How Diageo Became One Of The World's Largest Alcohol Producers

How Diageo Became One Of The World's Largest Alcohol Producers

Discover how Diageo became one of the world's largest producers of spirits and beers. Through developing their illustrious brand portfolio.

Diageo's story did not begin until 1997 when Guinness merged with food and beverage wholesaler Grand Metropolitan PLC. The $15.8 billion deal went smoothly and the two companies merged under the Diageo name.

The two companies had already brought dozens of brands under one umbrella with the merger, but launching additional brands, especially beverages, has become one of the company's key missions. The Diageo Group includes global brands such as Johnny Walker whiskey, Guinness beer, Ciroc vodka, Captain Morgan rum, and Aviation Gin.

A few key facts about Diageo:

  • Diageo employs 28,025 people around the world.
  • Diageo generated net sales of GBP 12.733 billion in 2021.
  • The company sold more than 4 million units of product.
  • The group’s reported profit was uplifted by 6%.
  • Diageo is present in 180 countries through its brands.
  • The company holds more than 200 different brands.

A History Of Two Brands

Diageo's history goes back much further than the company's founding in 1997 when the Guinness brand merged with Grand Metropolitan PLC.

Guinness Brewery

guinness-gates-irelandSource

The father of Arthur Guinness, born in 1725, was a brewer. He learned the trade from him and established his brewery in Celbridge. In 1759, he leased an acre and a half of land near St. James's Gate on River Liffey in Dublin for 9,000 years. Pale and ale beers were not very popular in Ireland; whiskey and gin were, on the other hand, much more common, so he decided to make black beer. He created his black beer using secret ingredients, and it was a huge success. By 1769, the beer was exported to Great Britain. In 1775, the town council accused him of using more water than allowed for brewing. But Guinness would do anything to defend his brewery and fought back. After his death, his successors continued to run the business, and the brand has since become a symbol of Ireland.

Throughout its history, the beer has been produced in only three varieties: Porter or Single, Double or Extra, and Foreign Stout, which was destined for export.

In 1868, it was among the first three major breweries, with more than 350,000 barrels. By 1876, it had produced nearly 780,000 barrels. In October 1886, Guinness became a public company with average sales of over one million barrels per year. All this was achieved without advertising or discounts. The company was worth £6 million at the time, and the shares were oversubscribed by twenty times the issue price so that the share price immediately rose by 60% on the first day of trading.

Over the years, numerous quality control procedures were introduced, including those pioneered by William Sealy Gosset - under the pseudonym Student - in 1899, which later became known as the Student t-distribution and Student t-test. At the same time, the company was generous to its employees, distributing one-fifth of its total income to its 5,000 employees in 1907.

By 1914, the company had sold over 2.5 million barrels of beer, representing 10% of the British market at the time. In 1930, it was one of the seven largest companies in the world. In the early 1960s, the company switched from wooden to aluminum kegs. Sales declined in the 1970s, so the original recipe was changed to use pale malt and the process was refined with isomerized hop extracts. In 1986, the company was renamed Distillers Company, which also made it a controlling body in the United Kingdom. 

In 1997, Guinness merged with Grand Metropolitan and continued production under the Diageo name, although it remained a separate entity and retained all rights and trademarks for its products.

In 2005, the London brewery closed and all production and distribution were moved to Dublin. Today it is distributed in over 120 countries.

Grand Metropolitan PLC

MRMA Ltd (short for Mount Royal Metropolitan Association) was founded in 1934 as a hotel business. Maxwell Joseph founded Grand Hotels (Mayfair) Ltd. after World War II and MRMA merged with the company in 1957, the merged company group grew rapidly. A public offering of the company was completed in 1961.

From the accommodation market, it was a natural step forward to open toward catering. By 1967, it acquired Bateman Catering and by 1968, Midland Catering. The company then purchased Express Dairies in 1969, Berni Inns, and Mecca bingo halls in the next year.

