Diageo opts for regional focus

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The drinks giant, Diageo, recently unveiled a new regional structure and Europe president, Andrew Morgan, was bullish about what the reorganisation offered the company in the highly competitive European market. Olly Wehring reports.

Earlier this year, Diageo announced plans to realign its geographical organisation and a new regional structure was recently unveiled by Diageo Europe president Andrew Morgan.

Previously, Diageo had organised its structure by markets - classifying them as Major Markets, Key Markets and Venture Markets - not regionally.  But Morgan believes the revised structure meets new demands which have become evident over time.

"The old structure showed over time that we needed to develop a more focused approach," he says. The new regional structure sees Diageo Europe making up 34% of the company's entire business, with the other two regions, North America (37%) and International (29%) providing the remainder.

More specifically, the European region has been broken down further into six areas. Great Britain is the largest, with annual sales of 13.2m cases, followed by Iberia (Spain, Portugal and the Canary Islands) with 8.3m cases. Northern Europe (France, Austria, Switzerland, Germany, the Nordics, Benelux and the Baltics) comes in third with 7.2m cases, while Ireland (thanks to the popularity of Guinness) sells the equivalent of 6.2m cases.

The final pair are Southern & Eastern Europe (Greece, Turkey, Italy, Portugal, Hungary, Czech, Slovakia, the former Yugoslavia countries, Cyprus, Malta, Israel, Romania, Bulgaria and Albania) with 5m cases of sales, and Russia with only 400,000 cases sold last year.

Morgan believes the new regional structure offers the best way for Diageo to meet the challenges facing the drinks industry as a whole in Western Europe such as declining consumer confidence, the increasingly complex regulatory environment and unfavourable demographic shifts.

In order to move forward in Europe, Morgan said the focus on brand and market opportunities will be stepped up, while growth opportunities such as Poland and Russia had already been identified.

"We have identified some new category investments in Europe, for example, dark rum," Morgan adds. With the introduction of dedicated teams in key cities to develop premium and deluxe brands, Morgan is hopeful that "when we develop models that work, we'll be able to roll them out much faster across Europe."

On the innovation front, Diageo has three lead centres looking at new ideas - Great Britain, Spain and, for beer, Ireland. Several new products have been launched in the first half of this year, including Penka in the UK, Smirnoff Norsk in Greece and Spain and Twisted V RTD in the Nordic countries.

Meanwhile, the unit will look to focus more on cost efficiency throughout Europe. Morgan hopes the elimination of duplicate efforts, a reconfiguration of supply which includes looking at Europe-wide procurement needs, and the re-allocation of market spend which includes boosting spend on proven growth drivers, will also help Diageo to make the most of the region.

The final two areas Diageo will look at are the continent's attitudes to alcohol, and the growing of its people. Morgan is quick to boast of Diageo's approach to promoting responsibility amongst consumers. "In the long-term, it's in our interests that consumers enjoy our products responsibly," he says. The group will look to leverage its marketing capability towards pushing the responsibility yet further, Morgan expands, while getting involved with the EU Commission strategy on alcohol-related issues remains a top priority. "We have to participate in changing consumers' attitudes to alcohol," Morgan warns.

Internally, the continued investment in people development has always been high on the agenda for Diageo. Staff at the drinks company appear to be very happy there, Morgan claims, citing Diageo's high ratings in employer of choice surveys in several European countries. The group will continue its annual internal employee survey across the whole organisation to check against its values.

With regard to acquisition plans, Morgan said that fill-in acquisitions would be more likely than major purchases. "It's probable that any acquisitions that occur will be largely opportunistic and will cover both geographic gaps as well as brand gaps," he says.

Morgan has no illusions about the extent of the challenges Diageo faces in the European arena but his upbeat view of the future clearly stemmed in no small part from confidence that the company has the right structure to move forward in a tough market. As he put it: "We have a very clear strategy to deal with the tough environment we find ourselves in." he said.

As is clear, however, he has his work cut out for him, with several hurdles to clear going forward. And while Europe may prove a battleground for most drinks companies, Diageo appears convinced that it has enough planned to emerge victorious.

The three markets - Major Markets, contributing 60% of 2003 operating profits; Key Markets, with 26%, and Venture Markets, delivering the remaining 14% - all included at least one European country each. Great Britain, Ireland and Spain made up three-quarters of the Major Markets (with North America), with, among others, France, Germany and Greece coming under Key Markets, and countries such as Italy, Hungary and Switzerland deemed Venture Markets.

Sectors: Spirits

Companies: Diageo

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