Company Analysis Essay on Diageo PLC

Published: 2021-07-07
1915 words
7 pages
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Harvey Mudd College
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Diageo PLC has a special platform on which its strategies can be delivered. The position that the company holds in premium drinks is based on the ownership of the word very most important brands. The company holds and manages a maximum of 20 premium distilled drinks that are sold all over the world. According to Rajput et al. (2014, 2), Diageo Company has been able to occupy a competitive position in the market where it can manage two main regions namely Europe and North America. Among the word largest premium spirits producer, Diageo comes at the top of the list. This comes from the number of brands that are produced by the company of late. The company operates in 21 geographical based markets which serve around 180 countries. The company is very large to an extent it employs over 32, 000 talented employees across the world.

Diageo PLC has a very effective strategic unit that makes the company have a competitive advantage over its rivals. This makes it easier for the company to add and create value for their customers which fuels the aspect of cost-effectiveness. Having favorable strategic business unit makes the company do well in the beverage industry dealing in beer, wine, and spirits. Diageo share in the spirit market has the highest share of 28 percent over the rest of the competitors. Diageo has the most appropriate business model which is designed in a manner that gives returns to the shareholders at the same time establishing the value for all the customers (Pellicelli, 2012, 19). In addition, the value addition towards the customers is also a key aspect where even the communities in which the company operates appreciates. The first design of the Diageo business model is the strong platform. The strong platform entails a broad portfolio, has wide geographical reach, financial strength, and efficiency in supply and procurement. On the other hand, Diageo has a leading capability that includes the breakthrough marketing. Global functions also come in as it serves over 21 markets and keeps the values of everything they provide at heart. The second business model found in Diageo is the agile operating model where they have a wide participation strategy fuelling the company to invest in big growth opportunities. Second, there is supply management which facilitates imports, exports and third party production. Consumer insights are also at hand in responding to changing dynamics that are very rapid.

According to Oshri et al. (2015, 210), the other business model of Diageo is the focused investment. First of all at this juncture is the performance drivers where every market gives full concentration on the market. The second aspect under this is the sustainability and responsibility imperatives creating a positive role of alcohol in the society, enable communities to thrive and ensure there is no or less environmental impact.

One of the biggest Diageo competitors is the Bacardi Limited. This is a privately-owned company that specializes in spirit production. What mostly makes the company well-known is the white rum it produces but this comes to be one of the brands that the company concentrates on. Currently, Bacardi is producing over 200 brands. Bacardi becomes one of the biggest Diageo competitors because of the sales of over $5 billion the company makes every year (Dewhurst et al., 2012, 95)

Smirnoff is the best brand selling in the market. According to Tuncalp and Selcen (2017, 48), Smirnoff is a brand of vodka that has the largest market share in the Diageo Company. The brand is produced in over 130 countries where countries such as India are also included. Smirnoff brand has several products which include flavored vodka, malt beverages, and vodka. The Smirnoff brand is usually made through a traditional charcoal filtration method.

The net sales of the Smirnoff vodka have been amazing and encouraging altogether getting sales growth after deducting excise duties. This helped to do away with the disposal, acquisitions, and movements that affect the sale growth of Smirnoff. Looking at the organic sales of Smirnoff, there was a decline in sales by 1 percent where a decrease in sales was as a result of destocking in West LAC and South Africa (Jernigan et al., 2015, 553). On the other hand, there was a destock caused by lower shipments in the United States. The organic net sales in 2015 were not applicable due to the destocking that took place. However, the organic operating high margin improvement was 24 billion. Earnings per share before exceptional items was 88.8 billion while the free cash flow was 1963. In addition, the return on average invested capital was also considered since it went up to 12.3 billion.

Other information regarding the sales done, the volume went up to 246.2 in 2015 and the net sales went up to 10813 billion. The marketing spending was 1629 and the operating profit before exceptional items was 3066 billion in 2015. In regard to the profit made by Diageo Company in 2015, the financialists marked it to be 2797 billion. The shares of associates and joint ventures profit after tax was 175 billion while the non-operating items were 373 billion. The net finance charges were 412 billion and the reported tax rate was 15.9 percent. Profit attributable to parent companys shareholders was 2381 billion and the basic earnings per share was 95 percent (Jones et al., 2016, 476). Lastly, from the sales of Smirnoff in the year 2015, the recommended full year dividend was 56.4 percent.

According to Tuncalp and Selcen (2017, 55), comparing the sales made in different regions, North America had 1 percent in net sales, Europe had none and Africa, in general, had 6 percent. The Latin America and the Caribbean had 1 percent while Asia Pacific had 2 percent. This showed that generally the demand and sales made from Smirnoff was not that bad as compared to other brands in the company. Having such a considerable sales assured the Diageo Company that in future it could record more sales on the same.