Following this, it entered the brewing business by purchasing Truman, Hanbury & Buxton in 1972 and Watney Mann in 1973. Through these new acquisitions, the group held onto quite a few alcoholic beverage brands, including J&B whisky, Baileys Irish Cream, Gilbey's gin, Piat wine, and Croft sherry, and Smirnoff vodka. To reflect the change in direction and the rapid expansion of the company, it was renamed Grand Metropolitan in 1973.

MRMA Ltd (short for Mount Royal Metropolitan Association) was founded in 1934 as a hotel company. Maxwell Joseph established Grand Hotels (Mayfair) Ltd after World War II and MRMA merged with it in 1957, the merged group of companies grew rapidly. Grand Metropolitan Hotel Limited was listed on London Stock Exchange in 1961 and changed its name to Grand Metropolitan Hotel Ltd. in 1962.

From the accommodation market, it was a natural step to turn to the hospitality industry. By 1967, the company acquired Bateman Catering and in 1968 Midland Catering. The company bought Express Dairies, Berni Inns in 1969, and Mecca's bingo halls the following year.

It then entered the brewing business, acquiring Truman, Hanbury & Buxton in 1972 and Watney Mann in 1973. Through these new acquisitions, the group held on to a number of alcoholic beverage brands, including J&B Whisky, Baileys Irish Cream, Gilbey's Gin, Piat Wine, and Croft Sherry, and Smirnoff Vodka. To reflect the company's change in direction and rapid expansion, it was renamed Grand Metropolitan in 1973.

The 80s was heavy in M&A and company selling activities for Grand Met:

  • In 1980, it acquired US tobacco and drinks company Liggett Group, which was later sold to Bennett S. Lebow.
  • Warner Holidays and Intercontinental Hotels Corporation were bought by the company in 1981.
  • As a result of the 1987 acquisition of Heublein wines and spirits from RJR Nabisco, Grand Met became one of the largest producers of wine and spirits in the world and became the owner of the Smirnoff brand.
  • Also in 1987 the company withdrew from catering when it disposed of its catering division by way of a management buyout, creating Compass Group. In late 1988 more than 700 pubs, owned by Grand Met at the time, were sold to different professional investors and operator companies. As the next step in updating the company’s portfolio of products and services, Intercontinental Hotels were sold to Saison Group.
  • By selling these assets, it was able to expand into the betting market by purchasing one of the most well-known brands, William Hill.
  • Through the buyout of the Pillsbury Company and its Burger King chain in 1988, Grand Metropolitan entered the fast food industry, later acquiring the Wimpy chain.
  • In 1990 the company sold the brewers Samuel Webster's and Ushers of Trowbridge in 1991.

In the following years, the company slowly closed down its pub operating division, selling more than 20,000 pubs it owned and operated through its previously acquired businesses.

The largest merger at the time

diageo-mergers-and-acquisitionsSource

Even though the companies, Guinness and Grand Metropolitan were rivals for years, it was the friendship of their leaders that made the idea for the merger possible. $15.8 billion was a record amount at the time, making the company the seventh-largest drinks and food holding organization globally.

In addition to Burger King and Pillsbury Co., Grand Met also brought Smirnoff vodka and J&B whiskey in the combined company, while Guinness brought its stout, Johnnie Walker whiskey, and Gordon's gin under the umbrella. Haagen-Dazs ice cream and Green Giant vegetables were also part of Grand Metropolitan.

Analysts see synergies between the two companies' products and geographic scope, as well as the potential for other mergers among large food and liquor producers. As investors rejoiced over the news, their stocks rose. In London, Grand Met shares rose by $1.23 to $9.57, while Guinness’s share price increased by $1.39 to $9.75.

With the proposed stock swap, Grand Met shareholders gained control over 52.7% of the new company, while Guinness shareholders had the rest. Shareholders also received cash payments of $3.9billion along with shares in the new company.

Four divisions have been created in the new company:

  • United Distillers and Vintners, combining the liquor and wine operations
  • Pillsbury
  • Burger King
  • Guinness Brewing Worldwide

There were about 2,000 layoffs among the 20,000 jobs at the companies' liquor businesses. Total employment for the two firms in 1997 was 85,000.

