Diageo (UK)

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Diageo is the world's foremost alcoholic drinks business, controlling several of the world's best known spirits including Smirnoff, Johnnie Walker, Captain Morgan Rum and Baileys liqueur, as well as Guinness stout. The group was formed in 1997 by the merger of Grand Metropolitan and Guinness. It has streamlined its operations considerably since then, selling off food brands Pillsbury and Burger King, while also adding the choicest brands from the former Seagram portfolio, as well as a number of key brands in developing markets. The group is especially strong in North America and Asia; weaker in Europe where it is outgunned by arch-rival Pernod-Ricard. There are also significant gaps in its non-spirits portfolio. Guinness is its only beer and in 2015, Diageo agreed to divest virtually all of its small wine business, mostly to Treasury Wines Estates. The group has an important strategic partnership with LVMH's Moet Hennessy division, in which it controls a large minority shareholding. This has prompted speculation that it might at some point launch a bid for full control of that business, possibly at the same time as it offers Guinness up for sale.

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Captain Morgan's Rum J&B Scotch Whisky
Gordon’s Bundaberg Rum
Bailey's Irish Cream Crown Royal
Tanqueray Gin Archers
Windsor Royal Seagram's 7 Crown
Seagram's VO Don Julio
Tanqueray Bulleit
Bells Yeni

Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 15th Nov 2018: Diageo has offloaded a collection of non-core lower-priced North American spirits brands to fast-expanding Sazerac Company for $550m. Best-known of the brands being transferred are Canadian whisky Seagram's VO and Parrot Bay rum, but there are also another 17 smaller spirits products. Acquirer Sazerac, based in New Orleans, already has an extensive collection of mostly value-priced whiskies, vodkas and rums. It's perhaps best-known, though, as the owner of cinnamon-flavoured Fireball, now one of the world's top 30 spirits with retail value of over $1bn a year. It acquired Southern Comfort from Brown-Forman in 2016.

Adbrands Weekly Update 2nd Aug 2018: At Diageo, solid organic revenue growth of around 5% was offset by currency headwinds, with the result that reported net sales rose only a little under 1% to £12.16bn. However, all regions reported positive volume and net sales growth. A one-off tax gain in the US helped attributable profit to rise by 14% to a best-ever £3.02bn. The group's strongest-performing category by growth was tequila, where organic sales soared by 40%, led by Don Julio, and helped by the $1bn acquisition of Casamigos. Gin, too did well, up 16% organic, with lead brand Tanqueray delivering a 15% lift. Vodka was the group's weakest category, down 1% in organic sales, and the only segment to report a decline. Smirnoff and Ciroc were both down 2%. Johnnie Walker, Guinness and Baileys were all up around 5%-6%.

Adbrands Weekly Update 3rd May 2018: Diageo made changes to its North America team. Current president of US spirits & Canada Tom Looney is retiring, to be succeeded by Claudia Schubert, currently general manager in Europe. North America chief marketing & innovation officer James Thompson is also leaving the company, to be replaced by Ed Pilkington, currently CMO for Western Europe.

Adbrands Weekly Update 27th Jul 2017: Diageo also delivered full year results to June. Exchange rates helped revenues rise by 15% to £12.05bn, but organic growth was strong too at 4.3% for the year. Price rises contributed the bulk of the increase because volumes were up by only 1% organic. All regions contributed to growth, with the key North America region up 3% organic and Europe and Africa by 5%. Net profit rose by an impressive 19% to £2.7bn. Continuing the recent global trend, sales of brown spirits continued to rise at the expense of vodka. Among Diageo's top brands, Johnnie Walker and Captain Morgan both gained 6% in organic sales. Regional whisky stars Crown Royal and Buchanan's did even better at 12% and 16% respectively, while Smirnoff slipped by 1%, Ketel One by 5% and Ciroc by 12%. Another major gainer was Tanqueray Gin, up 9%.

Adbrands Weekly Update 22nd Jun 2017: Diageo added super-premium tequila Casamigos to its portfolio in a deal that values the brand at up to $1bn. Diageo is paying $700m upfront, with up to another $300m in a 10-year earn-out to its founders, actor George Clooney, his business partner and best bud Rande Gerber and real estate tycoon Mike Meldman. Selling around 120,000 cases last year, Casamigos slots into Diageo's portfolio between Don Julio (375k cases) and DeLeon (20k).