Looking at the aspect of economies of scale, Diageo PLC is one of the companies that fully enjoys it. According to Nicolas (2014, 111), Diageo is usually in a position to enjoy the economies of scale due to the size it has which gives it the cost advantage. With Diageo occupying the largest proportion of the market at the same time having greater supply volume in the market, it can enjoy the economies of scale to the fullest. The economies of scale give an added advantage to the Diageo Company where it has been able to achieve and enjoy a long-term positive impact on the whole entity.

Pull and push strategies are both used by the Diageo PLC. Push and pull strategies are simply the promotional strategies that help in getting the brands of the Diageo company closer to the targeted market which is usually located on the various continents. According to Isaksson et al. (2014, 66), Push strategy is the strategy that makes the customers aware of the product as the product is put in front of the customers. Some of the push strategies used by Diageo include the trade shows, getting retailers to stock a product, showrooms and also creating a supply chain that all helps in attracting and also retaining the existing customers.

Some of the push ways that are used by Diageo PLC to attract and create awareness to the customers is the technology push vs. market pull (Steenkamp, 2017, 104). This takes place during trade showrooms where any information concerning the features of the product is availed to the customers. On the other hand, encouraging the retailers to stock a product which in turn Diageo is sure that it will be sold. In addition, Diageo Company usually creates a supply chain that ensures that the retailers will get the right quantities they want.

Pull strategies are also used by Diageo in an attempt to promote its products. This kind of a strategy tends to encourage the customers to look for the particular product since the manufacturer has made the product to be visible and strong. According to Nicolas (2014, 121), Modes of pull strategies used by Diageo PLC includes referrals, sales promotions, customer relationship management and media advertising. The pull strategies at the end of the day increase the demand for a product. Having a high demand of Smirnoff, for example, will make most of the retailers to look for the brand and place it one their shelves.

According to Bakhyt et al. (2014, 9), having looked at the drinks market, the products specifically Smirnoff is greatly evolving which has been marked by the brand growth as well as the heart of the growth itself. Although there are a number of drinks that has the same taste and offer the same lucrative purpose, Smirnoff has still tried to maintain its legacy in the market. The demand of Smirnoff has been relatively higher than the rest vodka types to all the style-conscious adult drinkers.

The most common brand that really poses competition to summer refreshers is the white spirits. The white spirits are mostly preferred by drinkers simply because its demand and supply are not affected by seasonality. This means that the sales made by white spirits are not restricted to summer season only. In one year the sales of the white spirits sum up to 23 percent which can be said to be a considerable sale volume. However, many young drinkers like the Smirnoff simply because of its versatile character that has no limitation or association aspect. Since the drink has no particular mixer, this makes it have different consumption possibilities that become multiplied every day. Smirnoff is the largest premium international vodka that sells almost three times more than the competitor Absolut (Bakhyt et al., 2014, 10).

Alcohol marketing has to be accompanied by four Ps which include the product commercial, price, place, and promotion (Nicholls, 2012, 488). When designing and manufacturing alcohol products, at all times they have to be made pleasant. Most of the products manufactured by Diageo smell more adolescent than adults. This tends to attract many people more so the adults as it reminds them the older days when they were teenagers. When drinkers consume Smirnoff vodka, they become more sophisticated, have a sense of identity and this links them to the brand image.

The second P in marketing alcoholic brand is the price. According to Mosher (2012, 59), Diageo has used price discounts for a long time where consumers can get high quantities due higher discounts given. With this, the company can increase the quantity sales and consumptions of the same product. High discounts tend to make alcoholic drinks to be less costly hence attract a lot of people to purchase neglecting the others.

The third P in the marketing of alcoholic drinks is the place. The place in which the alcoholic drink is located will have an impact on the alcohol purchasers and also the number of alcohol purchasers towards a certain brand (Nicholls, 2012, 490). The more the outlets are, the more the quantity of alcohol is being sold. Hence this clearly shows that the consumption level of alcohol will also be high. Placing of drinks in supermarkets make brands such as Smirnoff to be consumed by even those who had no intention to get drunk.

Promotion is the fourth p in marketing that is commonly used by Diageo PLC. According to Mosher (2012, 60), in between 2003 to 2006, the Diageo Company was the second largest alcoholic company in terms of sponsorships. Through this sponsorships programs, many people are being drawn to be alcohol users learning this from observations and reading from social networking sites.

According to the SWOT analysis performed on Diageo, it has a number of strengths. One of the strength includes having a strong brand that has a market presence in over 180 countries. Second strength lies in having a strong distribution network...

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