Alcohol Industry, External Environments

Topics: Alcoholic beverage, Alcohol, Drinking culture Pages: 8 (2675 words) Published: May 27, 2011
Diageo is a company that produces and distributes alcoholic beverages. Its products include all three branches of this industry – spirits, wine and beer. The brands that the company produces include well-known names like Smirnoff, Johny Walker scotch whiskey, Baileys, Captain Morgan rum, Tanqueray gin, Guiness beer, Don Perignon champagne, and many others. One can find the products produced by this company in nearly 180 countries all around the world. The company’s offices are located in 80 countries and employ 20,000 people. Manufacturing facilities are spread out all around the world, including Great Britain, Italy, Australia, Latin America, Canada, Ireland, United States, Caribbean and India (Diageo, 2011). Every company experiences the influences of seven key environments. One of them is internal environment that defines the corporate culture. The other six environments are external. They are: economic, technological, cultural, natural, governmental and legal environments. Every environment consists of forces that influence every business and their relationship with government and society (Steiner & Steiner).

Diageo is a UK based company, but the United States of America is responsible for 40% of its revenue. The company has numerous offices, breweries and distilleries based in the USA, and they exist within influential frames of external environments of the country (Diageo, 2011 ). Regulatory Environment

The United States of America has very strict laws and regulations that concern Alcoholic Beverage Industry. Alcoholic beverage consumption, as well as its distribution, is regulated by the government. Every state has different liquor consumption rules and regulations. However, the minimum drinking age of 21 years old is the same in every state. A place and time when alcoholic beverages may be consumed are regulated as well. The retail sales of liquor products are usually provided by the specialized stores. Some of the states, like Ohio, prefer to own the stores and have control over prices and sales. Some other states have privatized liquor stores (Kwon, 2010). According to the Alcohol and Tobacco Tax and Trade Bureau, any retail dealer has to operate with the compliance with the principal Federal liquor laws and regulations. For every manufacturing location Diageo had to obtain manufacturing liquor license from the State Liquor Authority. Alcohol and Tobacco Tax and Trade Bureau regulates labeling process of wine, malt beverages and distilled spirits. It also determines the health warning statement that manufacturers have to put on the label (Alcohol and Tobacco Tax and Trade Bureau, n.d.). Macroeconomic Environment

The macroeconomic environment has a great influence on the functioning of the company. There are certain trends that characterize the present economic environment. The recession made more people stay at home than go out; it led to the development of the off-premise consumption. During the recession consumers were trading down by purchasing less expensive brands (Kwon, 2010). For the manufacturing business of Diageo it meant the slower growth of revenues through the years. The range of products had to change as well, as the less expensive brands and products took the lead. After the decrease of investments into the industry in general and Diageo in particular during the recession, investors’ interest in the company is rising. At the present moment, the on-premise consumption is recovering after the recession. Increase in disposable personal income in 2011 is leading to the growth of company’s sales and consumption of more expensive premium brands. Consumers are starting to trade up (Kwon, 2010). The rise of the Producer Price Indexes put pressure on the profit margins of the company. Decreased interest rates mean an opportunity for active acquisitions and introduction of new products (Kwon, 2010). Cultural Environment

The present cultural environment dictates Diageo produce more...
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