Diageo plc

views updated May 29 2018

Diageo plc

8 Henrietta Place
London W1M 9AG
United Kingdom
(0171) 927-5200
Fax: (0171) 927-4600
Web site: http://www.diageo.com
Public Company
Incorporated: 1997
Employees: 85,000
Sales:£\12.87 billion (1997)
Stock Exchanges: London
Ticker Symbol: DEO
SICs: 2024 Ice Cream & Frozen Desserts; 2033 Canned Fruits, Vegetables, Preserves, Jams & Jellies; 2037 Frozen Fruits, Fruit Juices & Vegetables; 2045 Prepared Flour Mixes & Doughs; 2051 Bread & Bakery Products, Except Cookies & Crackers; 2082 Malt Beverages; 2084 Wines, Brandy & Brandy Spirits; 2085 Distilled & Blended Liquors; 2099 Food Preparations, Not Elsewhere Classified; 5812 Eating Places

Diageo plc is a world leader in branded food and drinks. The company was formed from the December 1997 merger of liquor and beer giant Guinness PLC and alcohol and food power Grand Metropolitan plc. Diageo (pronounced dee-AH-zhay-oh) consists of four main businesses. United Distillers & Vintners (UDV) is the world’s leading spirits and wines company with such brands as Smirnoff vodka, Johnnie Walker and J&B whiskey, Gordon’s and Gilbey’s gin, and Baileys liqueurs—in all, a full quarter of the top 60 international liquor brands. Pillsbury is a global food giant boasting four megabrands: Pillsbury dough, baking, and baked products; Häagen-Dazs ice cream and frozen yogurt; Green Giant vegetables; and Old El Paso mexican food products. Guinness is one of the largest brewers in the world. Led by the flagship Guinness brand—the world’s number one stout beer—the brewer’s other brands include Harp lager, Kilkenny Irish Beer, and Kaliber alcohol free lager. Diageo’s fourth business is Burger King, the second largest hamburger chain in the world (after McDonald’s). Among the company’s smaller operations is Guinness Publishing, which puts out the renowned Guinness Book of Records. Diageo also holds a 34 percent stake in the Moét Hennessy champagne and cognac division of LVMH Moét Hennessy Louis Vuitton S.A., a French luxury-goods and drinks giant. In turn, LVMH owns 11 percent of Diageo.

Early History of Guinness PLC

Diageo’s history begins with the formation of the Guinness empire. In 1759 Arthur Guinness, an experienced brewer, leased an old brewery at James Gate in Dublin. Besides renting the brewery Guinness signed an unusual 9,000-year lease for a mill, storehouse, stable, house, and two malthouses. As it turned out, in just four years significant quantities of ale and table beer were emerging from the new workplace.

Soon after the brewery was in full operation, Arthur Guinness began to establish a reputation in both business and civic affairs. The company secured an active trade with pubs in towns surrounding Dublin and also became one of the largest employers in the city. As a vocal participant in public life, Guinness supported such diverse issues as penal reform, parliamentary reform, and the discouragement of dueling. Furthermore, although a Protestant, he strongly supported the claims of the Irish Catholic majority for equality.

The business nearly came to an abrupt end in 1775 when a dispute over water rights erupted into a heated exchange between Guinness and the mayor’s emissaries. The argument centered around the City Corporation’s decision to fill in the channel that provided the brewery with water. When the sheriff’s men appeared at James Gate, Guinness grabbed a pickaxe from a workman and with a good deal of “improper language” ordered them to leave. For fear of escalating violence, the parties to the dispute finally settled by means of a tenant agreement.

In 1761 Arthur Guinness married Olivia Whitmore; of the 21 children born to them only 10 survived. Since the eldest son became a clergyman, the thriving company was passed on to the second son, Arthur, after the founder’s death in 1803. Like his father, Arthur soon became active in both civic and political affairs. He served in the Farming Society of Ireland, the Dublin Society, the Meath Hospital, and the Dublin Chamber of Commerce. Most importantly, as an elected director in the Bank of Ireland, he played a significant role in settling currency issues. In politics, Arthur adhered to his father’s beliefs by advocating the claims of the religious majority.

From the very beginning of his career, it appears that Arthur’s main concern was not so much in managing the company as in pursuing his banking interests. Nonetheless, brewery records indicate that from the end of the Napoleonic Wars to the end of the Great Famine in 1850, the company’s production output increased by 50 percent. For this reason, Arthur is often credited with making the Guinness fortune.

A great deal of that success, of course, can be attributed to Arthur Guinness’s decision to shift most of the firm’s trade from Ireland to England. Yet the growth of Guinness was a result not only of management’s business acumen and the firm’s financial strength but also of the myths surrounding the beverage: from its earliest days Guinness stout—a dark and creamy brew—was considered a nutritional beverage and promoter of virility. Although the company was once accused of mashing Protestant Bibles and Methodist hymn books into the brew in order to force ingestion of anti-Papal doctrine, Britain’s leading medical journal during the mid- 19th century claimed the drink was “one of the best cordials not included in the pharmacopeia.” This notion formed the basis of the company’s advertisement campaign of 1929, which suggested that drinking Guinness could lead to the development of “strong muscles,” “enriched blood,” and the alleviation of “exhausted nerves.” Somewhat surprisingly, this tradition continued in Britain into the late 20th century, when the national health insurance system was underwriting the purchase of Guinness for nursing mothers.

When Arthur died in 1855, his son, Benjamin Lee, assumed control of the company. Fifty-seven at the time, he had already worked for nearly 30 years at the brewery. During his tenure as head of the firm, the James Gate facility became the preeminent porter brewery in the world. Following the tradition of his family, he was also intimately involved in civic affairs. He was awarded a baronetcy in 1867 for his contributions to the restoration of St. Patrick’s Cathedral and other services. He died a year later.

Although in his will Benjamin Lee Guinness divided the responsibility for running the firm equally between his two sons, Edward Cecil and Arthur Edward, Edward soon emerged as the more astute of the two. The younger of the brothers, he was said to be an energetic yet excitable man. His decisions were controversial and, apparently, overwhelming: after eight years Arthur decided to leave the brewing business, and the partnership between brothers was dissolved.

In the tradition of his family, Edward became a leading figure in both civic affairs and in English social life. After his marriage to his cousin Adelaide, he seems to have “arrived,” and the young couple circulated freely in elite circles. Among the many dignitaries entertained at their opulent 23,000-acre estate in Suffolk was King Edward VII.

Edward Guinness’s wealth, prestige, influence, and philanthropic work eventually earned him the title of Lord Iveagh. He drew heavily from the family fortune to contribute to worthy causes; he established the Iveagh Trust to provide basic necessities for 950 indigent families and donated money for the continuing restoration of St. Patricks’ Cathedral. He was, as well, recognized as an enlightened employer, ahead of his time in providing pension plans, health services, and housing for his employees.

Guinness Became Public Company in 1886

In 1886 Guinness became a public company (under the name Guinness PLC), its shares traded on the London exchange (Dublin, at that time lacked its own exchange). The company raised six million pounds on its shares, and embarked on an ambitious period of expansion in Ireland, England, and abroad. Guinness’s unique brewing process ensured that the quality of the product would not be impaired by long voyages to foreign markets. By the 1920s Guinness had reached the shores of East and West Africa and the Caribbean.

In 1927 leadership of the company passed to the next generation. The second Lord Iveagh is recognized primarily for his role in creating a modern brewery at Park Royal in London, built to service the company’s growing business in southeast England. The facility became operational in 1936, and it is there that Guinness Extra and Draught Guinness were first brewed for the British market. By 1974 production at this plant exceeded that at James Gate by 100 percent.

