Strategic Analysis of Diageo Multinational Corporation

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Introduction

The strategy of a company plays a significant role in determining its position of a company in the already competitive and turbulent marketplace. With business expanse in more than 180 nations, the Diageo PLC was one of the leading distillation companies globally until it was overtaken by China’s Kweichow Moutai (O’Sullivan, 2019). Diageo has cemented its market position due to its dynamic management approaches that focus on consumer satisfaction. Since its establishment in 1997, the organization has continuously developed, targeting alcohol consumers in the United Kingdom and internationally, thus has managed to dominate the marketplace (O’Sullivan, 2019). The company has a primary listing in the UK stock exchange and is a consistent FTSE 100 index (O’Sullivan, 2019). This paper purposes to analyze the strategic position of Diageo PLC and analyze the connection between its approaches. The paper further intends to use the SWOT analysis model to examine the company and offer relevant recommendations.

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Description of the Company

Diageo Plc. is a British multinational corporation with its headquarters in London, England, with operations in more than 180 states and over 140 manufacturing facilities globally (Baldwin, 2020). The company is an alcoholic beverages company that produces, markets, retails, and distributes wines and spirits products. Diageo Plc. was founded in 1997 from a partnership between Guinness and Grand Metropolitan (Baldwin, 2020). Since its inception, the alcoholic beverage manufacturer has registered continuous growth in revenue and registered an annual turnover of 16 billion pounds in 2016 (Baldwin, 2020). Considering its vast operations in the international marketplace, Diageo has a vast workforce of 33,000 people who are designated to its operational geographical areas. The wide employee base has significantly influenced the corporation’s successful operations over the years since its establishment.

The organization’s brand portfolio comprises beer, scotch, vodka, brandy, Indian-made foreign liquor (IMFL), rum, whiskey, ready-to-drink alcoholic beverages, wine, gin, and tequila. The firm advertises these merchandise under several brands, such as Johnnie Walker, Smirnoff, Baileys, Captain Morgan, Ciroc, Guinness, and Mc Dowell’s (Baldwin, 2020). It produces these products through numerous owned and leased manufacturing plants, blending, distilling, packaging, and bottling facilities. Furthermore, Diageo supplies its products through various merger arrangements, subsidiary organizations, brokers and distributors, and retail groups (Baldwin, 2020). Diageo Plc.’s strategic decisions aligned to its functions, such as production, distribution, recruitment, and marketing have therefore influenced its facilitation and production of unique products that have impacted its competitive edge and market share over the years.

Analysis and Evaluation of Internal and External Environment

SWOT evaluation is an essential organizational tool that can be employed by Diageo Plc. management to perform a situational assessment of the company. It is a beneficial technique that can be used to map out the current strengths, weaknesses, opportunities, and threats Diageo is experiencing in its existing business setting. Considering that Diageo Plc. is among the leading players in its industry, the firm sustains its noticeable position in the marketplace by carefully investigating and analyzing the SWOT model (Todorov & Akbar, 2018). The theoretical concept is an immensely interactive procedure and necessitates efficient coordination amongst several factions in an organization including marketing, finance, operations, and strategic planning. Therefore, employing the model in the examination of Diageo’s current position is vital to help determine its future operations and maintain its competitive edge in the prevailing market environment.

SWOT Analysis of Diageo Plc

Strengths

The high-skilled employees that the Diageo Alcohol Beverage Company has realized through training and learning initiatives have significantly influenced its competitive edge in its industry. The company has invested substantial amounts of resources in the training and development of its staff leading to a workforce that is skilled and motivated to achieve more. Furthermore, Diageo Plc.’s vast geographical reach is also one of its strengths. The trademark has existed in more than 180 states which are distributed into 21 topographical areas (Todorov & Akbar, 2018). For instance, 43 percent of the firm’s operations are established in developing economies which is where new openings are evolving (Todorov & Akbar, 2018). Diageo Plc. further has the presence within several price points and deals in numerous kinds of alcohol, such as vodka, whiskey, and beer ensuring that it accommodates all types of consumers.