Adbrands Weekly Update 11th May 2017: Ads of the Week: "Captain Captain". This new European viral campaign for Diageo's Captain Morgan rum is not at all what you might have expected. Digital specialist VaynerMedia was responsible for the deliciously odd spot, under oversight from main creative agency Anomaly NY. Vayner's creative team have clearly supped deeply from the school of Monty Python and similarly absurdist British comedy. Adding to the surreality of it all is the appearance of various sporting celebrities in blink-and-you'd-miss-them cameos. These include two real Captain Morgans: Leicester City FC and Jamaica captain Wes Morgan and England cricket captain Eoin Morgan; plus former England football Captain Rio Ferdinand and Nacho Figueras, captain of the Black Watch polo team. Strange but lovely. 

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Free for all users | see full profile for current activities: The two companies which came together to form Diageo in 1997 each had a rich and colourful history. Although best-known for its dark, creamy-headed stout, Guinness had a finger in many different pies by the mid-1990s and was looking for a way to make a quantum leap forward [See Guinness Brand Profile for more]. By chance, Grand Metropolitan was looking for exactly the same opportunity. That company had been the brainchild of Maxwell Joseph, a self-taught property developer who started out buying and selling buildings in and around London in the 1930s. By the end of World War II, there was no shortage of damaged buildings to buy up, and Joseph began to acquire bombed-out sites, renovating and reopening them as hotels for a huge profit. In 1961, Grand Metropolitan went public, using some of the funds it raised to take over Grand Hotels of Mayfair.

The group underwent massive diversification during the following decade. It acquired restaurant chain Berni Inns, Express Dairies, Mecca betting shops, and the breweries Truman Hanburg and Watney Mann in 1971 and 1972. The latter purchase introduced the company to distilled spirits for the first time. Watney Mann already owned International Distillers & Vintners (IDV), makers of Baileys, Bombay Gin, and J&B. IDV was itself the product of a series of mergers, dating back to the mid-18th century. Giacomo Justerini first began distilling whisky in 1749, and his business was acquired 80 years later by Alfred Brooks, who renamed it Justerini & Brooks. J&B itself merged with Twiss Brownings & Hallowes, UK agents for Hennessy cognac, to form United Wine Traders in 1851. Around the same time Walter and Alfred Gilbey set up business in London to distil gin. IDV was formed more than 100 years later when W&A Gilbey and United Wine, each having added a number of additional brands to their portfolios, joined forces in 1962.

By the mid-1970s, Grand Met's size meant that there was little in the UK it could acquire without falling foul of anti-monopoly regulations, so Joseph turned his attentions to the US. Cigarette maker Liggett Group was acquired in 1979, followed by the InterContinental Hotel chain in 1981 (from Pan Am). Joseph died a year later, and his successor, Allen Shepherd, began to refocus on food and drink, selling off Liggett (in 1986), InterContinental (in 1988 to Japanese group Saison) and William Hill/Mecca betting shops (in 1989). The purchase in 1987 of Heublein (Smirnoff, Lancers, and Cuervo) from Nabisco turned IDV into the world's largest wine and spirits company. Two years later Shepherd mounted a hostile takeover of food company Pillsbury, bringing Burger King (acquired by Pillsbury in 1967), Green Giant (acquired 1978), and Haagen-Dazs (acquired 1983) into the fold. In 1991, the company's Watney Mann beer interests were sold to Foster's in the latter's (short-lived) bid to be a world-class brewer. Alpo Pet Foods went to Nestle in 1994 for $510m. Loss-making US optician chain Pearle Vision (bought 1986) was sold to Cole National for $200m in 1996. Purchases included Pet Inc, maker of Old El Paso Mexican foods, for $2.6bn in 1995.

In 1997, Grand Metropolitan and Guinness announced their merger to create a food and drink supergroup, second only to Nestle by revenues. But there was a spanner in the works, in the shape of Bernard Arnault of LVMH. Guinness and LVMH already owned significant stakes in each other, and Arnault also held an 11% shareholding in Grand Met and was involved in a series of joint venture drinks distribution deals. Initially he threatened to block the Guinness-Grand Met merger unless LVMH was included as third partner. After some hard negotiating he relinquished that threat in return for a £270m goodwill payment, a seat on the merged board and rights to distribute the full portfolio of the group's drinks through a separate distribution joint venture. (Arnault subsequently resigned from the board and sold most of his shares to fund an attempted takeover of Gucci).