Company Perspectives

Every day, all around the world, millions of people enjoy our products. We have an outstanding portfolio of world-famous food and drinks brands which we market in more than 200 countries around the world. They include Smirnoff, Johnnie Walker, J&B, Gordon’s, Guinness, Pillsbury, Haägen-Dazs, and Burger King. We manage our brands through four world class businesses which share a common purpose —creating value for shareholders through consumer enjoyment.

Construction of the Park Royal facility was completed under the supervision of a civil engineer named Hugh E. C. Beaver. He formed a close association with managing director C. J. Newbold yet turned down Newbold’s invitation to join the Guinness board of directors. After World War II Lord Iveagh personally asked Beaver to join the company as assistant managing director—and this time Beaver accepted. When Newbold died in the late 1940s, Beaver assumed the position of managing director. He is credited with modernizing the company’s operations, introducing new management and research policies, increasing exports, and diversifying the company’s product base. On his initiative the company was officially divided into Guinness Ireland and Guinness U.K. (control of both concerns remained with a central board of directors).

Harp and Guinness Book of Records Introduced in the 1950s

Beaver was also a strong advocate of generating new ideas through brainstorming sessions. One now-famous product to emerge from these meetings was Harp lager. When Britons began taking their holidays abroad during the 1950s, they returned home with a new taste for chilled lager. Beaver sensed this changing preference, and during one intensive company meeting, executives decided that Guinness should become the first local firm to market its own lager. Named for the harp on Guinness’s traditional label, Harp lager soon became the most successful product in the growing British lager market.

Beaver is also recognized as the founder of the extraordinarily successful publication Guinness Book of Records. Initially created as something of a lark, the book was such a success throughout the world, that it became a company tradition. By the late 1980s the Guinness Book of Records was selling some five million copies in 13 different languages.

Guinness Diversified Widely in the 1960s and 1970s

Beaver, now Sir Hugh, retired in 1960, but throughout the next decade Guinness continued to expand—notably abroad, in countries with warm climates. Consistent with this strategy, the company constructed new breweries in Nigeria and Malaysia—then a second and third brewery in Nigeria as well as breweries in Cameroon, Ghana, and Jamaica. Guinness also developed a new product during this period, Irish Ale, which was exported to France and Britain. To offset the declining market for stout, the company began to diversify into pharmaceuticals, confectionery, and plastics, as well as other beverages.

Although both sales and earnings per share had doubled between 1965 and 1971, Guinness entered the 1970s confronting a number of problems. Compared to those of its competitors, the company’s shares sold at modest prices, largely because Guinness operated outside the tiedhouse system (the five largest brewers owned and operated most of the country’s 100,000 pubs), and investors felt the other breweries had the advantage for growth. The London financial community reasoned that Guinness was at a disadvantage because the company had to absorb the added costs of retailing.

There were also problems at the James Gate brewery. The Park Royal facility continued to outproduce the older Dublin site, and the company and its employees’ union reached an agreement whereby the James Gate workforce would be reduced by nearly one half. This solution temporarily solved the problem of decreasing profits at the James Gate facility and allowed operations to continue at the highly esteemed landmark facility. By 1976, however, the cost-cutting plan was seen to have achieved less than had been expected.

Diversification efforts during this period were also less than stellar; the company had gone on a purchasing spree in which 270 companies, producing a wide variety of products from baby bibs to car polish, had been acquired, and many of these companies were operating at a deficit.

Even in the base brewing business, Guinness had its share of troubles. The company’s witty advertisements appealed to the middle class but ignored the working class that provided the bulk of Guinness’s customers. A new product, designed to combine the tastes of stout and ale, was a £3 million mistake. The Guinness share price continued to decline.

Saunders Era Brought Scandal to Guinness, 1980-87

To remedy the company’s problems, Guinness executives called in the first non-family professional manager to take over leadership of the company. The sixth Lord Iveagh, as well as numerous Guinness relations, remained on the board, but Ernest Saunders, a former executive at J. Walter Thompson and Nestle, stepped in as chief executive in 1980.

Saunders saw his first task as reducing the company’s disparate holdings. He sold 160 companies, retaining only some retail businesses. He then reduced the workforce and brought in a new management team to develop and market the company’s products in addition to investing in increased and more eclectic advertising. He also made canny acquisitions in specialty foods, publishing, and retailing (including the 7-Eleven convenience stores). Brewing, according to Saunders, would in the future comprise only half of Guinness’s total volume. Financial analysts, and the City of London in general, were pleased with Saunders’s efforts. The Guinness share price began noticeably to climb.

By mid-1985 Saunders seemed to have conquered. During his tenure the company’s profits had tripled, and its share price increased fourfold. He had accomplished a dazzling takeover of Distillers Company, gaining such liquor brands as Gordon’s and Tanqueray gin and Johnnie Walker whiskey. That Guinness could—and would—pay £2.5 billion (US$4.6 billion) for a company twice its size surprised many industry analysts, yet Saunders’s wish to create a multinational company on the scale of Nestle seemed to justify the expense. There were rumors that Saunders might be honored with a knighthood.

Within a matter of months, however, there were other kinds of rumors in the City—rumors concerning Saunders’s methods in pursuing the Distillers acquisition. In order to make the takeover possible, Saunders with two of his fellow directors, allegedly had orchestrated an international scheme to provoke the sale of Guinness shares and thereby raise their value. Outside investors were indemnified in various ways against any losses incurred in purchasing huge numbers of Guinness shares. Bank Leu in Switzerland purchased Guinness shares with the understanding that the company would eventually buy them back. In return, Guinness deposited $75 million (in a non-interest-earning account) with the bank. The bank’s chairman happened to be Saunders’s ex-boss at Nestlé and a Guinness board member. Ivan F. Boesky, the American arbitrageur who later admitted to insider trading in numerous deals, was cited as the primary source of information about the Distillers takeover. It was believed that Boesky himself played a large role in the takeover; Guinness made a $100 million investment in a limited partnership run by Boesky only one month after Boesky had made significant purchases of Guinness shares. Further investigation revealed that Boesky was seemingly only one of many international investors who bought Guinness shares in an effort to increase their value. The company’s auditors discovered some $38 million worth of invoices for “services” rendered by various international investors during the takeover.

In December 1986 the British Trade and Industry Department instigated an investigation of Guinness. In January 1987 the Guinness board of directors asked for Saunders’s resignation, and subsequently, in March, brought legal action against Saunders and one of his fellow directors, John Ward. In May the British government brought charges of fraud against Saunders: the claim was that Saunders knowingly destroyed evidence during the Trade and Industry Department investigation. Throughout these events, Saunders continued to deny all charges brought against him. In 1990, however, he was convicted of fraud and sentenced to two years in jail. Nine months into his incarceration he was released on the basis of a medical report claiming that he might be in the early stages of Alzheimer’s disease. Subsequently, he twice tried and failed to have his conviction overturned on appeal. In December 1996 the European Court of Human Rights ruled that Saunders’s rights had been violated during his trial, but it did not clear his name.

Guinness Focused on Brewing and Distilling in the Late 1980s and 1990s

Meanwhile, the survival of Guinness as an independent company was in peril. The company’s share price tumbled as a result of the continuing scandal. To prevent any further decline, Anthony Tennant, Guinness’s new chief executive, refocused the company on two core areas—brewing and distilling—jettisoning the bulk of the businesses outside these areas (a notable exception to all of the company’s various purges of the later 20th century was the Guinness Book of Records). Tennant—along with Tony Greener, managing director of distilling operations—overhauled the unit, which was eventually renamed United Distillers, getting rid of numerous marginal brands and centralizing operations that had been organized into numerous separate companies. Distillers was also bolstered by the September 1987, US$555 million acquisition of Schenley Industries Inc., which held the U.S. rights to Dewar’s and Gordon’s gin. Guinness further tightened its grip on the all-important distribution side of the liquor business through joint ventures, most notably a 1987 agreement with LVMH Moét Hennessy Louis Vuitton S.A., a French drinks and luxury-goods manufacturer. By 1989 each company had gained a 24 percent stake in the other, although Guinness’s holding in LVMH was indirect.

