Diageo Case Study

Topics: Alcoholic beverage, Wine, Financial ratio Pages: 8 (2412 words) Published: December 9, 2006
Executive Summary

This is a strategic options case regarding Diageo, PLC. Diageo is a conglomerate focusing on premium alcoholic beverages.
The firm originated in 1997 with the merger of Guinness and GrandMet. The company began with the mission to be the strongest premium alcoholic beverage producer worldwide. To that end, they have acquired a majority of premium brands in the spirits industry and a large portfolio of premium wines, while at the same time divesting itself of those companies not in line with its new goals. The major satellites in the food industry were Burger King and Pillsbury, which Diageo managed to sell in 2002 and 2001 respectively. Today they are the controlling producer of spirits in the US and UK, and compete globally in both wine and spirits.

Major issues facing the firm include an inability to completely divest itself of the food industry, and the reliance on a poor long-term growth strategy. Diageo must find a way to better utilize its synergistic resources in order to develop lasting competitive advantages.

I. General Industry and Competitor Environments 3
II. 5-Forces Model 4
III. Key Factors for Success 5
IV. Corporate Strategy 5
V. Business Strategy 6
VI. Functional Strategies: 6
VII. Tangible and Intangible Resources7
IX. Financial Ratio Analysis9
X. Conclusions and Recommendations10
I. General Industry and Competitor Environments

a.Economic: Moderate impact. Diageo is placed in the premium end of the wine/spirits industry. Considered a luxury, consumption of these products decreases as the economy declines and there is less cash to splurge. b.Sociocultural: Strong impact. Alcohol consumption varies significantly in type and quantity depending on the cultural segment considered. The types of alcohol consumed varies widely from culture to culture. Also, there is a strong lobby of anti-alcohol groups due to the effects of alcohol on health and public safety. c.Global: Moderate impact. The world market is leaning towards worldwide normalization due to the effects of globalization. However, the industry is still in the early stages of said normalization. Shipment is cost prohibitive though, so companies must establish production facilities in foreign countries. d.Technological: Moderate impact. Wine is largely an agricultural product, and any increases in production technology would have small impact on the quality of the wine. Spirits however, do benefit from increases in production quality. e.Political/Legal: High impact. Alcohol is a highly regulated industry, with many permits and licenses involved in sales, production and transportation. f.Demographic: High impact. There is a minimum age in most countries for one to consume alcohol. In addition, the types of alcohol consumed vary widely between age categories. The majority of wine is consumed by adults between 35 and 60, an attractive demographic. Conclusions

The sociocultural and legal aspects of the industry make it a tricky prospect. That said, there are strong possibilities for growth. Productivity improvements and high industry-wide capacity utilization in the spirits sector allow for increased operating profits. With a recovering economy and attractive demographics, prospects are good for wine producers as well. In America, the wine industry was largely domestic in the mid 90s. Today, the US is able to export nearly 20% of its wine production. II. Industry Environment Analysis – The 5-forces Model

a.Threat of new entrants: Low. Startup is capital intensive and governmental regulations limit new entrants. However, in the wine industry, there is still opportunity for small brands to do well in certain niche markets. b.Bargaining power of buyers: Moderate. There are many competitors offering similar products, both domestically and from imports. Plus,...

Bibliography: 1 Diageo Annual Report 2004. www.diageo.com. March 30, 2005.
2 Diageo, PLC Company Analysis. DataMonitor. Business Source Premier. April 2004. www.ebsco.com March 30, 2005.
3 Gogoi, Pallavi. Diageo Still Has a Hand in the Pantry. Business Week Online, 10/7/2004. www.ebsco.com March 30, 2005.
4 Hitt, Michael; Ireland, R. Duane; Hoskisson, Robert. Stragetic Management. Thompson South-Western 2005.
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