Cleaning up the portfolio

In 2002, Diageo sold one of the companies brought in the holding by Grand Metropolitan - Burger King. The consortium of Texas Pacific Group, Bain Capital Partners, and Goldman Sachs Capital Partners signed the acquisition deal, which cost them $1.5 billion. Approximately $86 million was paid in assumed debt, while $212.5 million was settled by subordinated debt - both in cash. Since 2000, Digieo had been trying to sell Burger King to rid itself of a struggling business so it could concentrate on its core beverage business.

A previous agreement between Diageo and the buyout firms included specific performance targets for Burger King. McDonald's largest rival failed to meet these objectives and potential buyers pulled out.

Key takeaways

The two companies that make up Diageo, Guinness and Grand Metropolitan, built more than just a well-known brand. Both were holding companies that effectively developed brands in different and overlapping markets.

Guinness focused exclusively on alcoholic beverages and, in addition to its brewery, repeatedly acquired beverage companies that complemented its existing portfolio.

The Grand Metropolitan took a different approach, initially offering accommodation services before entering the food and beverage business. However, both markets have complimented the hotel's product range very well.

While the merger was possible because of the friendly relationship between the managers, it was a very deliberate move by the two companies. After all, in the food and beverage market, a larger portfolio also means faster and easier sales, making it much easier for the new Diageo company to get onto the shelves of stores, restaurants, and hotels.

The period that followed was one of product streamlining, as the merged network of companies owned hotels and food organizations such as Burger King. To take full advantage of product synergies, the company had to sell the "redundant" parts of its business. The refreshed portfolio performed much better.

Acquisition Strategy

As we showed in the first chapter, the two giant companies that formed the holding company did not come empty-handed, but Diageo has accelerated the pace of acquisitions since the merger.

Since the early 2000s, Diago has been especially active in acquiring established and new businesses on the beverages market. A list of its M&A activity:

  • Seagram's spirits and wine businesses were acquired by Diageo in 2001.
  • For $100 million, Diageo purchased fifty percent of the Don Julio Tequila brand from Jose Cuervo during 2003.
  • A deal worth US$2.1 billion was reached in February 2011 for Diageo to acquire Mey Icki, a Turkish liquor company.
  • Diageo acquired Ypióca, Brazil's largest selling premium cachaça brand, for £ 300 million in May 2012.
  • Diageo announced in June 2012 that it would invest $1 billion over the next five years in Scotch whisky production. One new distillery would be constructed, and several existing ones would be expanded, increasing production overall by 30 to 40 percent. Johnnie Walker's original plant in Kilmarnock had closed its doors by March of that year, so they could not reuse that location for the new plant.
  • Diageo acquired a 53.4% stake in Indian spirits company United Spirits in November 2012 for £1.28 billion.
  • Diageo has owned a majority stake in the parent company since 2011, which it acquired completely in 2013.
  • José Cuervo acquired full ownership of the Don Julio tequila brand and Bushmills Irish whiskey for $408 million from Diageo in November 2014.
  • United National Breweries (UNB) is a South African brewery owned by Diageo. In April 2015, Diageo acquired 100 percent of UNB, but the company later decided to sell it.
  • Treasury Wine Estates bought Diageo's wine business in October 2015. Some brands were sold separately, such as Navarro Correas and Chalone Vineyard.
  • In 2015, Stauning, a Danish whisky brand, announced an investment of US$10 million from Diageo to allow it to expand production.
  • Campari Group purchased Grand Marnier, cognac, and bitter orange liqueur, in March 2016.
  • Maryland's Baltimore County has been selected as the site of a Guinness brewery and tourist attraction. As many as 300,000 visitors could be hosted each year at the brewery, which could create 70 new jobs.
  • Diageo acquired the Casamigos brand of tequila in June 2017 - a super-premium tequila from the US.
  • A limited-edition bottle of Diageo's 12-year-old Black Label blended whisky, Jane Walker, instead of Johnnie Walker, went on sale in February of 2018. A striding woman appeared on the label instead of the usual top-hatted man.
  • Diageo sold 11 brands including Seagram's 83, Seagram's VO, Popov vodka, Booth's Gin, Goldschläger, Yukon Jack, and Sambuca to the Sazerac Company for about $550 million in November 2018.
  • An offer that Diageo made during February increased its stake in Chinese baijiu company Sichuan Shuijingfang Company Limited (SJF) to almost 70%.
  • A non-alcoholic spirits company, Seedlip, was purchased by Diageo in August 2019.
  • Diageo paid $5 million to settle charges that the company pressured distributors to purchase more products than demand to meet performance targets brought by the US Securities and Exchange Commission.

