grow despite fierce competition. Analysis of available information Diageo has bought India’s largest liquor company for a cost of $2bilion. This acquisition of the Indian company will make it possible for Diageo to attain half of its revenue from emerging markets. Close forty percent of its sales come from such markets. Global Reserve of Diageo has been concentrating on Asia particularly China where the sale of John Walker has defied economic meltdown experienced in the world (Thomas, 2012). Proceeds from sales of its whiskies have risen from 40 to 50% yearly for the past financial quarters and the Chinese demand is going steady (Gazdar, 2007). The value of super deluxe spirit industry is about £18.5billion to 31billion and Diageo has 15% of the total market share. The compound average growth of Diageo global reserve for super deluxe spirits was 35% from 2009 to 2011 outpacing that of the whole category which was 14%. Recent research shows that consumers persist to prioritize quality as compared to price when it comes to purchase of fine spirits. Consumers are becoming more discerning and sophisticated seeking roots in craftsmanship, genuine rarity, and heritage. The company has shown steady growth despite challenging European environment. Reserve brands for Diageo increased by 10%. This translated to £232 million net sales for the company. There is strong growth from Diageo reserve (Solomon, 2009). In regard to environmental conservation, the company has performed very well as shown by reduced figures of carbon emission. Low carbon energy and renewable energy from hydro, wind, bio-energy and nuclear sources has contributed significantly to reducing emissions. Uses of innovative sources that are renewable are important in carbon reduction (Diageo Plc., 2012). The company is committed to reducing carbon emissions. Travel Retail is an important priority for Diageo. Tourists are responsible for 40% of the total luxury spending. Sales were up by 30% in Asia, 39% in Latin America, 30% in North America, and 32% in Africa. Despite the global financial crisis, Diageo has continued to impress when it comes to growth in several regions in the world (Dringoli, 2008, p.177). It is expected that close to 40% of the Chinese consumers will increase their spending in the coming years. John Walker sales grew in China by 64%. Conclusions Diageo is an established company that has a substantial market in the wines and spirits industry. The challenges that the company is experiencing may derail is objective of expanding but good management can result into growth. Analysis available data are encouraging about the performance of the company globally. Despite the grim reports in regard to competition, Diageo has opportunities that are unexploited. The established brands can advantage for the company to exploit economies. Suggestions for expansions of the company have been outlined in the recommendations. Advertising and vibrant marketing agenda is required to ensure that the company remains at the top. References Armstrong, M. A & Stephens, T., 2005, Handbook of Employee Reward Management And Practice, Kogan Page Publishers, London. Armstrong, J. S. & Kesten, C. G., 2007, Competitor-oriented objectives: The Myth of Market Share, International Journal of Business 12 (1): 116–134. Collier, 2005, CIMA Study Systems 2006: Management Accounting-Risk and Control Strategy: Management Accounting-Risk and Control Strategy, Elsevier, London. da Silva Lopes, T., 2007, Global Brands: The Evolution of Multinationals in Alcoholic Beverages, Cambridge University, Cambridge. Diageo Plc. (2012) www.diageo.com. Accessed 12th February 2013. Dringoli, A., 2008, Corporate Strategy and Firm Growth: Creating Value for Shareholders, Edward Elgar Publishing, Sydney. Gazdar, K., 2007, Reporting Nonfinancial, John Wiley & Sons, New York. Greene, E.F., 2005, United States Regulation of the International Securities And Derivatives Markets, Aspen Publishers Online, Melbourne. 3-13 Ireland, D.R., Hoskisson, R.E. & Hitt, M.A., 2008, Understanding Business Strategy: Concepts and Cases, Cengage Learning, New York. Mulcaster, W.R., 2009, Three Strategic Frameworks, Business Strategy Series 10 (1): 68 – 75.  Nag, R, Hambrick, D. C. & Chen, M.-J., 2007, What is strategic management, really? Inductive derivation of a consensus definition of the field, Strategic Management Journal 28 (9): 935-955. Solomon, J., 2009, Corporate Governance and Accountability, John Wiley & Sons, London. Thompson, J. (2010). John Walker popularity helps Diageo to toast profits, The Independent(UK) Thomas, N. (2012). Scottish beer company BewDog forces Diageo to apologize over ‘dirty tricks’ at awards, The Telegraph. Tremblay, V.J. & Tremblay, C.H., 2007, Industry and Firm Studies, M.E. Sharpe, London. Wakely, J., 2008, The International Spirits Industry, Woodhead Publishing, London.   Read More