Guinness & Co. (Diageo plc)

ABOUT THIS COMPANY:

High Spirits
As the world's largest producer of alcoholic beverages, Diageo's portfolio boasts a plethora of globally renowned brands and staples of bars and liquor cabinets. Perhaps highest esteemed among these is pub favorite Guinness, brewer of the richly dark stout synonymous with Irish tradition and St. Patrick's Day. The world over, the act of dispensing Guinness is considered a sacred ritual—the company’s own brewmaster, Fergal Murray, refers to it as “theater,” and regularly travels the globe to demonstrate how bartenders should “be reverent to the pint” when serving the iconic drink on tap. Current estimates say that approximately 10 million pints of Guinness are served up each day; that number jumps to at least 13 million on St. Paddy's, which works out to 150 pints poured every second over the 24 hour period. To meet this level of demand, the original St. James Gate brewery alone produces 810 million pints a year, with more Diageo-operated plants located around the globe.

Although Diageo owes its founding largely in part to Guinness, it certainly doesn't end with beer. The parent company is also home to a plethora of worldwide liquor leaders: Smirnoff (No. 1 premium vodka), Johnnie Walker and J&B (the No. 1 and No. 3 Scotch whiskeys, respectively), Jose Cuervo (No. 1 tequila) and Captain Morgan (No. 2 rum); meanwhile, fellow Ireland export Baileys Irish Cream holds the title of the world's top-selling liqueur, accounting for more than half of the volume of spirits exported from the Emerald Isle.  Also among Diageo's properties is its 34 percent ownership of Moët Hennessy, LMVH’s liquor division.  Altogether, Diageo beverages are served in more than 180 countries and sales of its products are split quite evenly among North America, Europe and the rest of the world.  With its place in the global market firmly secured, Diageo has nowhere to go but up: in 2010, the company enjoyed a 5 percent increase in net sales for a total of £9.78 billion, compared to the previous year's £9.31 billion.

An eye for real estate
Despite its impressive centuries-old history, Guinness isn't quite the longest-lived brand in the Diageo portfolio. That honor belongs to the 1749 birth of José Cuervo, nee José Maria Guadalupe Cuervo.  Just ten years later, in 1759, Arthur Guinness set up shop in a Dublin brewery.  Old Arthur famously acquired the facility in what would be considered the deal of a lifetime: the Guinness lease on the St. James's Gate Brewery was stipulated for 9,000 years, to be paid at £45 per annum. Today, the brewery is still in operation, with green renovations underway to lessen its environmental impact. Guinness fans can visit the famed Storehouse at St. James's Gate, where tours are conducted and complimentary pints are poured profusely.

Grand plans
In the last century, Guinness's 250-year history became a complex tale of corporate intrigue: the company became the top-selling brewer in the world by the 1920s, and yet only opened its first non-Irish or British brewery in 1963 (in Nigeria!).  Soon after, Guinness sought out a number of high-profile (and profitable) companies to bring into the fold.  It absorbed Arthur Bell & Sons in 1985, and in early 1986 acquired the Distillers Company (home to Johnnie Walker, Dewars and White Horse whiskies and Gordon's gin) for $3.8 billion.  In the case of the latter, Guinness outbid supermarket chain Argyll to snatch up the company; ultimately, Guinness proved victorious by bidding with company stock, which automatically raised the value of the proposal rose as the price of the stock rose.  However, the deal hit a snag: such moves are legal only if shareholders are notified, and in this case Guinness stockholders were left out of the loop.

When the truth came to light, a scandal erupted which led to investigations by Britain's Department of Trade and Industry. By its end, the parties implicated included a number of banks, brokerage firms and high-level officials—so many, in fact that the Chicago Tribune said that “the larger commercial law firms in London (were) reported to be unable to handle the demand for legal representation.”  Oliver Roux, Guinness’ finance director, was dumped when it was disclosed he bought 2.1 million shares with a company check during the takeover; two board directors and Ernest Saunders, the chairman and chief executive, were asked to resign.

Whatever bad taste the scandal may have left in investors mouths didn’t last, as pretax profit at Guinness doubled between 1987 and 1992, 75 percent of it from the group of distilled brands. Nor did the experience put the company off further acquisitions:  in 1991, it bought Cruzcampo, Spain’s largest brewer, and took a controlling interest in Jamaican Red Stripe maker Desnoes & Geddes just two years later.  In a £903 million agreement, Guinness took on a 34 percent interest in Moët Hennessy, the wines and spirits division of LVMH.  By 1994, it also owned American spirit maker and distributor Glenmore Distilleries, and top regional performers in Germany (brandy), Australia and Venezuela.  From 1984 through 1992, Guinness spent $8 billion on spirits companies and had fully established itself as a purveyor of premium alcohol—not just beer.