Ryan Reynolds and the Aviation Gin

ryan-reynolds-aviation-ginSource

A brand of gin, Aviation American Gin was developed by Christian Krogstad and Ryan Magarian in Portland, Oregon, in 2006. As an American dry gin, it has a less strongly juniper-flavored taste profile than some other gins. It contains seven flavors: cardamom, juniper, sweet and bitter orange peel, lavender, coriander, Indian sarsaparilla, and anise.

Bottled at 42% alcohol, Aviation American Gin is pot distilled twice. In addition to its nationwide distribution in the United States, the product reaches 15 other countries, including Canada, Spain, the UK, Ireland, France, Russia, Italy, Germany, the Netherlands, and Australia. Blue-label wine bottles were once used for this product, but the new packaging, introduced in 2013, represents the Art Deco period with a silver cap and a black label.

The distillery sold the brand to New York's Davos Brands, LLC, in 2016, but House Spirits will continue to produce the gin in Portland, Oregon. Davos sold a stake to Hollywood actor Ryan Reynolds in 2018.

In 2020, Aviation was sold to Diageo for $600 million, while Reynolds still maintains an ongoing ownership interest in the company. The actor takes advantage of his popularity and uses every opportunity to promote Aviation Gin in interviews, in his films, and on his social media profiles.

George Clooney and his tequila company

george-clooney-casamigos-tequilaSource

Casamigos Tequila was not launched by Clooney and Gerber for financial gains. The long-time friends spent a great deal of time in Mexico while building their neighboring vacation homes - and drank tequila together often. The team found a distiller in Jalisco, Mexico, and left a long list of requirements of what kind of tequila they wish to buy and drink. Casamigos, which Gerber and Clooney came up with, was never meant for public consumption and served to family and friends for the next two years.

After two years, however, the manufacturer contacted them, claiming that they could no longer maintain "sample" status because of the quantity ordered (a thousand bottles a year would have been suspicious). So the founders had to make a decision: either give up their passion for tequila (but at least produce less of it) or acquire a license and market the high-quality drink.

Business was so good that Diageo almost immediately set its eyes on the company and offered $1 billion for it, apparently largely because of the popularity of George Clooney. Of that, $700 million was paid immediately, with the remaining $300 million contingents on performance.

Key takeaways

It is no coincidence that we have devoted a separate chapter to Diageo's M&A activities, as they represent an important strategic element of the Group. The annual report shows that profits would continue to grow even without them, with organic profit growth of more than 17%. At the same time, continued acquisitions, albeit with higher risk, have enabled the Diageo team to achieve a profit of almost 75% in 2021, for example.

History shows that one of the company's main tasks since its inception has been to find smaller beverage brands that are still in the early stages of significant growth and that can bring great success to the group by leveraging the capital, marketing, and, above all, distribution tools that Diageo provides.

In recent years, a new trend has emerged: the acquisition of companies co-owned by well-known personalities. Diageo has not only bought a market, a profit, a new product, and a new brand, but for a handsome sum, it has also allowed well-known players to participate in marketing. It can be assumed that neither George Clooney nor Ryan Reynolds will be leaving the company in the foreseeable future, so they can also benefit from the considerable sales potential.

And the acquisition frenzy hasn't stopped in the COVID -19 period, with Diageo completing 3 acquisitions last year. According to Tracxn, Loyal 9 Cocktails, Lone River Beverage Company, and Chase Distillery were also acquired - all in non-public value deals.

Strategy And Operations

Overall strategy and the company’s key objectives

diageo-strategy-graphic

Source

There is an obvious potential for growth in the beverage alcohol sector due to demographics and economics. The goal of our Performance Ambition cannot be achieved with growth alone in the long term. Therefore, one of Diageo’s key strategies is to focus on sustainability in expansion and growth.

