Diageo Plc

Diageo plc is the world’s largest premium alcohol company, with 2013 net sales of £11.4 billion and more than 36,000 employees. Over the last 10 years The Company had invested over £1.2 billion in Africa and seen sales increase at a compound annual growth rate of 13%, rising from 9% of global revenue in 2007 to 14% in 2013.

The first problem faced by Diageo in Africa was to understand the complexity of the environment. African continent had a larger surface area than China, India and U.S. combined. Within the 48 countries of Sub – Saharan Africa, there were considerable differences in social and political stability, economic size, and potential for growth. Deficiencies in local infrastructure, corruption and bureaucracy were the other big problem of the continent.  With the 70% of Sub-Saharan Africa’s population living in rural areas, and, on average, 60% of the people did not have access to an all-season roads; a perennial question in Diageo’s planning activity was whether it would be physically possible to distribute and sell product to consumers after it was produced.

During the years Diageo implemented different strategies to face these problems, first of all organized its Africa business into four regions, developed its supply chain working with the governments and NGOs, to build farmer capabilities, to find farmers to work with and to assist with bookkeeping, ensuring fertilizer was used as agreed and that the harvest was sold to Diageo rather than to a third part. Besides that I think that Diageo should strengthen the rapport with the various local governments, for example by investing in public infrastructure, helping to build roads and other public works, in return for concessions for new land to cultivate and a better tax regime. Strengthening also relations with NGOs, for example by working with them for a project to raise awareness on the correct the Alcohol consumption. These simple steps could help the company to strengthen its presence on the territory, making it difficult for competitors to replicate.

Second problem faced by Diageo was to understand the new market, completely different by the western culture, and less predictable. Alcoholic beverages had played an important and multi-faceted role in many African communities for centuries. For example, the sharing of local beers from the hometown of a bride and groom was an important bonding ritual between families in some parts of Africa. In 2013, traditional local beer production still accounted for the majority of consumption, often available at significantly lower price. The problem was also the lack of hygiene rules. In some case the products led to death. The lack of good market researches, about the habits of consumption for beer and spirit of the people in Africa, was another big issue in understanding the market behaviors.

Diageo responded to these challenges with innovation in products and market research, and building the market meant focusing on value consumer – those who could not afford to buy alcoholic drinks at premium prices. In 2012 Company launched Project Ramani, a research program to accurately describe the size of markets and identify actionable market segments. After this research the R&D department end up with two different products. Ruut Extra and Snapp, two different products for different customers. Diageo should also be able to create an R&D office in Africa, maybe in a city like Nairobi or Lagos, so to have the whole creative process of new products directly on site. In addition to this distribution might think, only in the most developed cities of Africa, the sale of higher-level products, such as Reserves, in order to differentiate products. As well as in the cities, another consumer important basin could be the many tourist villages present on the African coast, here you could sell higher quality products with very high income.

Diageo identified human capital as the single biggest challenge to the African business. In 2013 62% of its 140 – person leadership team was African, up from 48% in 2006. The company had started to build its African leadership pool in 2005, taking a number of initiatives with mixed results. Targeting African diaspora overseas with expatriate salaries had attracted a large number of recruits. But this strategy didn’t worked as Diageo expected. Many people found it hard to readjust to life in Africa. The expectations of local employees of returning expatriates were big.