In 1990 Guinness’s brewing unit was beefed up through the acquisition of La Cruz Del Campo, the largest brewer in Spain, for £518 million. Two years later, Greener succeeded the retiring Tennant as chief executive. The company’s alliance with LVMH was restructured in 1994 so that Guinness held a direct 34 percent stake in LVMH’s Moët Hennessy champagne and cognac division, while LVMH’s stake in Guinness was reduced to 20 percent (and by 1997 to about 14 percent). The following year Guinness sold 37 U.S. domestic liquor brands and two production facilities to Barton Inc., a division of Canandaigua Wine Company, for £111 million (US$171 million), as part of an effort to concentrate on premium high-priced brands. Back on the brewing side, the early to mid-1990s saw Guinness build its flagship brand by helping investors around the world open up Irish-style pubs. The company did not own any of these houses, but encouraging their establishment helped to create a growing market for the quintessentially Irish Guinness stout.

In July 1996 Guinness denied that it was planning a takeover of Grand Metropolitan or considering divesting its brewing unit. Less than a year later, however, the two companies announced the merger that in late 1997 would create Diageo plc. In 1996, Guinness posted revenue of £4.73 billion and record profits before tax and exceptionals of £975 million.

Grand Metropolitan Was Focused on Food and Drinks by the Mid-1990s

Much like Guinness, Grand Metropolitan (GrandMet) had diversified widely in the 1970s and 1980s, before settling on a portfolio of food and beverage brands by the late 1980s. The company’s roots extended to the early 1930s with founder Maxwell Joseph’s investments in real estate. GrandMet eventually developed into a powerful European hotel firm; however, the last of the company’s hotels were sold in the late 1980s. In the 1970s branded food businesses, restaurants and pubs, breweries, and distilling operations were acquired. The breweries were divested in 1991, while the restaurants and pubs were sold off piecemeal from 1989 to 1995. Other peripheral businesses acquired along the way included the U.S.-based Pearl Vision chain of optical shops, which were sold to Cole National Corp. in November 1996.

Under the leadership of Allen Sheppard, who became chief executive in 1987, and his eventual successor George J. Bull, GrandMet made three significant acquisitions of U.S.-based firms from 1987 through 1995. The brands and businesses gained thereby formed the very heart of the company that merged with Guinness. In 1987 GrandMet bolstered its liquor unit—International Distillers & Vintners—by acquiring Heublein Inc. from RJR Nabisco for £800 million (US$1.3 billion), gaining such brands as Smirnoff vodka, Arrow liqueurs, and Harvey’s Bristol Cream sherry in the process. Two years later, GrandMet completed a £3.2 billion (US$5.68 billion) hostile takeover of Pillsbury Company, which featured the Pillsbury baked goods brand, the Green Giant vegetables brand, the Häagen-Dazs ice cream brand, and the Burger King hamburger chain, which Pillsbury had acquired in 1967. GrandMet in 1995 paid £1.8 billion (US$2.6 billion) for Pet, Inc., which produced most notably the line of Old El Paso Mexican-food products, as well as Progresso soups.

By early 1997—when Bull was serving as chairman and John McGrath as chief executive—GrandMet had narrowed its packaged-food focus to four core international brands: Pills-bury, Green Giant, Haagen-Dazs, and Old El Paso. The company had by that time completed the sale of its various European-branded food businesses. For fiscal 1996, Grand Metropolitan posted revenues of £8.73 billion and profits before tax and exceptionals of £965 million.

Diageo Formed in December 1997

In May 1997 Guinness and Grand Metropolitan announced that they would merge to form a new company, tentatively called GMG Brands. Seven months later the £12 billion (US$19 billion) merger—the largest in U.K. history to that point—had been finalized, but not before a five-month battle with LVMH had ended peacefully. LVMH agreed to drop its opposition to the merger in return for receipt of £250 million upon the merger’s consummation; the merged entity would retain Guinness’s 34 percent stake in LVMH’s Moët Hennessy champagne and cognac division, while LVMH would hold about 11 percent of the new company. Guinness and GrandMet also had to agree to divest the Dewar’s Scotch whiskey and Bombay gin brands in order to gain approval from U.S. and European regulators. In late March 1998, the merged company, now named Diageo plc, announced an agreement to sell these brands to Bermuda-based Bacardi Ltd. for £1.15 billion (US$1.94 billion) in cash. The name “Diageo” had been derived from the Latin “dia” (day) and the Greek “geo” (world). The company explained that the name was supposed to convey that “every day, all around the world, millions of people enjoy our brands.”

Diageo was centered on brands. At its founding, the company had four main businesses: United Distillers & Vintners (UDV), Pillsbury, Guinness, and Burger King. UDV (which generated about 45 percent of overall revenue) was a combination of the numerous leading liquor brands of Guinness’s United Distillers unit and GrandMet’s International Distillers & Vintners unit; UDV became the world’s number one distiller upon its formation. Pillsbury (29 percent) retained GrandMet’s four packaged-food megabrands: Pillsbury, Green Giant, Haagen-Dazs, and Old El Paso. Guinness (18 percent) included such stellar brewing brands as Guinness, Harp, Kilkenny, Cruzcampo of Spain, Red Stripe, and Kaliber. Burger King (eight percent) trailed only McDonald’s among the world’s hamburger chains. Bull and Greener were named cochairmen of Diageo, while McGrath became Diageo’s first chief executive. Prospects for Diageo appeared bright, although almost immediately upon its creation the company faced the impact of the financial crisis in Asia, where about 12 percent of the company’s gross profits were generated.

Principal Operating Units

United Distillers & Vintners; Pillsbury; Guinness; Burger King.

Diageo plc

views updated Jun 08 2018

Diageo plc

8 Henrietta Place
London, W1G 0NB
United Kingdom
Telephone: (020) 7927-5200
Fax: (020) 7927-4600
Web site: http://www.diageo.com

Public Company
Incorporated: 1997
Employees: 20,000
Sales: £9.04 billion ($16.18 billion) (2005)
Stock Exchanges: London New York
Ticker Symbols: DGE (London); DEO (New York)
NAIC: 312120 Breweries; 312130 Wineries; 312140 Distilleries

Diageo's brands are the platform from which its strategy will be delivered. The company's leadership position in premium drinks is based on its ownership of a number of the world's most important brands. Diageo manages nine of the world's top 20 premium distilled spirits brands as defined by Impact, a publication which compiles volume statistics for the international drinks industry.

The consumer appeal of Diageo's brands across broad geographies has enabled the company to build individual market-leading positions in some of the world's most profitable markets for premium drinks. Diageo's global business is managed as three regions, North America, Europe and International, led by market presidents who each report to the chief executive.

Diageo plc is the world's largest producer and marketer of premium spirits. Formed in December 1997 from the merger of Guinness PLC and Grand Metropolitan plc, Diageo (pronounced dee-AH-zhay-oh) manages nine of the world's top 20 premium spirits brands: Smirnoff, Johnnie Walker Red Label, Bailey's, Captain Morgan, J&B, José Cuervo, Gordon's, Johnnie Walker Black Label, and Crown Royal. Diageo leads the spirits market in the United States, Great Britain, Ireland, Russia, Brazil, India, Korea, and Australia. The firm is also a major player in the global beer and wine sectors, the former headed by Guinness stout, Harp Irish lager, Smithwick's ale, and Red Stripe lager and the latter by the Beaulieu Vineyard, Sterling Vineyards, Chalone Vineyards, and Blossom Hill brands. Diageo markets its products in more than 180 countries around the world, with Europe accounting for 43 percent of revenues and North America for 29 percent, while the remaining 28 percent is generated in the globe's other regions. Diageo also holds a 34 percent stake in Moët Hennessy, SNC, the wine and spirits business of LVMH Moët Hennessy Louis Vuitton S.A., a French luxury-goods and drinks giant.