Meanwhile, Grand Metropolitan arrived on the scene as a collector of real estate and hotel properties at the turn of the twentieth century. After going public in 1961, the firm began to diversify its holdings in 1970, acquiring caterers, restaurants, and betting shops.  During that decade, GrandMet gained brewer Truman Hanburg, Watney Mann (which owned International Distillers and Vintners, producers of Bailey’s, Bombay Gin and J&B), and took over the U.S. cigarette maker Liggett Group, whose Paddington unit was the U.S. distributor of J&B Scotch.  In 1987 it bought Heublein, which produced Smirnoff, Lancers and Jose Cuervo.

Earth day?
Diageo was created from the combination of Grand Met and Guinness in a grand merger in December 1997.  Its name is an invented term derived from the Latin dies, “day” and the Greek root geo-, “earth.”  How such a neologism might occur in nature, or what it might possibly mean is probably only clear to the marketing department, but it certainly sounds spiffier than the old name.  According to the company, it means that “every day, everywhere, people celebrate with our brands.”  Which is probably not far from the truth, but expressing that in a single word requires a bit of a stretch.

Diageo’s operation was based on four segments: Pillsbury, Burger King, Guinness and United Distillers & Vintners (Guinness and UDV were subsequently combined into a single segment).  In 2001, Diageo and Pernod Ricard divided the alcohol holdings of Seagram’s when they were put up for sale.  Diageo decided that its future lay in spirits, so that same year, it sold Pillsbury—acquired in a hostile takeover in 1989—to General Mills, and spun Burger King off to a group of private equity firms. 

Old favorites
While Diageo didn’t come about until 1997, some of its brands date back centuries.  The earliest provenance belongs to tequila—José Maria Guadalupe Cuervo received the first license to produce tequila in Mexico in 1749.  Ten years later, in 1759, Arthur Guinness established his Dublin brewery; that same year, Johnnie Walker set up shop in Kilmarnock, Scotland, while Charles Tanqueray would create his gin recipe in 1794.  In the next century, Smirnoff was established as the sole supplier of vodka to the Russian Imperial Court in 1851.  Johnnie Walker Red Label and Black Label were launched in 1877, and even the brand’s signature logo, the label’s striding man, is 110 years old, having marched in 1896.  In one respect, the title of eldest these days belongs to Bushmills—though formally launched in 1794, the royal license to distill whiskey at Bushmills was granted in 1608.

Keep walking
Following the conflict in Lebanon in 2006, Diageo began running an unusually apt ad campaign there.  The ads depict Johnnie Walker’s intrepid yellow man striding forward, despite evidence of destruction and privation around him.  One billboard showed the nattily-attired Mr. Walker undeterred by a bombed-out bridge; another shows him walking next to an empty gauge (as if he’d run out of gas).  The company said that it was not allowed to promote politics in its advertising, but that the ads represented the Lebanese people’s desire to get on with their lives.  The ad campaign received attention in numerous blogs, putting the campaign in front of many more eyeballs than the company had initially counted on.

With a twist
In the spring of 2007, just in time for gin-and-tonic season, Diageo expanded its Tanqueray line to include Tanqueray Rangpur Gin, flavored with a tart citrus fruit that’s a hybrid of a mandarin orange and a lemon.  The libation was engineered for a cocktail-drinking demo that has grown tired of vodka-based drinks like the screwdriver, or—God forbid—the apple martini, but who were not amenable to consuming a gin with a flavor reminiscent of being beaten to death by a sizeable mob wielding juniper branches.  The launch of the gin was heralded with a campaign that centered around Tanqueray spokesman Tony Sinclair’s quest to find Rangpur limes.

So whisky doesn’t feel left out
In March 2007, the venerable J&B whisky brand got a leg up with an ad campaign featuring an enormous mirror ball in assorted party situations (dominating a city skyline, falling into a pool, etc.).  Diageo also extended the Johnnie Walker line with the introduction of an ultra-super-deluxe premium whiskey tagged Johnnie Walker Blue King George V, even pricier than the already astronomical “regular” Johnnie Walker Blue.  (“George V” references the idea that said king is reputed to have regularly consumed some quantities of Johnnie Walker at the end of his reign.)  Johnnie Walker Blue King George V was rolled out hard at the airport duty-free shops of the trendiest worldwide destinations; perhaps surprisingly, such shops represent the brand’s No. 2 market behind the United States.

Absolutely not Absolut
Late in 2007, Diageo was one of many firms competing in the auction for Sweden’s state-owned Vin & Sprit, maker of the leading vodka brand Absolut.  Rivals Bacardi and Pernod Ricard lodged highly competitive bids for the company, and Diageo dropped out of the race in February 2008.  Instead, the firm consulted with the Nolet family, the Dutch owners of Ketel One vodka, and for $900 million, agreed to form a joint venture responsible for administering the perpetual exclusive rights to sell, market and distribute Ketel One worldwide.  In the 50/50 arrangement, the Nolet Group retains possession of the Schiedam (Netherlands) distillery and is required to produce Ketel One and Ketel One Citroen for the joint venture.  The U.S. Federal Trade Commission was slow to approve the transaction, however, and held it up with a “second request for information” in March 2008.  Typically, such second requests are very time-consuming, but the FTC signed off in due course and the parties announced the closure of the deal in June 2008.