Additionally, Diageo through a relatively innovative organization has a trademark that is vintage some of which have been in the market for more than 350 years. A significant number of the corporation’s decisions have been undertaken from a long-standing perspective and their business strategies are inclined towards the development of common value. Out of the global top twenty brands of spirits that exist in the alcohol and beverage industry, 8 brands are owned by Diageo (Todorov & Akbar, 2018). Some of these famous trademarks comprise Johnnie Walker, Baileys, Captain Morgan, Smirnoff Vodka, and Crown Royal. Similarly, in the international alcoholic marketplace which has an estimate of 183 billion dollars in revenue, the market leader is Diageo with popular brands through various liquor classifications and a market share of approximately 28 percent (Todorov & Akbar, 2018). Diageo Plc. is dedicated to achieving high consumer fulfillment through its dedicated client relations management division. The approach has enabled the company to realize significant levels of customer satisfaction amongst its loyal clients and worthy brand equity between the potential markets.

The alcohol producer further has a successful track record of incorporating complementary organizations through purchases and partnerships. Diageo has successfully assimilated several technological innovations companies in the last few years to streamline its functions and develop a reliable supply chain network. Likewise, the organization has a strong free cash flow, which provides resources to the corporation to expand its operations (Todorov & Akbar, 2018). Finally, Diageo Plc. has established a culture between its dealers and distributors where the retailers not only market the firm but also invest in preparing the sales group to illustrate to the consumer how they can excerpt the maximum returns from the products.

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Weaknesses

Despite Diageo’s strong presence in the spirit and beer industry, the company has a poor investment in the wine production. In Europe, the US, and the UK, the demand for wine is higher than other kinds of alcoholic beverages. However, Diageo Plc. does not own famous trademarks of wine that significantly impact its business in such marketplaces. Compared to the domestic manufacturers, though Diageo Plc. is concentrating on developing markets, it is losing out. Industrialized economies, such as America and Europe deteriorate in the alcoholic classification and the only focus is on the emerging nations (Todorov & Akbar, 2018). Similarly, the company also faces several challenges in administrating costs since the acquisition of licenses, legal formalities, and distribution requires significant levels of investments from Diageo.

Considering the current issue with Brexit that the United Kingdom is presently facing, Diageo has got into a lot of financial trouble from Brexit and related commerce limitations. Trade restrictions have been placed on several of the Scotch whiskey that constitutes more than 25 percent of their international trade is manufactured in the United Kingdom (Todorov & Akbar, 2018). Moreover, the company has a poor investment in research and development compared to the fastest growing firms in the industry. Despite Diageo Plc. spending above the sector average on R&D, it has not been able to compete with the leading producers relating to innovation. The firm has been portrayed as a mature company seeking to introduce goods centered on analyzed features in the marketplace. There are also gaps in the product range retailed by Diageo Plc. thus giving emerging competitors a foothold in the market.

Additionally, Diageo has not been able to tackle the challenges existing through new players in the industry and has since lost a small market presence in the niche categories. The company can therefore build its internal feedback system directly from the sales department on the ground to address such issues. Diageo Plc.’s management is not good at product demand projection resulting in increased levels of untapped opportunities equated to its competitors (Todorov & Akbar, 2018). The firm has been experiencing a significantly high inventory due to the low focus on demand projections, which has influenced a significantly high inventory both in-channel and in-house. Simultaneously, the alcoholic beverage echelon has a restricted success outside its primary businesses. Despite Diageo Plc. being among the leading corporations in its sector, it has experienced challenges in product differentiation due to its current organizational culture.

Opportunities

New trends in consumer behavior can help in presenting numerous opportunities for Diageo Plc. thus opening marketplaces to establish new income streams and diversify into product variations. In comparison to the previous days when the consumers preferred to drink in pubs, there is a shift in the trend. Presently, numerous customers sort to drink at home, particularly in emerging markets where retail consumption of alcohol has increased. Similarly, there is an increased knowledge concerning the several kinds of liquor across the globe and individuals are more conversant with the international brands and tend to serve popular trademarks of alcohol at home or demand specific brands when they visit bars (Duarte, 2019). The multinational alcohol beverage manufacturers, such as Diageo can benefit from such growing awareness. Diageo Plc.’s primary capabilities can be attributed to its success in other complementary product segments. For instance, the GE healthcare studies enabled the firm in creating improved oil drilling machinery.