EARLY HISTORY OF GUINNESS

Diageo's history begins with the formation of the Guinness empire. In 1759 Arthur Guinness, an experienced brewer, leased an old brewery at St. James's Gate in Dublin. Besides renting the brewery Guinness signed an unusual 9,000-year lease for a mill, storehouse, stable, house, and two malthouses. As it turned out, in just four years significant quantities of ale and table beer were emerging from the new workplace.

The business nearly came to an abrupt end in 1775 when a dispute over water rights erupted into a heated exchange between Guinness and the mayor's emissaries. The argument centered around the City Corporation's decision to fill in the channel that provided the brewery with water. When the sheriff's men appeared at St. James's Gate, Guinness grabbed a pickaxe from a workman and with a good deal of "improper language" ordered them to leave. For fear of escalating violence, the parties to the dispute finally settled by means of a tenant agreement.

In 1761 Arthur Guinness married Olivia Whitmore; of the 21 children born to them only ten survived. Since the eldest son became a clergyman, the thriving company was passed on to the second son, Arthur, after the founder's death in 1803. Like his father, Arthur soon became active in both civic and political affairs. He served in the Farming Society of Ireland, the Dublin Society, the Meath Hospital, and the Dublin Chamber of Commerce. Most importantly, as an elected director in the Bank of Ireland, he played a significant role in settling currency issues. In politics, Arthur adhered to his father's beliefs by advocating the claims of the religious majority.

From the very beginning of his career, it appears that Arthur's main concern was not so much in managing the company as in pursuing his banking interests. Nonetheless, brewery records indicate that from the end of the Napoleonic Wars to the end of the Great Famine in 1850, the company's production output increased by 50 percent. For this reason, Arthur is often credited with making the Guinness fortune.

A great deal of that success, of course, can be attributed to Arthur Guinness's decision to shift most of the firm's trade from Ireland to England. Yet the growth of Guinness was a result not only of management's business acumen and the firm's financial strength but also of the myths surrounding the beverage: from its earliest days Guinness stout, a dark and creamy brew, was considered a nutritional beverage and promoter of virility. Although the company was once accused of mashing Protestant Bibles and Methodist hymn books into the brew in order to force ingestion of anti-Papal doctrine, Britain's leading medical journal during the mid-19th century claimed the drink was "one of the best cordials not included in the pharmacopeia." This notion formed the basis of the company's advertisement campaign of 1929, which suggested that drinking Guinness could lead to the development of "strong muscles," "enriched blood," and the alleviation of "exhausted nerves." Somewhat surprisingly, this tradition continued in Britain into the late 20th century, when the national health insurance system was underwriting the purchase of Guinness for nursing mothers.

When Arthur died in 1855, his son, Benjamin Lee, assumed control of the company. Fifty-seven at the time, he had already worked for nearly 30 years at the brewery. During his tenure as head of the firm, the St. James's Gate facility became the preeminent porter brewery in the world. Following the tradition of his family, he was also intimately involved in civic affairs. He was awarded a baronetcy in 1867 for his contributions to the restoration of St. Patrick's Cathedral and other services. He died a year later.

In the tradition of his family, Edward became a leading figure in both civic affairs and in English social life. After his marriage to his cousin Adelaide, he seems to have "arrived," and the young couple circulated freely in elite circles. Among the many dignitaries entertained at their opulent 23,000-acre estate in Suffolk was King Edward VII.

COMPANY PERSPECTIVES

Diageo's strategy is to generate consistent top line growth while enhancing its operating margins and return on invested capital.

Edward Guinness's wealth, prestige, influence, and philanthropic work eventually earned him the title of Lord Iveagh. He drew heavily from the family fortune to contribute to worthy causes; he established the Iveagh Trust to provide basic necessities for 950 indigent families and donated money for the continuing restoration of St. Patrick's Cathedral. He was, as well, recognized as an enlightened employer, ahead of his time in providing pension plans, health services, and housing for his employees.

GUINNESS BECOMES PUBLIC COMPANY IN 1886

In 1886 Guinness became a public company (and incorporated itself as Arthur Guinness Son and Co. Ltd.), its shares traded on the London exchange (Dublin, at that time, lacked its own exchange). The company raised £6 million on its shares, and embarked on an ambitious period of expansion in Ireland, England, and abroad. Guinness's unique brewing process ensured that the quality of the product would not be impaired by long voyages to foreign markets. By the 1920s Guinness had reached the shores of East and West Africa and the Caribbean.

In 1927 leadership of the company passed to the next generation. The second Lord Iveagh was recognized primarily for his role in creating a modern brewery at Park Royal in London, built to service the company's growing business in southeast England. The facility became operational in 1936, and it is there that Guinness Extra and Draught Guinness were first brewed for the British market. By 1974 production at this plant exceeded that at St. James's Gate by 100 percent.

Construction of the Park Royal facility was completed under the supervision of a civil engineer named Hugh E. C. Beaver. He formed a close association with Managing Director C. J. Newbold, yet turned down Newbold's invitation to join the Guinness board of directors. After World War II Lord Iveagh personally asked Beaver to join the company as assistant managing director, and this time Beaver accepted. When Newbold died in the late 1940s, Beaver assumed the position of managing director. He is credited with modernizing the company's operations, introducing new management and research policies, increasing exports, and diversifying the company's product base. On his initiative the company was officially divided into Guinness Ireland and Guinness U.K. (control of both concerns remained with a central board of directors).

KEY DATES

1759:: Arthur Guinness leases an old brewery at St. James's Gate in Dublin, where he soon begins producing Guinness stout.
1886:: Guinness becomes a public company and incorporates itself as Arthur Guinness Son and Co. Ltd.
1931:: Grand Metropolitan plc (GrandMet) is founded by Maxwell Joseph.
1980:: Ernest Saunders becomes the first non-family member to head Guinness.
1982:: Guinness is converted to a public limited company under the name Arthur Guinness & Sons PLC.
1986:: The newly named Guinness PLC acquires Distillers Company, gaining such liquor brands as Gordon's and Tanqueray gin and Johnnie Walker whiskey.
1987:: Saunders is forced out at Guinness for his alleged part in a financial scandal; new head Anthony Tennant restructures the distilling operations as United Distillers; GrandMet's liquor unit, International Distillers & Vintners, is bolstered through the acquisition of Heublein Inc., maker of Smirnoff vodka.
1988:: Guinness enters into an alliance with LVMH Moët Hennessy Louis Vuitton S.A.
1989:: GrandMet acquires Pillsbury Company, owner of the Pillsbury and Green Giant food brands and the Burger King hamburger chain.
1997:: Guinness and GrandMet merge to form Diageo plc; the two firms' liquor units are merged to form United Distillers & Vintners.
2001:: Pillsbury is sold to General Mills, Inc.; Diageo and Pernod Ricard SA jointly acquire the Seagram spirits and wine group, with Diageo gaining several major spirits brands (including Captain Morgan and Crown Royal) and Seagram's wine business.
2002:: Diageo divests Burger King.
2004:: Company is reorganized into three divisions: Diageo Europe, Diageo North America, and Diageo International.

HARP AND GUINNESS BOOK OF RECORDS INTRODUCED

Beaver was also a strong advocate of generating new ideas through brainstorming sessions. One product to emerge from these meetings was Harp lager. When Britons began taking their holidays abroad during the 1950s, they returned home with a new taste for chilled lager. Beaver sensed this changing preference, and during one intensive company meeting, executives decided that Guinness should become the first local firm to market its own lager. Named for the harp on Guinness's traditional label, Harp lager soon became the most successful product in the growing British lager market.

