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Analysis of Sustainable Competitive Advantages

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Agenda

Company Information Context of the industry Internal Analysis Marketing mix strategies The firm’s core strategy The future outlook of industry Strategic recommendations

Celebrating life every day, everywhere…

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Day(Latin) World(Greek)

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Brief Outlook 180 markets Over 20,000 employees Offices in 80 countries Manufacturing globally:

› Great Britain; Ireland; United States; Canada; Spain; Italy› Africa; Latin America; Australia; India; The Caribbean

Company values › ‘Passionate about customers and consumers’› ‘Freedom to succeed’› ‘Proud of what we do’› ‘Be the best’ › ‘Value each other’

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1759•Arthur Guiness

1934•MRMA ltd: public company

1961-1962•Grand Metropolitan Hotels ltd

1971-1973•Entering brewing industry

•Acqusition Watney Mann ltd

1986•Guiness & Distillers Company Acqusition

1987•Foundation of United Distillers(UD)

1997•DIAGEO created

•Guiness & Grand Metropolitan merge

2000•DIAGEO Sells Burger King & Pillsbury

2001•Acqusition of part of Seagram

Brief Outlook

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Strategic Environment

Diageo

Beverages industry analysis: › Beer, Wine and Spirits

Global beverages market: US$182.9 billion liters Market growth: 1-2% annual increase over 1999-

2004 period. 1

Spirits market shares:› There is a consolidated very profitable market.2

› Diageo 28%› Pernod Ricard 19%› Bacardi 10%› Brown Forman 6%› Fortune Brands 5%› Other Brands 32%

1 Source: Impact Databank top 100 Premium Spirits. February 20092 www.diageo.com

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Strategic Environment

Diageo

1 Source: Impact Databank top 100 Premium Spirits. February 20092 www.diageo.com

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Context of the Industry Herfindahl-Hirschman Index - SPIRITS INDUSTRY

HHI= 282+192+102+62+52+322 = 2330This means that according to the US Department of Justice, the spirits industry is Highly Concentrated, as the result is above 1800

Strategy implications› Tough for new entrants, need to innovate constantly› Predictable market› Social Responsibility is important

Environmental factor› Life cycle analysis: Mature stage› The key factors for success are product innovation,

distribution and product branding

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Consumer and Societal Trends

Trends High volume and low sales growth. Major

challenge: the drinking habits change quickly Beer and wine threaten spirits ´share of market

around the world The recession has had a negative impact on the

on-trade and spirits sales in bars, clubs and pubs. Consumers are more interested in the entire

process and in the differences between products than ever before.

Specific marketing towards younger consumers in the wine industry.

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Internal Analysis Internal Factors Analysis Summary - Strengths

Diageo

Factors Weight (a)

Rating (b)

Weighted Score (a*b)

Comments

Strong Brands in a diversified portfolio

0.22 5 1.1The company has 8 from the world top 20 premium spirits brands*

Global reach 0.15 4 0.6Protects the company from economic uncertainty in any one particular region

Fast response to customer and consumer trends

0.07 3 0.21In-depth customerand consumer understanding. Constant innovation

Effective marketing capabilities

0.10 2 0.20Diageo spent $358.2 million advertising worldwide making it the 94th global advertiser **

Good financial performance

0.09 4 0.36 £1,204m Strong free cash flow; 15% increase in net sales***

*Impact Database** AdvertisingAge *** Diageo

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Internal Analysis Internal Factors Analysis Summary - Strengths

Diageo

*Impact Database** AdvertisingAge *** Diageo

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Internal Analysis Internal Factors Analysis Summary - Weaknesses

Diageo

Factors Weight (a)

Rating (b)

Weighted Score (a*b)

Comments

Comparatively weak wine brands

0.15 2 0.30

Diageo does not put enough resources in their wine division and looses share to Period Ricard

Not a leader in emerging markets

0.13 4 0.52

Global trends show that Europe and NA are not growing and the only possibilities are in EM

Overdependence of net sales on global brands

0.06 3 0.18

In 2009, GPB accounted for 58% of total volume and contributed net sales of £5,131 million.

No bitter spirit in portfolio

0.03 2 0.06

Bitters are becoming the new trendy drink in developed markets such as NA and Europe

Total 1 3.53

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Marketing Mix Strategies 4 Ps for Global Priority Brands

Premium

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The Company’s Core Strategy

Corporate Strategy › Long-term sustainability› Corporate Social Responsibility› Cooperation with NGOs› Cooperation with communities › Cooperation with competitors › Creating shareholder value

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The Company’s Core Strategy

Strategic Business Unit Strategy

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The Future Outlook of Industry

Companies are looking into Latin America, Asia, and the Middle East in search for new consumers, as growth opportunities are hard to find in Europe and North America.

Source: www.beveragedaily.com

They have to monitor consumer habits, financial data and invest in NPD, marketing and sales in order to success.

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Forecasts for 2012

Diageo

US will have the most successful spirits market with U$48,147mn forecasted by 2012 following a growth of 8.1% from 2008.

In Europe and the US most of the spirits categories are predicted to experience higher value than volume growth.

Beer will continue to overshadow spirits industry in Europe, Japan and the US.

European market is expected to increase 1.5% each year between 2008 and 2012

In Japan, whiskey is set for huge growth after 2011/12

Source: Innovations in Spirits: Key product trends, growth strategies and forecasts to 2012. 1 April 2010. www.officialwire.com

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Strategic Recommendations For the North American market:

› Industry resilience › Economic recovery › Attractive demographics

For the European market:› Russia opening for imported spirits – Scotch whiskey › Focus on at-home drinks

For International:› Grab the growing middle class population

› Main opportunities in LATAM (6-7% growth) and Africa For Asia Pacific:

› Make partnerships with local players› Take on technological and consumer trends for marketing

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Thank you for your attention!Drink responsibly!!!