The company has a history of creating sustained, quality growth. The 200th anniversary of Johnnie Walker and Guinness shows how great brands can be built over time by placing a focus on quality, brand equity, innovation, and investing for the long run.

As part of its efforts to help embed everyday efficiency, Digieo focuses on three core elements:

  • Speeding up their business by simplifying it
  • Customers and consumers should be the main focus of resources
  • By using data and analytics to enhance their processes, they can become more efficient and gain insights

The best investment strategy involves focusing on the areas that will offer the greatest returns: people; advertising and promotion (A&P); technology, data, and e-commerce; capital expenditure; and mergers and acquisitions (M&A).

'Celebrating life every day, everywhere is a central part of Digieo's culture of inclusivity and diversity. It is both a moral imperative and a driver of innovation and commercial performance to attract the best and most diverse talent. As one of Diageo's key objectives, it is to contribute to the development of an inclusive culture and a more equal society through brands and across the company's value chain.

Additionally, they need to be advocates for a low-carbon world and champions of water stewardship. As a result, the company will explore circular economy approaches to make more drinks with fewer materials. Additionally, Diageo strives to become more efficient and cost-effective, to build a stronger and more resilient supply chain, as well as to attract and retain high-quality talent.

Society 2030 - Diageo’s 10-year plan to progress

The above core objects are embraced by the company’s 10-year plan, which was slightly postponed by the COVID-19 pandemic. The main goals include:

  • Creating a positive yet responsible image of alcohol
  • Promoting diversity and inclusion
  • Preserving the natural resources required for future success
  • Giving back to the community in a positive way

One of the major elements of the plan is to promote sustainability, for which the group’s new facility is a great example. The sustainable design ensures that no fossil fuels are used during production at the distillery. The facility provides its electrode boilers, onsite electric vehicles, lighting, and equipment with a mix of wind and solar energy sourced from EKPC and Inter-County Energy, making it one of the largest in North America. A virtual metering system has been implemented on-site to increase the visibility of water, electricity, and steam use, enabling the site to drive resource efficiency and sustainability. As a result, the distillery is saving nearly 117,000 metric tons of carbon emissions each year. This is equal to taking over 25,000 cars off the road for the year.

Shared Service Centers around the world

Almost all Fortune 500 companies have already established their shared service centers, which help to significantly reduce labor costs on the one hand and standardize internal processes on the other. When it comes to centralizing processes, Diageo is a pioneer, operating SSCs with hundreds of employees at several locations - currently in Budapest, Bogota, Nairobi, Manila, and Bengaluru.

As is common practice in the market, Diageo SSCs combine and provide the following functions to the Group's companies:

  • Controlling
  • Cash cycle
  • Legislative compliance
  • Human Resources
  • Accounting
  • Tax and treasury
  • Business intelligence and analytics

Budapest's 1,350-strong team has played an important role in providing invaluable support for Financial Management, Human Resources, and Business Intelligence within the last 15 years. The Budapest office opened in 2002, renting a small space with less than 100 employees. The location was chosen for its central location and easy accessibility - both for colleagues commuting from Budapest and the suburbs. Since then, the number of employees has grown to over 1,000 and the floor space to 10,000 m2: a complete office building on 7 floors and 2 additional floors in the adjacent building.

Key takeaways

Only companies that lead and shape the market can truly plan for the future. Diageo's 2030 strategy is not just about setting lofty goals; the company is serious about being a responsible business. The company is not doing this out of the goodness of its heart, of course; there is real pressure on market leaders to act responsibly from consumers, investors, and even employees.

In the interest of sustainability, the company's production is gradually being converted to renewable energy, and new technologies are constantly being sought to reduce the enormous amount of water used in the production of its beverages. Alongside automation, fewer raw materials are the most important key to reducing costs, which Diageo is doing well in the face of rising profits.

