Diageo PLC is a British multinational public limited company dealing in Beverage alcohol manufacturing and distribution of alcoholic beverages, wine, and beers. In the Alcohol Beverage industry, the company was founded in 1997 and has its headquarters in Park Royal, London, United Kingdom. The company has expanded its network in more than 180 countries worldwide. As of 2020, the company generated a reasonable revenue of 11.752 billion pounds, and as of 2020, the company has an active employment figure of over 27,000 (Diageo, 2020). From an international perception of the Alcohol Beverage industry, the Porter five forces assessment would help maintain perspective strategies to develop an understanding of the organization’s position.
Competitive Rivalry in the Market
The competitive rivalry in the beverage industry is high due to the community’s increased demand, and the brands have built reputation and promotion among the community. As a result of this increase, several groups and firms have captured the market and have strategically positioned them to face rivals, resulting in fierce competition among established players. Diageo is trying to lead the market with its products in different regions. The major competitors of the group are Constellation, TAP, Remy, and Campari. As of December 2018, Diageo, in terms of revenue of alcoholic beverages producers in the US region, showed a share of 30 percent. In comparison, the other competitors showed 97, 68, 30, and 26 percent of their revenue share from the US market, respectively (Statista, 2019). Hence the existence of such big firms in the industry makes the environment more competitive for each other in terms of operations.
Threat of Substitutes
The threat of having substitutes is considered to be moderate in the beverages industry because, as there are no price or quality limitations over the use of products and more costly beverages will negatively affect the sale. There are alternatives available with the different brands in the segment. In addition, the differentiating factor can be the cause of substitute as well, and mainly the consumer can consider the switching cost in the beverages context. However, the customers become loyal and do not switch easily because of the brand name established by the firms operating over a long time (Alhaddad, 2014), Hence making the substitution effect in the industry among firms moderate.
The Threat of New Entrants
The threat of new entrants in the beverage sector is usually low because of the presence of big giants and the economies of scale such firms have established in the industry. However, to set up the business, huge capital is required, fixed costs, specialist equipment expenses, and plant construction costs. Furthermore, companies have gone into exclusive retail chain distribution arrangements, limiting new entrants’ access to the market. However, the space requirement could be a barrier to entry for new startups (Sadun, 2015). Such factors appear to be barriers to entry for the new firms to enter or sustain in the market. Hence, the threat is considered to be low in the beverage industry.
Bargaining Power of Buyers
The Bargaining power of consumers in the beverage industry’s perspective is moderate because there are big firms already operating in the market and make buyers’ abilities to negotiate limited due to the fewer alternatives. Furthermore, the product offers and prices of such alternatives comparable, resulting in a significant level of buyer power. The awareness of the customers has increased due to the internet channels regarding the product prices and offers, which influence the buying behavior of customers. However, the brand effect on the customer’s mind plays a vital role in this context, but still, consumers are not bound to any switching cost (Tse et al, 2016). Therefore, consumers have a considerable influence in the context of the beverage industry.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the beverage industry is considered to be low because of the presence of a large number of suppliers in the industry, which usually have a low impact on firms.. In addition, every firm has its trade secrets, and the switching cost among them is not high. Furthermore, the firms concentrate on different types of specialized suppliers who are the provider of raw materials like bottles, cans, and packing, which reduces the power among them (Akpoviroro et al, 2019) The beverage companies also built a specific portion of their own supply firms. Thus, supplier power of bargaining in context to the retail industry is kept low.
References
Tse, Y.K., Matthews, R.L., Tan, K.H., Sato, Y. and Pongpanich, C., 2016. Unlocking supply chain disruption risk within the Thai beverage industry. Industrial Management & Data Systems.
Alhaddad, A., 2014. The effect of brand image and brand loyalty on brand equity. International Journal of Business and Management Invention, 3(5), pp.28-32.
Diageo, 2020. Annual-report. [online] Diageo.com. Available at: https://www.diageo.com/PR1346/aws/media/11293/annual-report-2020.pdf.
Furthermore, the firms concentrate on different types of specialized suppliers who are the provider of raw materials like bottles, cans, and packing, which reduces the prices among them
Sadun, R., 2015. Does planning regulation protect independent retailers?. Review of Economics and Statistics, 97(5), pp.983-1001.
Statista, 2019. Alcoholic beverages: company share of group revenue USUS 2018 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/1038913/us-share-of-group-revenue-alcoholic-beverage-companies/