Beaver is also recognized as the founder of the extraordinarily successful publication Guinness Book of Records, which appeared for the first time in 1955. Initially created as something of a lark, an aid to settling trivia disputes in pubs, the book was such a success throughout the world that it became a company tradition. By the late 1980s the renamed Guinness Book of World Records was selling some five million copies in 13 different languages.

GUINNESS DIVERSIFIES WIDELY: 1960–79

Beaver, now Sir Hugh, retired in 1960, but throughout the next decade Guinness continued to expand, notably abroad, in countries with warm climates. Consistent with this strategy, the company constructed new breweries in Nigeria and Malaysia, then a second and third brewery in Nigeria as well as breweries in Cameroon, Ghana, and Jamaica. Guinness also developed a new product during this period, Irish Ale, which was exported to France and Britain. To offset the declining market for stout, the company began to diversify into pharmaceuticals, confectionery, and plastics, as well as other beverages.

Although both sales and earnings per share had doubled between 1965 and 1971, Guinness entered the 1970s confronting a number of problems. Compared to those of its competitors, the company's shares sold at modest prices, largely because Guinness operated outside the tiedhouse system (the five largest brewers owned and operated most of the country's 100,000 pubs), and investors felt the other breweries had the advantage for growth. The London financial community reasoned that Guinness was at a disadvantage because the company had to absorb the added costs of retailing.

There were also problems at the St. James's Gate brewery. The Park Royal facility continued to outproduce the older Dublin site, and the company and its employees' union reached an agreement whereby the James's Gate workforce would be reduced by nearly one-half. This solution temporarily solved the problem of decreasing profits at the James's Gate facility and allowed operations to continue at the highly esteemed landmark facility. By 1976, however, the cost-cutting plan was seen to have achieved less than had been expected.

Even in the base brewing business, Guinness had its share of troubles. The company's witty advertisements appealed to the middle class but ignored the working class that provided the bulk of Guinness's customers. A new product, designed to combine the tastes of stout and ale, was a £3 million mistake. The Guinness share price continued to decline.

SAUNDERS ERA BRINGS SCANDAL TO GUINNESS: 1980–87

To remedy the company's problems, Guinness executives called in the first non-family professional manager to take over leadership of the company. The sixth Lord Iveagh, as well as numerous Guinness relations, remained on the board, but Ernest Saunders, a former executive at J. Walter Thompson and Nestlé, stepped in as chief executive in 1980.

Saunders saw his first task as reducing the company's disparate holdings. He sold 160 companies, retaining only some retail businesses. He then reduced the workforce and brought in a new management team to develop and market the company's products in addition to investing in increased and more eclectic advertising. He also made canny acquisitions in specialty foods, publishing, and retailing (including the 7-Eleven convenience stores). Brewing, according to Saunders, would in the future comprise only half of Guinness's total volume. Financial analysts, and the City of London in general, were pleased with Saunders's efforts. The Guinness share price began noticeably to climb. In the meantime, the company was converted to a public limited company in 1982 under the name Arthur Guinness & Sons PLC.

By mid-1985 Saunders seemed to have conquered. During his tenure the company's profits had tripled, and its share price increased fourfold. In 1986, when the firm's name was shortened to simply Guinness PLC, Saunders accomplished a dazzling takeover of Distillers Company, gaining such liquor brands as Gordon's and Tanqueray gin and Johnnie Walker whiskey. That Guinness could, and would, pay £2.5 billion ($4.6 billion) for a company twice its size surprised many industry analysts, yet Saunders's wish to create a multinational company on the scale of Nestlé seemed to justify the expense. There were rumors that Saunders might be honored with a knighthood.

Within a matter of months, however, there were other kinds of rumors in the City, rumors concerning Saunders's methods in pursuing the Distillers acquisition. In order to make the takeover possible, Saunders with two of his fellow directors, allegedly had orchestrated an international scheme to provoke the sale of Guinness shares and thereby raise their value. Outside investors were indemnified in various ways against any losses incurred in purchasing huge numbers of Guinness shares. Bank Leu in Switzerland purchased Guinness shares with the understanding that the company would eventually buy them back. In return, Guinness deposited $75 million (in a non-interest-earning account) with the bank. The bank's chairman happened to be Saunders's ex-boss at Nestlé and a Guinness board member. Ivan F. Boesky, the American arbitrageur who later admitted to insider trading in numerous deals, was cited as the primary source of information about the Distillers takeover. It was believed that Boesky himself played a large role in the takeover; Guinness made a $100 million investment in a limited partnership run by Boesky only one month after Boesky had made significant purchases of Guinness shares. Further investigation revealed that Boesky was seemingly only one of many international investors who bought Guinness shares in an effort to increase their value. The company's auditors discovered some $38 million worth of invoices for "services" rendered by various international investors during the takeover.

In December 1986 the British Trade and Industry Department instigated an investigation of Guinness. In January 1987 the Guinness board of directors asked for Saunders's resignation, and subsequently, in March, brought legal action against Saunders and one of his fellow directors, John Ward. In May the British government brought charges of fraud against Saunders: the claim was that Saunders knowingly destroyed evidence during the Trade and Industry Department investigation. Throughout these events, Saunders continued to deny all charges brought against him. In 1990, however, he was convicted of fraud and sentenced to two years in jail. Nine months into his incarceration he was released on the basis of a medical report claiming that he might be in the early stages of Alzheimer's disease. Subsequently, he twice tried and failed to have his conviction overturned on appeal. In December 1996 the European Court of Human Rights ruled that Saunders's rights had been violated during his trial, but it did not clear his name.

GUINNESS FOCUSES ON BREWING AND DISTILLING

Meanwhile, the survival of Guinness as an independent company was in peril. The company's share price tumbled as a result of the continuing scandal. To prevent any further decline, Anthony Tennant, Guinness's new chief executive, refocused the company on two core areas, brewing and distilling, jettisoning the bulk of the businesses outside these areas (a notable exception to all of the company's various purges of the later 20th century was the Guinness Book of Records ). Tennant, along with Tony Greener, managing director of distilling operations, overhauled the unit, which was eventually renamed United Distillers, getting rid of numerous marginal brands and centralizing operations that had been organized into numerous separate companies. Distillers was also bolstered by the September 1987, $555 million acquisition of Schenley Industries Inc., which held the U.S. rights to Dewar's and Gordon's gin. Guinness further tightened its grip on the all-important distribution side of the liquor business through joint ventures, most notably a 1988 agreement with LVMH Moët Hennessy Louis Vuitton S.A., a French drinks and luxury-goods manufacturer. By 1989 each company had gained a 24 percent stake in the other, although Guinness's holding in LVMH was indirect.

In 1990 Guinness's brewing unit was beefed up through the acquisition of La Cruz Del Campo, the largest brewer in Spain, for £518 million. Two years later, Greener succeeded the retiring Tennant as chief executive. The company's alliance with LVMH was restructured in 1994 so that Guinness held a direct 34 percent stake in LVMH's Moët Hennessy champagne and cognac division, while LVMH's stake in Guinness was reduced to 20 percent (and by 1997 to about 14 percent). The following year Guinness sold 37 U.S. domestic liquor brands and two production facilities to Barton Inc., a division of Canandaigua Wine Company, for £111 million ($171 million), as part of an effort to concentrate on premium high-priced brands. Back on the brewing side, the early to mid-1990s saw Guinness build its flagship brand by helping investors around the world open up Irish-style pubs. The company did not own any of these houses, but encouraging their establishment helped to create a growing market for the quintessentially Irish Guinness stout.