Likewise, the low inflation levels have presented more stability to the marketplaces, thus enabling credit a low-interest rate for the consumers of Diageo Plc. Economic growth and improved customer expenditure over the preceding years after the great recession and slowed development rate has presented a significant opportunity to the company. The fiscal shifts will enable Diageo Plc. to attract new clients and boost its competitive edge and market share. Moreover, the presence of stable free cash flow presents openings to venture in product variations. With more surplus cash in the bank, the manufacturer can invest in technological innovations and goods segments (Duarte, 2019). The move will open new windows of opportunities for Diageo Plc. in other product categories. The new taxation guidelines will further influence the ways of conducting trade and will present new openings for established industries, such as Diageo. Government policies linked to the state administration’s green drive also present an opening for the purchase of Diageo Plc. products by the national administration and contractors. Finally, market improvement will result in the dilution of competitor’s advantage and enable the business to boost its competitive advantage over other players in the industry.

Threats

The strict regulatory structure in several economies concerning the retail and consumption of liquor possess a significant threat to Diageo Plc. Numerous alcohol manufacturers tend to find these legislative frameworks challenging for breaking such laws and Diageo is not an exception. Furthermore, the consumers of alcohol are vigilant regarding the severe impacts of drinking alcohol and it is probable to influence the retail of hard liquor in the future (Duarte, 2019). Conversely, in particular instances, the concern may emerge as an opportunity for exotic trademarks since customers prefer to purchase only popular brands than low-quality ones.

Diageo Plc. also faces competition from leading producers such as Sab Miller, Anheuser Bach, and Carlsberg which also have a strong global market presence. In addition, Diageo Plc. has not invested in a constant supply of innovative commodities. Over the years, the company has created several brands but those are normal responses to the development of other players. On the contrary, the distribution of new merchandise has not been regular therefore resulting in fluctuations in the sales number over the period (Duarte, 2019). Since the firm operates in various economies, it faces currency fluctuations specifically considering the volatile administrative climate in numerous marketplaces globally.

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Likewise, the imitation of the low quality and counterfeit products possess a threat to Diageo Plc.’s production specifically in the developing marketplaces and low-revenue economies. The liability regulations in distinct economies are different and the company may be exposed to several liability claims considering the shifts in such markets. Similarly, the increased demand for highly profitable commodities is seasonal and any unlikely occurrence during the peak season can affect the productivity of Diageo Plc. in the short and long term (Duarte, 2019). Finally, the rising trend inclined toward isolationism in the American market can result to complimentary reactions from other state administrations therefore negatively influencing the corporation’s global sales.

Diageo Plc.’s Current Strategic Position

Diageo Plc.’s strategic position backs the realization of its ambitions to become one of the leading companies relating to performance, trust, and appreciation amongst consumers globally. Diageo’s management is focused on delivering quality products that will enable it attract new customers while retaining the existing market. Therefore the corporation depends on its clients to deliver strategic results against which it evaluates its performance. These achievements have been influenced by various decisions developed by its management and led to its current strategic position. For instance, the development of sustainable and consistent quality improvement has been at the core of the business’ objective which has enabled it to be one of the leading liquor manufacturers (Tuncalp & Ozturkcan, 2017). The sustainability of quality improvement aids Diageo Plc. in its trade, improves its margins, and delivers top-level overall stakeholders revenue.