Sales and Marketing

Flagship products of the company

Through companies acquired over the decades, Diageo owns and controls more than 200 different brands. Thanks to a portfolio shakeout before and immediately after the merger, the group no longer owns any hotels, pubs, because or restaurant chains and has sold most of its non-core business. As a result, the group's workforce has been reduced by almost 60,000 employees. However, the remaining portfolio is easily manageable and consists solely of alcoholic beverages, which can be sold both directly and to wholesalers.

diageo-alcholic-beverage-range-lined-upSource

The Group's beverage brands 

  • Whisky: Johnnie Walker, Buchanan's, Cardhu, Justerini & Brooks, Bell's, Black & White, White Horse, Logan, Caol Ila, Vat 69, Oban, Talisker, Lagavulin, Glenkinchie, Dalwhinnie, Cragganmore, Clynelish, Singleton including Glen Ord, Dimple, Royal Lochnagar, Glen Elgin, Knockando, Windsor, Grand Old Parr, Auchroisk, Benrinnes, Blair Athol, Dailuaine, Glenlossie, Glen Spey, Inchgower, Linkwood, Mannochmore, Mortlach, Strathmill, Teaninich, Roe & Co, Bulleit, Seagram's Seven Crown, Crown Royal, Piehole Whiskey
  • Brandy: Cîroc VS
  • Vodka: Smirnoff, Cîroc, Ketel One
  • Rum: Captain Morgan, Bundaberg, Pampero, Cacique, Zacapa
  • Mixed drinks: Smirnoff Cocktails, Loyal 9 Cocktails
  • Liqueur: Baileys, Sheridan's, Pimm's
  • Tequila: Don Julio, DeLeón, Casamigos
  • Gin: Gordon's, Tanqueray, Gilbey's, Aviation Gin
  • Various: McDowell's
  • Baijiu: Shui Jing Fang
  • Rakı: Yeni Rakı, Tekirdağ Rakısı, Kulüp Rakı, Altınbaş, İzmir Rakısı, Civan Rakı, Tayfa Rakı
  • Cachaça: Ypióca
  • Beer: Guinness, Tusker, Harp Lager, Kilkenny, Senator, Meta Abo, Smithwick's

From the above list, Johnny Walker Whisky, Smirnoff Vodka, Captain Gordon rum, Baileys liqueur, and Guinness beer are considered flagship products in the middle price range. Within the flagship and complementary brands, there are also products specifically intended for mass consumption at lower prices, and more expensive beverages purchased mainly for special occasions, as gifts, or for consumption in luxury restaurants and bars. A great example of the latter product category is the Ciroc vodka brand, which is sold at the higher end of Diageo’s price range.

Sales

According to Diageo's LinkedIn profile, nearly one-third of its employees work in sales, which is above average. The company's sales team is made up of several departments that work in groups by country and region, as well as by product range and customers.

The office-based salesforce contacts customers mainly by phone and serves wholesalers and grocery chains. In addition, Diageo also has a very strong field sales team that visits customers in Diageo countries by car and in person. These are usually restaurants, bars, and local stores. The field team ensures that customers receive all the information and tools they need to sell Diageo beverages to the greatest extent possible and is also responsible for ensuring that products are placed in highly visible locations on prominent shelves.

The COVID-19 pandemic severely weakened Diageo's field service capacity, which the Group was able to compensate for by strengthening its home delivery business. Last year, pre-made cocktails and crowd-pleasing mixed drinks were the big sellers, especially in the USA. To promote these, Diageo US even introduced a "cocktail-to-go" program.

Diageo is gradually placing more emphasis on strengthening its e-commerce divisions, which is important not only because of the COVID -19 pandemic. As commerce shifts online, companies that stick to "tried and true" physical sales will fall behind and lose their market position. Diageo operates several online platforms, the most recent of which is Alexander & James, which opened in the United Kingdom. This website specifically markets premium products and makes them directly available to the end consumer.

Marketing

Employer branding is a key component of Diageo's marketing activities, which focus on finding, attracting, and retaining the best talent. This is supported by Diageo's above-average employee benefits and its youthful and relaxed corporate culture (in countries where alcohol is not banned, offices have a dedicated Diageo bar where employees can sample the company's products - exclusively outside working hours).