GRAND METROPOLITAN FOCUSES ON FOOD AND DRINKS

Much like Guinness, Grand Metropolitan (GrandMet) had diversified widely in the 1970s and 1980s, before settling on a portfolio of food and beverage brands by the late 1980s. The company's roots extended to the early 1930s with founder Maxwell Joseph's investments in real estate. GrandMet eventually developed into a powerful European hotel firm; however, the last of the company's hotels were sold in the late 1980s. In the 1970s branded food businesses, restaurants and pubs, breweries, and distilling operations were acquired. The breweries were divested in 1991, while the restaurants and pubs were sold off piecemeal from 1989 to 1995. Other peripheral businesses acquired along the way included the U.S.-based Pearle Vision chain of optical shops, which were sold to Cole National Corp. in November 1996.

Under the leadership of Allen Sheppard, who became chief executive in 1987, and his eventual successor George J. Bull, GrandMet made three significant acquisitions of U.S.-based firms from 1987 through 1995. The brands and businesses gained thereby formed the very heart of the company that merged with Guinness. In 1987 GrandMet bolstered its liquor unit, International Distillers & Vintners, by acquiring Heublein Inc. from RJR Nabisco for £800 million ($1.3 billion), gaining such brands as Smirnoff vodka, Arrow liqueurs, and Harvey's Bristol Cream sherry in the process. Two years later, GrandMet completed a £3.2 billion ($5.68 billion) hostile takeover of Pillsbury Company, which featured the Pillsbury baked goods brand, the Green Giant vegetables brand, the Häagen-Dazs ice cream brand, and the Burger King hamburger chain, which Pillsbury had acquired in 1967. GrandMet in 1995 paid £1.8 billion ($2.6 billion) for Pet, Inc., which produced most notably the line of Old El Paso Mexican-food products, as well as Progresso soups.

By early 1997, when Bull was serving as chairman and John McGrath as chief executive, GrandMet had narrowed its packaged-food focus to four core international brands: Pillsbury, Green Giant, Häagen-Dazs, and Old El Paso. The company had by that time completed the sale of its various European-branded food businesses. For 1996, Grand Metropolitan posted revenues of £8.73 billion and profits before tax and exceptionals of £965 million.

DIAGEO FORMED IN DECEMBER 1997

In May 1997 Guinness and Grand Metropolitan announced that they would merge to form a new company, tentatively called GMG Brands. Seven months later the £12 billion ($19 billion) merger, the largest in U.K. history to that point, had been finalized, but not before a five-month battle with LVMH had ended peacefully. LVMH agreed to drop its opposition to the merger in return for receipt of £250 million upon the merger's consummation; the merged entity would retain Guinness's 34 percent stake in LVMH's Moët Hennessy champagne and cognac division, while LVMH would hold about 11 percent of the new company. Guinness and GrandMet also had to agree to divest the Dewar's Scotch whiskey and Bombay gin brands in order to gain approval from U.S. and European regulators. In late March 1998, the merged company, now named Diageo plc, announced an agreement to sell these brands to Bermuda-based Bacardi Ltd. for £1.15 billion ($1.94 billion) in cash. The name "Diageo" had been derived from the Latin "dia" (day) and the Greek "geo" (world). The company explained that the name was supposed to convey that "every day, all around the world, millions of people enjoy our brands."

Diageo was centered on brands. At its founding, the company had four main businesses: United Distillers & Vintners (UDV), Pillsbury, Guinness, and Burger King. UDV (which generated about 45 percent of overall revenue) was a combination of the numerous leading liquor brands of Guinness's United Distillers unit and GrandMet's International Distillers & Vintners unit; UDV became the world's number one distiller upon its formation. Pillsbury (29 percent) retained GrandMet's four packaged-food megabrands: Pillsbury, Green Giant, Hägen-Dazs, and Old El Paso. Guinness (18 percent) included such stellar brewing brands as Guinness, Harp, Kilkenny, Cruzcampo of Spain, Red Stripe, and Kaliber. Burger King (8 percent) trailed only McDonald's among the world's hamburger chains. Bull and Greener were named cochairmen of Diageo, while McGrath became Diageo's first chief executive.

As the integration of the liquor operations progressed in the late 1990s, Diageo saw its results hampered by the successive financial crises that hit Asia, Russia, and Latin America. In order to focus more on its top-selling international brands, Diageo sold a number of regional and national brands in 1998 and 1999, including eight Canadian whiskey brands (Black Velvet among them), Christian Brothers brandy, and Cinzano vermouth. Diageo also sold Cruzcampo, the Spanish brewing business, to Heineken N.V. in January 2000. On the new product front, Diageo introduced Guinness Draught in a Bottle in 1999, and that same year Smirnoff Ice was launched first in Britain and then in Ireland, the Canary Islands, Australia, and South Africa. The latter was a ready-to-drink vodka-and-lemon beverage that became a huge hit as part of the burgeoning "malternative" category, that is, alternatives to beer. Smirnoff Ice also proved popular in the U.S. market following its introduction there in January 2002 despite the fact that it contained no vodka in order to conform to state sales restrictions.

REFOCUSING ON PREMIUM DRINKS

By 2000 Diageo had endured three years of criticism from analysts unimpressed by the outcome of the Grand Met-Guinness merger. The company's sales were sluggish and its share price was sinking. A new management team took over that year, led by Lord Blyth, chairman of the Boots Company PLC, who was named nonexecutive chairman, and Paul Walsh, the new chief executive, who had previously headed Pillsbury. Walsh immediately began shaking up the firm. UDV and Guinness were combined into a single beverage division, Guinness UDV. More dramatically, Walsh narrowed the company to a single focus: premium drinks. In mid-2000 Diageo announced plans to divest both Pillsbury and Burger King. Pillsbury was ultimately sold to General Mills, Inc. in October 2001 for about $6 billion in stock and the assumption of $5.1 billion in debt. Diageo emerged with a 33 percent stake in General Mills, but by late 2005 Diageo had completely divested this holding. In December 2002, meantime, Diageo completed its exit from the food industry with the sale of Burger King to a consortium led by Texas Pacific Group Inc. in a £940 million ($1.5 billion) deal. Also divested during this period was the Guinness World Records business, which was sold in July 2001 to Gullane Entertainment for £45.5 million ($64.5 million).

As this refocusing on liquor, beer, and wine played out, Walsh simultaneously bolstered Diageo's core by joining with Pernod Ricard SA in an acquisition of the Seagram spirits and wine group from Vivendi Universal S.A. The purchase price totaled £5.62 billion ($8.15 billion), with Diageo contributing £3.7 billion ($5.4 billion). Diageo gained ten major spirits brands, including Captain Morgan rum, Crown Royal Canadian whiskey, Seagram's 7 Crown American whiskey, and Seagram's VO Canadian whiskey, as well as Seagram's wine business. The acquisition boosted the company's share of the U.S. liquor market from 16 percent to 25 percent and gave it a leading 29 percent share of the global market, with a portfolio featuring ten of the world's 20 top-selling spirits. In order to gain clearance from the U.S. Federal Trade Commission for the deal, which closed in December 2001, Diageo agreed to sell its Malibu rum brand. Malibu was sold to Allied Domecq PLC in May 2002 for approximately $796 million.