Additionally, the daily efficiency influences the activities that have enabled Diageo to venture smartly and sustain quality development. At its core, everyday effectiveness is a culture that the corporation’s managers have instilled in all their staff to facilitate improvement in duties. Diageo Plc. strategy has inspired the firm to invest in the future productivity of the company through supporting the delivery of consistent performance and sustainable growth. Since the company cannot change the consumption habits of its consumers, Diageo Plc.’s management has focused in promoting moderation and tackling the harmful utilization of liquor (Tuncalp & Ozturkcan, 2017). The firm’s goals and ambitions are further fuelled by its intention and values which encourages it to develop an inclusive culture where all the staff can excel. The management has achieved such capabilities through embracing diversity in its business and in creating brands that unite the societies globally. Finally, Diageo’s strategic position has been influenced by the pioneer grain to glass sustainability approach. The alcohol producer pursues this by positively impacting the societies in which it operates, sources raw materials, and through ensuring environmental sustainability.

Recommendations

Considering the growing turbulence of the current marketplace and the growing competition in the alcohol and beverage industry, implementing the marketing strategies of Karen Millen which can be realized through utilizing the resources of efficiency presented by other Diageo Plc.’s departments (Zhao et al., 2018). The approach will ensure the corporation uses all its resources effectively in promoting its product and engaging all its divisions in the overall business processes. Furthermore, embracing the green drive initiative introduced by numerous economies where it operates will enable it to stay ahead of its competitors. Currently, the company has invested in promoting a green-drive strategy; however a thorough implementation of the approach in its operations will enable the company to easily enter new markets with strict environmental laws such as Canada.

Conversely, increasing the number of broker and distributor outlets and presence for its business that currently has a small number of retail stores can be realized through employing the Diageo Plc.’s resources that are offered in assets format. The properties provided by the corporation will enable it to finance the development of new retail channels for its brands without physical retail existence (Zhao et al., 2018). The move can be backed by the surrounding fiscal aspects due to their low costs of operations, thus the business will generate significant revenues while increasing its property portfolio.

Finally, investing in new products will enable Diageo Plc. achieve product differentiation and stay ahead of its competitors in the industry. For instance, the manufacturer should invest in production of wine and lime juices, which will help it, attract the market in the United States, Europe, and the United Kingdom where there is high demand for the products (Zhao et al., 2018). Product differentiation will further expand its consumer base through retaining the existing consumers and drawing new markets.

Conclusion

Diageo Plc. requires information to sustain its regular function and develop new approaches for the future. Therefore, the company should create channels to collect relevant data, implement it to its numerous business operations, and produce feedbacks and solutions to the challenges it is facing in the marketplace. Conducting a SWOT analysis of the marketplace and the organization will enable its managers to identify the areas of strengths and weaknesses, and maximize the opportunities while regulating the impacts of the threats. Diageo should focus on enhancing the quality of its products and introducing a new merchandise line that will differentiate it from other players in the industry. Despite the corporation enjoying a good brand and market share compared to other players in the alcohol and beverage industry, its administration should improve its organizational culture and operational styles. Likewise, attracting new consumers while retaining the existing market should further be their key priority and can be realized through innovative strategies and marketing. Therefore, the business’ stakeholders should further assess the corporation’s operations and its commerce sector to determine the specific ways of improving its productivity.

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References

Baldwin, C. (2020). Relative valuation of Diageo public limited company.

Duarte, A. M. B. (2019). Equity research-Diageo Plc [PhD Thesis]. Instituto Superior de Economia e Gestão.

O’Sullivan, D. (2019). British-Based Corporations and the Tax ‘Race to the Bottom.’

Todorov, K., & Akbar, Y. H. (2018). Business Models and StrategyThe Chilean wine industry: new international strategies for 2020Case Study: Inchcape plc. Part 8. In Strategic Management in Emerging Markets. Emerald Publishing Limited.

Tuncalp, D., & Ozturkcan, S. (2017). Case Study 4: Diageo in Turkey: The Lion’s Milk Versus Global Spirits. In Strategic Marketing Cases in Emerging Markets (pp. 47–60). Springer.

Zhao, Y., Calantone, R. J., & Voorhees, C. M. (2018). Identity change vs. strategy change: The effects of rebranding announcements on stock returns. Journal of the Academy of Marketing Science, 46(5), 795–812.

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