Introduction

Diageo Plc is the current market leader in premium spirits, beers, and wines; Diageo was created in 1997 through the merger of Guinness PLC and Grand Metropolitan plc (Diageo Limited 2020e). Since then, their company has come a long way and now manufactures for over 200 well-known brands such as Captain Morgan’s rum, Bailey’s coffee liquor, and Smirnoff vodka (Diageo Limited 2020h). Its alcoholic beverages are sold in more than 180 countries. To see a complete overview of Diageo Plc, see Appendix 1. Manufacturing brands like these have helped them cement their reputation among big companies such as Bacardi Limited, Pernod Ricard and Brown Forman; in Appendix 9, you will see a breakdown of the competitors.

 

Strategic Analysis

External Analysis

When analysing the macro-environment of Diageo Plc, the PESTEL framework is the most efficient way of analysing both threats and opportunities Diageo are encountering- see appendix 2 for further examples.

 

Political Factors

When analysing the different political factors that Diageo would face in the countries and markets they sell in, we found that their long-term profitability would be affected if they did not comply. One of the critical factors that Diageo face in today's current political climate is Brexit. The deals made during the Brexit negotiations led to concerns within the spirit sector. However, an agreement was made at the eleventh hour, which brought some relief (Kendrick 2020). Nevertheless, there are still ongoing issues surrounding the deal, including making sure there is a smooth transition of goods, will there be an increased administrative cost and what are the new labelling rules (Carruthers 2021). Although, whatever happens, it looks likely that Diageo will experience a cost increase. On top of Brexit, there is also uncertainly in the world because of Covid-19. Therefore, it is hard to state what Diageo's future will be. Still, it is looking up like most regulations should be dropped on 21 June 2021, allowing restaurants, pubs, and clubs to return to business as usual, relieving some stress off Diageo.

 

Economic Factors

When considering the macro environment, Diageo needs to be aware of their gross domestic product (GDP), affecting employees’ incomes and interest rates. By monitoring these rates, the company can make meaningful profit predictions. One of the significant economic factors affecting Diageo is Covid 19. The closing of bars/pubs and sporting and cultural events led to a 47.1% global operating profit cut (Stone 2020). The Covid-19 lockdowns also meant that many people became unemployed; they have been higher since February 2020 (Office for national statistics 2021). Higher unemployment rates mean fewer people have disposable income, meaning they are less likely to spend, resulting in the national GDP being brought down. If the GDP is falling, it means there is a recession happening within that country. If there is a recession, Diageo could be left with a large amount of product that is not selling, meaning they might have to cut the price to make their product more affordable.

 

Social Factors

In recent years consumers are becoming more aware of health issues that products might have, alcohol being one of them. Hearing these concerns, Diageo launched a partnership DRINKiQ, they are a website where they focus on educating individuals about the harms of over drinking and help them make educated decisions about drinking responsibly (Diageo 2020g). By becoming more socially responsible Diageo has positively affected their brand loyalty as consumers trust them, because their values a line, as seen in Figure 1. More, we saw Diageo launch a $100 million recovery fund to help welcome back pubs and bars after lockdowns in cities such as London, New York, Mexico City and many more (Diageo 2020c). By becoming more involved within the community, the company can show do not just care about making money, care about their customer's well-being, and the businesses who stock their product.

 

​

​

​

​

​

​

​

​

​

​

​

​

 

Figure 1 (Bergsma 2019)

​

Environmental Factors

As a society, we demand sustainability more and more within businesses as described in Appendix 9. Therefore, companies becoming more sustainable are more likely to gain support and backing for their products. Since 2015, Diageo have decreased their greenhouse gas emissions by 50%, improved their water use efficiency by 46% and made 99.5% of their packaging recyclable (Diageo 2020f). As Diageo continues to enhance its sustainability and manufacturing processes, they are more likely to increase profits in the long-run and their brand loyalty. Technological Factors Since January 2020, we have seen an increase of 7.3% in internet users, which is up to 4.66 billion people worldwide (Kemp 2020). Social media is taking over traditional media, especially during Covid-19, with all the lockdowns and new regulations companies must follow (Coulter et al, 2012). By seizing this new opportunity, Diageo will boost sales with all different brands within their portfolio. Competitors such as Bacardi have been taking full opportunity of this by working with other brands and events. For example they have worked with festivals to give back to their loyal customers (Bacardi 2020). Micro-Environmental Factors In Appendix 3, the competitors of Diageo have been mapped; it is clear to see that other companies manufacture and market products that are equally priced with similar quality. The analysis used in the perception map (Appendix 3) identifies a few companies like Diageo. From this analysis, Diageo needs to utilise as many resources as possible; by doing this, they will gain a sustainable competitive advantage over the other spirits companies listed in Appendix 9. To assess the strengths and weakness of Diageo, we have used the Boston Matrix and the VRIO to measure the value of Diageo’s resources.