In the wake of the Seagram deal, Diageo launched an ambitious overhaul of its U.S. distribution system through which it aimed to have dedicated sales teams in each state. In September 2004 the company reorganized itself into three divisions (Diageo Europe, Diageo North America, and Diageo International), scrapping the Guinness UDV name. Several smaller-scale acquisitions followed. In February 2005 the Chalone Wine Group was acquired for £153 million ($285 million), giving Diageo a group of high-end wineries based in California with properties there, in Washington State, and in France. Chalone was subsequently merged into Diageo's North American wine business, Diageo Chateau & Estate Wines. Diageo also acquired the Old Bushmills Distillery Company Limited, the oldest licensed distillery in the world, dating back to 1608, and owner of Bushmills Irish whiskey, one of the world's leading Irish whiskey brands. This £200 million deal with Pernod Ricard closed in August 2005. Diageo shuttered its Park Royal brewery in London in June 2005, transferring its production of Guinness for the U.K. market to its St. James's Gate brewery in Dublin.

Updated, David E. Salamie

PRINCIPAL SUBSIDIARIES

Diageo Ireland; Diageo Great Britain Limited; Diageo Scotland Limited; Diageo Brands BV (Netherlands); Diageo North America, Inc. (U.S.A.); Diageo Capital plc; Diageo Finance plc; Diageo Capital BV (Netherlands); Diageo Finance BV (Netherlands); Diageo Investment Corporation (U.S.A.).

PRINCIPAL DIVISIONS

Diageo Europe; Diageo International; Diageo North America.

PRINCIPAL COMPETITORS

Pernod Ricard SA; Bacardi & Company Limited; Brown-Forman Corporation; Fortune Brands, Inc.; Heineken N.V.; SABMiller plc; Molson Coors Brewing Company; Carlsberg A/S.

Diageo plc

views updated May 11 2018

Diageo plc

KEEP WALKING CAMPAIGN
NOT EVERYTHING IN BLACK AND WHITE MAKES SENSE CAMPAIGN

8 Henrietta Place
London, WIG OMD
United Kingdom
Telephone: 44 20 79275200
Fax: 44 20 79274600
Web site: www.diageo.co.uk

KEEP WALKING CAMPAIGN

OVERVIEW

Diageo plc's Johnnie Walker was one of the world's top scotch brands in the late 1990s and early 2000s, but blended scotch as a category was in long-term decline. Among distilled spirits, meanwhile, vodka was booming, largely as a result of effective youth-oriented marketing. Trying to shed a perception that scotch drinkers were stodgy, suit-wearing business types, Johnnie Walker in 1999 unveiled a global branding campaign called "Keep Walking" that continued to associate scotch drinking with success while widening the definition of success to appeal to young drinkers. The U.S. version of this campaign, which began in 2001, celebrated the maverick entrepreneurial ideas of the 1990s, but its message fell prey to changing perceptions of exactly such entrepreneurs following the dot-com crash and successive corporate scandals. In 2003 Johnnie Walker's U.S. agency, Bartle Bogle Hegarty (BBH) of New York, set out to update "Keep Walking" to accommodate yet another definition of success.

The new installment of "Keep Walking," which had a budget of approximately $15 million, focused on life as a journey and offered Johnnie Walker as a product that helped people navigate the uncertainties of that journey. The Striding Man logo, an image of an aristocratically dressed man in midstride, had been used in the campaign's prior incarnations to represent the idea of personal progress; now the logo was used to suggest the determination required to weather the many obstacles and strange turns one encountered in life. The campaign's print ads paired the Striding Man and the "Keep Walking" tagline with stories of individual career paths that had taken unpredictable turns, while outdoor executions featured the Striding Man as their central character, who was shown having emerged from difficulties represented by simple visual symbols, such as walls, rainclouds, and stock-market graphs.

BBH exceeded its goals of drawing attention to the Johnnie Walker brand and to the Striding Man as a brand icon. The update of "Keep Walking" won a Silver EFFIE Award in 2005. The concept behind the outdoor component of the campaign was extended in a subsequent series of print and outdoor ads launched in late 2004.

HISTORICAL CONTEXT

Blended scotch whiskey fell drastically out of favor among American consumers during the 1980s and 1990s, losing more than 20 percent of its sales volume as young people in particular turned to clear liquors. While vodka brands such as Absolut and, later, Grey Goose built up-to-date, premium product images that appealed to people in their twenties and thirties—high-volume consumers essential to the long-term health of any alcohol brand—scotch advertising on the whole did not keep pace with the times. Predictable appeals, such as using stereotypical Scottish imagery or connecting traditional ideas of business success with scotch drinking, were ineffective in communicating with young people.

Diageo's Johnnie Walker attempted to remedy this image problem by turning, in 1999, to a global branding platform called "Keep Walking," crafted by Bartle Bogle Hegarty of London. Featuring the Striding Man logo—an image of a walking man decked out in a top hat, boots, and cane, which made its first appearance on the Johnnie Walker bottle in 1909–"Keep Walking" was meant to suggest the idea of personal progress; the perpetually walking figure signified the determination necessary to realize one's dreams and goals. In print ads as well as TV spots such figures as Abraham Lincoln and the actor Harvey Keitel, as well as artists and philosophers, were employed to stress the long-established connection between success and scotch-drinking, but the campaign effectively broadened the definition of success to encapsulate worlds beyond the country clubs and private libraries of macho businessmen.

A U.S.-specific campaign running under the "Keep Walking" umbrella was launched in early 2001, at the height of enthusiasm regarding the so-called "new economy." Print ads assuring consumers that "A simple idea can change the world" depicted napkins on which the big entrepreneurial ideas of the 1990s—like selling coffee for $4.95 or opening an online bookstore—were shown in embryonic form, sketched on cocktail napkins, match-books, and other scraps of paper. A corresponding online promotion offered entrepreneurs a shot at $500,000 in grant money to realize their own business dreams. In the wake of the dot-com crash, the terrorist attacks of September 11, 2001, and a wave of corporate scandals, however, the limitations of this inspirational, shoot-for-the-moon message became clear. Diageo enlisted its U.S. agency, the New York office of Bartle Bogle Hegarty, to further recast the "Keep Walking" idea in 2003.

TARGET MARKET

Urban men aged 25 to 34 were Johnnie Walker's primary target, but the 2003 update of the "Keep Walking" concept marked a key shift in the brand's approach to this group. Previous installments of the campaign had been aimed at stimulating demand among the target group regardless of whether they already drank Johnnie Walker or, for that matter, scotch in general. The new version of "Keep Walking," by contrast, was aimed at scotch drinkers who were already familiar with the brand. BBH New York sought to take advantage of the fact that most people chose their alcohol brands based on social factors; the agency felt that if those who occasionally drank Johnnie Walker could be encouraged to drink it regularly, then they would serve, ultimately, as brand representatives among their friends and acquaintances. By strategically narrowing the target market in this way, moreover, BBH was able to make better use of a limited advertising budget.

BBH believed that in a scandal-ridden, recession-era business world, it did not make sense to emphasize material riches exclusively. The agency found poll numbers suggesting that a large majority of young men would, if given the choice, prefer two extra weeks of vacation to a 10 percent raise in pay. The new installment of "Keep Walking," then, emphasized life as a journey and offered models of success that were much more down-to-earth than those presented in the prerecession campaign of 2001. Gone were references to simple, world-altering ideas; in their place there appeared profiles of accomplished men, complete with references to the setbacks, humiliations, and unpredictable turns that characterized their paths to success. The Striding Man logo was transformed into a symbol of endurance rather than of simple inspiration.

COMPETITION

"Keep Walking" supported Johnnie Walker's two blended scotches, its Red Label and Black Label products. Johnnie Walker Red was the more affordable and more popular of the two and was America's second-leading scotch brand, behind Dewar's. Johnnie Walker Black, the fourth-best-selling scotch in the United States at the time of the campaign's launch, was a rival to premium brand Chivas Regal, then the country's number five scotch.

