How drinks group Diageo has made its premium brands strategy work through consistently leveraging its core competencies.
Diageo was formed in 1997 through the merger of Guinness and Grand Metropolitan. Both companies were themselves products of earlier mergers – Guinness had famously acquired Distillers in 1986 while Grand Metropolitan had diversified from its origins as a hotel chain into spirits (IDV), food (Pillsbury), restaurants (Burger King) and pubs.
As with most mergers, the initial changes were relatively superficial. Executives argued for the synergies between the various businesses but the only real integration occurred between the spirits businesses of the two companies. Fairly quickly, however, a more focused strategy emerged. When Seagrams announced the sale of its spirits and wine business, Diageo quickly moved in to pick up as many brands it could (competition rules prevented a complete acquisition). Pillsbury and Burger King were sold off. And the Guinness business was integrated into the global spirits organisation.
The premium drinks strategy
The purpose of all these changes was to make Diageo the world’s leading premium drinks company. During the post-merger integration, CEO John McGrath and his executive team had homed in on their real strength: the ability to build a premium consumer brand and leverage it on a global basis. They built a sophisticated methodology – the “Diageo way of brand building” – based around insights into their consumers’ needs. They identified a set of global priority brands (for example, Smirnoff, Baileys) for managing on a world-wide basis. And they developed a unique organisation structure in which country operations were organised according to their expertise and potential.