Diageo is a holding company whose marketing is primarily focused on getting the word out about the brands it owns. For this reason, you will not see any Diageo ads, but you will see more Johnny Walker or Guinness beer.

One of Diageo's most active brands from a marketing perspective is Johnny Walker. The campaign-like structure of their television, online, and print media advertising allows the brand to focus on a specific message, typically defined by the intersection of responsible consumption (A great partnership was formed in 2016 between Johnny Walker and taxi-alternative startup, Uber.) and a lifestyle associated with the alcoholic beverage. With one of its most successful campaigns (Joy Will Take You Further), Johnny Walker has reached over 250 million people worldwide.

johnnie-walker-and-uber-campaignSource

Key takeaways

For decades, Diageo has been about finding the right way, the right product, and the right service. Decisions in the 2000s made the production and distribution of alcoholic beverages the company's core business. The product range consists of almost 200 brands, covering not only the different types of beverages but also different price ranges, different lifestyles, and products marketed only in certain countries.

In the area of distribution, in the last decade, in addition to telephone and face-to-face business initiation, e-commerce has developed, accounting for an increasingly large share of the results of the distribution department, which employs nearly 10,000 people. Surprisingly, Diageo does not disclose the exact amount, but the fact that revenues have not declined despite the pandemic closures is largely due to the fact that e-commerce has become a major driver.

On the marketing front, employer branding and brand building are also important to Diageo. To this end, various campaigns are organized, but they must be guided by the values the company has set for itself, such as the responsible use of alcohol. Diageo's commitment is reflected in the fact that the company spent 23% more on branding and marketing in 2021 than in the previous year.

Final thoughts and key takeaways of Diageo’s story

Growth by numbers

The Diageo Group has been able to steadily increase its profitability in recent years thanks to a well-functioning strategy. Instead of focusing on trendy solutions, it has concentrated on cost reductions and continued M&A activities.

If there is anything to learn from Diageo, it can build brands. There are few holding companies as successful as this one, which not only recognizes good businesses at the right time but takes great care in preparing some of them to rise. And where it does not sense the performance potential or the company no longer fits the portfolio, it sells quickly and tactically. So the portfolio of companies is constantly in motion, and only the best-performing stocks have a permanent place. Accordingly, profits are rising steadily, which is particularly remarkable considering that the pandemic period has hit the hospitality industry hard.

Year

2021

2015

Net sales

£12.57 billion

£10.83 billion

Profit

£3.731 billion

£3.066 billion

Number of employees

28,025

34,179

Number of products sold (Volume in Equivalent units)

238.4 million

246.2 million

 

Key takeaways from Diageo’s story:

  • The merger of two strong companies: The secret of Diageo's success lies in the merger of two companies that could perform well independently. While Guinness evolved from a brewery into a major player in the beverage market, Grand Metropolitan PLC came from the hospitality and catering industry. Time has proven them right, as they have complemented each other perfectly.

  • Focused portfolio: Even before the merger, the two founding companies had recognized that not all of the companies acquired over the decades were part of the core business, so underperforming companies and business units that did not serve the plans were repeatedly carved out of the Group. This not only provided the seed capital for new M&A activities but also helped the Group to focus on what it does best.

  • Shared service centers: Diageo operates hundreds of shared service centers in remote locations around the world, where it has centralized functions such as HR, accounting, and business process analysis. This not only allows it to consolidate its otherwise diversified subsidiaries but also to make significant savings through cheaper labor.

  • Shifting towards the future: Although Diageo's beverage brands have typically been sold physically or over the phone, the company realized a few years ago that it would fall behind its competitors if it didn't adapt and develop its e-commerce division in time. In addition, sustainability became another important strategic objective, reflected in the renewal of raw materials for the products and the continuous improvement of production facilities.

The Diageo company is a prime example of a successful holding company, as it has not only continued the main growth strategy of the founding companies, acquisition but also strengthened it in every way. Diageo is one of the most active companies in the beverage market, and its success shows that not only is the holding company in good hands but that the group has acquired considerable expertise in building new beverage brands and businesses over the decades.

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