The combined group announced its new name to almost universal criticism from shareholders. A working title of GMG Brands was dropped for being "too unimaginative", and was replaced with Diageo. (The name combined the Latin for "day" and the Greek for "world", although no one at the group has ever suggested what connection that had to its business portfolio. It was to set a brief trend for mock-Latin corporate names in the UK). Meanwhile the group pushed ahead with consolidation of its various operating divisions. Grand Met's IDV division was merged with Guinness's United Distillers to form UDV. Then the group began to streamline its brand portfolio to remove non-core or insufficiently international assets. These included Dewar's scotch and Bombay Gin (sold to Bacardi for $1.9bn), and a half-share in Cantrell & Cochrane (sold to Allied Domecq for around £275m), both to comply with international competition regulators' requirements. The company also put a for sale sign on its Gleneagles hotel in Scotland. The sell-off accelerated in 1999: Accent, B&M, Joan of Arc, Las Palmas, and Underwood food brands (to B&G Foods for $192m); the North American Black Velvet, Golden Wedding, Rebel Yell, Old Charter, MacNaughton's, McMaster's and OFC whiskies and bourbons; Spanish brewer Cruzcampo to Heineken for £426m; best-selling German brandy Asbach and Greece's best-selling spirit Metaxa to Dutch spirits business Bols for $200m; and Cinzano, Ouzo 12 and several Brazilian spirits to Campari for an undisclosed amount.

Becoming the world's biggest spirits business also brought with it some friction with the smaller brandowners whose drinks Diageo licensed or distributed. An underlying trend within the spirits industry is that many of the world's biggest brands actually belong to small local manufacturers who license global distribution rights to the multinationals. Mexican tequila maker Jose Cuervo, for example, had originally signed a deal with Grand Met, and insisted on renegotiating the deal when Diageo was formed. The dispute was finally resolved in 2002 after Diageo agreed to return its 45% stake in that business in return for a new distribution agreement extended to 2013. Meanwhile Pernod-Ricard allowed Diageo's US and Japanese distribution rights for its Wild Turkey brand to lapse because the British company now had competing brands. Nor did Diageo's size solve what was then an inherent weakness in the spirits market. By the late 1990s, sales in the spirits market as a whole were static, while sales within the whisky segment were in steep decline. During the 30 years from 1966 to 1996, for example, American consumption of Scotch fell from 103m to just 3.4m litres. In fact, by 1996, the French drank more whisky than the Americans - 131m bottles compared to 120 million in 1996. Meanwhile in Britain, Scotch sales had fallen by a third in a decade.

Despite CEO Tony Greener's 1998 claim that Diageo wanted "to be in the top five of the world's consumer goods companies", it became increasingly apparent that the company's best bet would be to focus its attentions on alcohol, and leave foods to other companies, also consolidating rapidly. The first step came in 1999 when Diageo's Haagen-Dazs ice cream business in the US was transferred into a joint venture with Nestle. The biggest spur to consolidation came a year later when Seagram announced the sell-off of its large drinks portfolio as part of its takeover by Vivendi. All the world's big drinks companies began preparing for an auction battle. In order not to find itself outmanoeuvred, Diageo accelerated its own divestment of non-drinks businesses, putting Burger King up for sale and confirming plans to merge Pillsbury with its US rival General Mills.

Following Seagram's announcement that it would only sell its brands to consortia not single companies, Diageo formed a partnership with French company Pernod-Ricard to divide up the spoils between them. However the Seagram sell-off quickly turned into a shambles, when the individual licensors of Seagram's two key brands, Absolut and Captain Morgan, both announced they would block any deal of which they didn't approve. Eventually the auction turned into a contest between two rival consortia: Diageo and Pernod-Ricard against Bacardi and Brown-Forman. Diageo and Pernod-Ricard swung the deal at the end of 2000, agreeing to pay around $8.2bn between them for the portfolio. Diageo contributed around $5bn for control of Captain Morgan, Crown Royal Canadian whisky and Seagram's wine business. Pernod supplied the remaining $3.2m for Seagram's scotch whiskies such as the Glenlivet and Chivas Regal, as well as selected North American brands. Unwanted or competing brands were disposed of in a further round of deals in 2001 and 2002. 

Now the biggest cloud hanging over Diageo was the consolidation of its rum portfolio. Destileria Serralles of Puerto Rico, the actual owner of the Captain Morgan trademark, claimed to have right of approval over the new licensee of their brand, and had already agreed a side deal with Allied Domecqm and the case was submitted to the Puerto Rican courts. The issue was further complicated when US regulators ruled that Diageo, which already owned the #3 rum brand Malibu, could not own Captain Morgan as well. Diageo faced an uncomfortable dilemma. If it sold Malibu to appease regulators, it faced the danger that a Puerto Rican court would rule in favour of Allied Domecq's claim to Captain Morgan, leaving Diageo with nothing. After some months of negotiation, Diageo killed two birds with one stone, agreeing to sell Malibu to Allied for £560m if the latter dropped its claim to Captain Morgan. Rounding off this long series of disposals, The Guinness Book of Records was finally sold to Gullane Entertainment, owners of Thomas The Tank Engine and Sooty, in 2001 for £45.5m. The Glen Ellen and MG Vallejo Californian wine brands were sold in 2002 to Franzia Winery of the US. See full profile for current activities

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