Diageo Enters African Market

Unit 3 Written Assignment

BUS 5112 – AY2018-T1

Edward Valinski

University of the People

This case study is concentrated on an article published in August 2015 by the Wall Street Journal (Thirsty for Growth, 2015). The article focuses on one of the world's largest producers of spirits and a key producer of beer, London based Diageo PLC, and its attempts to enter the alcoholic beverage market in Africa, particularly in the countries of Kenya, Uganda, Ghana, Nigeria, and Mozambique.

According to a study released by IWSR, African wine consumption has increased five times faster than the global average, showing total growth of 17.3% from 2008 to 2013, reaching sales of 864 million still light wine bottles. Growth is forecasted to increase by a further 11% by 2018. Even with the improving sales, no African country is found on any list of top alcohol consuming countries as, according to WHO statistics, the growth has originated from a relatively low base (Alcohol consumption rising in Africa despite obstacles, 2016).

With the explosive growth in the market, companies like Diageo need to be decisive in their strategies to establish a foothold in the African alcoholic beverage market. To its credit, Diageo has significant brand awareness and, according to its 2015 Annual Report, held a 10.6 percent market share that year. Delving further into Diageo’s position in alcohol sales it is beneficial to consider some basic questions that may provide a well-defined understanding of the success and/or shortcomings Diageo’s marketing efforts.

Why haven’t Diageo’s global branding strategies worked in Africa?

Diageo has enjoyed a presence in the African market for some time, almost a century in some African countries, and may have relied on brand awareness, their market longevity, and economy of scale to remain competitive, however, rival companies have challenged Diageo’s reign and it seems Diageo’s responses, in some cases, did not rise to those challenges.

For example, to keep costs and the sale price low Diageo chose to package the Jebel whiskey brand in plastic containers. Sales faltered when a smaller competitor began using glass bottles for their brand. Plastic packaging ultimately gave the impression of an unsafe and inferior product when compared to alcohol packaged in glass. Diageo countered by discontinuing the Jebel brand, the plastic packaging and introduced a replacement brand to be sold from kegs.

Diageo also heavily relied on brand reputation to remain competitive, so much that the company neglected to consider how its brands were relatable to the consumer. Diageo chose to apply broad marketing techniques that were not particularly effective at the local level. As a result, Diageo failed to capitalize on the potential emotional connection with the consumer that is realized with local relevancy (Thirsty for Growth, 2015).

What has the company done to change its marketing strategies?

Once Diageo realized that the local consumer base was not responding to their tactics they focused on reaching the untapped rural market to resolve their brand identity crisis. To accomplish this, the company began running advertisements on local radio stations and developed messaging that include colloquial speech and broad enough to address over 60 different dialects and influence individuals who had not been reached before. (Thirsty for Growth, 2015).

Connecting with the more rural and hard to reach demographic, Diageo also realized that to bring the right product to the right consumer, it needed to revamp its production process and introduced a mobile distillery process that they named “The Cube.”  The company’s capacity to distill and transport products improved. Furthermore, being mobile, large investments in conventional operations were avoided and allowed the cubes to distill spirits almost non-stop and then distribute them anywhere there was demand (Thirsty for Growth, 2015).

Are there risks to the Diageo brands to the new approach?

Religion in the region plays a significant role as half of African men abstain from alcohol. To counter that, Diageo focused its marketing efforts on the economically disadvantaged and under-educated population. They also engaged plans to entice tribe members to endorse their brands. The primary risk Diageo faced with this approach was to fail to connect with the target market at such a granular level. Grassroots marketing, Diageo’s new approach, presented risks to an effective strategy. For one, Diageo needs to ensure that long lasting organic growth was accomplished rather than creating artificial hype. Another risk is losing the attention of the consumer by not effectively building brand awareness and educating the consumer about their products (Bell, McLoughlin & Shelman, 2014).