Dewar's, like Johnnie Walker, was at this time attempting to update its image and appeal to a younger audience. In 2000 the brand changed its approach to print marketing, entering into advertising partnerships with a few strategically selected publications, rather than continuing to run ads in as many as 20 magazines at a time. One prominent Dewar's partnership, with Men's Journal, resulted in a 2003 project called "Conquer the Highlands," an adventure story of two young men on an "extreme" tour of Scotland, which ran as a print insert described as an "advertorial," meaning it was intentionally similar to the magazine's content. This blurring of the boundaries between editorial and advertising content tested magazine-publishing conventions of the time. The theme was also adapted into a cable-television program, a one-hour adventure show that likewise mixed the two young men's adventures with product placement.

Rather than continuing to compete with vodka and other clear spirits for the youth market, Chivas Regal in 2003 instead began repositioning itself to appeal to an older male market. In a global ad campaign called "The Chivas Life," the brand made no apologies for its luxury roots, celebrating bold life choices such as going ice fishing in Alaska, "crossing the room like you own it," and embarking on a sailing trip, the destination of which was decided by throwing a dart.

Vodka, meanwhile, was the distilled-spirits industry's fastest-growing market segment and one in which consumers' purchasing choices, according to many observers, were almost exclusively tied to marketing and brand image. In the 1980s and 1990s Absolut vodka had risen from obscurity to become one of the hippest brands in the world and, ultimately, the number three distilled spirits brand in America, thanks to a long-running advertising campaign that turned the product's bottle into an iconic, fashionable emblem. In the first few years of the new millennium, however, Absolut's yearly sales growth could not keep pace with the vodka market at large, which was growing rapidly because of new designer brands such as Grey Goose. Using a taste-test platform whose findings were called into question from the start, together with aggressive marketing to bar owners, the Grey Goose brand grew faster, between 2000 and 2004, than any alcohol product in recent memory, becoming the vodka of choice for urban consumers of pricey specialty cocktails.

MARKETING STRATEGY

The new "Keep Walking" campaign had an estimated budget of $15 million and involved distinct print and outdoor components meant to accomplish different tasks. The "Journeys" print series, which featured profiles of men who had achieved success in unconventional ways, was meant to connect with consumers by making them evaluate their own conceptions of personal progress and by showing them that Johnnie Walker understood their lives. The outdoor portion of the campaign, called "Icons," was less personal and more overt in its branding, showing the Striding Man continuing to move forward despite difficulties, which were represented by simple but suggestive graphics against a black background.

The "Journeys" ads included "Bar," which showed a young man standing behind the bar of his own cutting-edge drinking establishment. A horizontal yellow timeline cut across the image, with copy reading, chronologically across the page, "First Business Loan," "Second Mortgage," "Third Migraine," and "Fourth Location." Similarly, "Cave" summarized an unconventional career path, showing a rear view of a man who was standing at the mouth of a cave that opened on to the ocean. The copy keyed to the various stages of the timeline graphic read, "Discover Caving," "Discover Perfect Cave," "Discover Others Will Pay to Be Guided There," and "Discover Perfect Job." "Producer" depicted a preoccupied man sitting in front of an enormous audio-mastering console. The story of his career path, as told via the accompanying timeline, was, "Terrible Guitarist," "Incompetent Drummer," "Laughable Lead Singer," and "Double-Platinum Producer." In each ad the Striding Man logo appeared above the "Keep Walking" tag at the far right end of the time line, suggesting the pictured individual's determination.

The "Icons" ads sent similar messages, but through symbolic images rather than via individual profiles. For instance, the Striding Man was shown emerging from the precipitous valley of a stock market graph and climbing a slope indicating an upswing, a clear reference to the recent economic woes that had affected many among the Johnnie Walker target market. "Wall" depicted the Striding Man on the other side of a wall he had just walked through, and "Cloud" showed him continuing to walk after having weathered a rainstorm.

In addition to point-of-service promotions, which linked imagery from the national campaign to retail displays of the product, the campaign included a less traditional element called a "Mentorship" program. The program involved sending E-mail invitations that directed Johnnie Walker drinkers to a website where they could register for social gatherings staged by the brand. These gatherings put the "mentors" in a position to spread their brand enthusiasm to Johnnie Walker neophytes.

THE LABELS

Johnnie Walker brands included not just its consistent top sellers, Johnnie Walker Red Label and Johnnie Walker Black Label, but also Blue Label and Gold Label versions. All of Johnnie Walker's products were blended scotches, as opposed to single malts, with the difference in label color (and purchase price) indicating a difference, primarily, in the age, rarity, and quality of each individual whiskey in the Johnnie Walker blend. Red Label was considered a smooth scotch suitable for everyday drinking, whereas Black Label, consisting of more than 40 whiskeys, each of which was at least 12 years old, was intended for more luxurious times and settings. Blue Label was comprised of rarer whiskeys still and was intended to hearken back to the blending style of the company's namesake. The component whiskeys in Gold Label were each at least 18 years old. Johnnie Walker suggested that Gold Label be served frozen, in a chilled glass, with a snack of bitter chocolate.

OUTCOME

BBH exceeded many of its goals for attracting attention to the Johnnie Walker brand. The agency met its goal of increasing awareness of the Striding Man as brand logo. Whereas only 22 percent of consumers were aware of the logo's connection to Johnnie Walker before the campaign ran, 50 percent made the connection after the ads had been running for three months. While BBH had not staked the value of its campaign, which was more concerned with building brand equity and identity, on its capacity to generate immediate sales increases, a comparison of sales figures from the same three-month period the previous year showed a dollar-sales increase of 3.7 percent and a volume-sales increase of 3 percent. The campaign was awarded a Silver EFFIE Award in 2005.

The concept behind the "Icons" outdoor ads was extended in a print and outdoor campaign that was launched in late 2004, in which the Striding Man was shown, as before, against a black background, having successfully endured an obstacle represented by symbolic graphics. More than 50 such ads were generated, and each was tailored to its medium, the timing of its appearance, or (in the case of outdoor placements) its physical location. The "Keep Walking" tagline and the Striding Man logo remained Johnnie Walker's controlling umbrella concepts in subsequent advertising both globally and in the United States.

NOT EVERYTHING IN BLACK AND WHITE MAKES SENSE CAMPAIGN

OVERVIEW

NOTE: Since the initial appearance of this essay in the 1998 edition of Major Marketing Campaigns Annual, Guinness was acquired by Diageo. The essay continues to refer to Guinness, as that was the name of the organization when the campaign was launched.

In 1996 Guinness initiated a new advertising campaign for its famous stout beer. With a history dating back to 18th-century Ireland, the brand had a venerable image. Not only was the black-colored beer the best-selling stout in the United Kingdom and Ireland but it was also exported to 150 different countries. Abroad, Guinness was able to capitalize on its association with all things Irish to drive sales. But at home in the British Isles, Guinness found that newer Irish stout beers such as Bass and Murphy's were threatening to encroach on Guinness's domination of the declining stout category. Most importantly, Guinness had not captured the younger generation of 18 to 34 year olds. For the most part these younger drinkers considered the dark brew to be more their parents' beer of choice than their own.

The "Not Everything in Black and White Makes Sense" campaign was conceived to reposition the Guinness brand to appeal to younger drinkers. The surrealistic-style commercials created by advertising agency Ogilvy & Mather attempted to make people reconsider Guinness. The campaign set out to do so in two ways. Not only were the commercials creative, humorous, and eye-catching but they also presented implausible situations that encouraged viewers to form their own opinions—about the spots and about Guinness itself. The intent was to enable viewers to drop their preconceptions about Guinness, including common notions that the beer was too bitter, fattening, or not chic enough. "We decided we had to more or less revamp the brand and everything it stood for—re-invent it as it had re-invented itself many times already, and reconnect it to the new Ireland," Guinness marketing director Tim Kelly told the Sunday Business Post.

The launch spots of the campaign—"Bicycle" and "Old Man"—were both directed by Tony Kaye and encouraged viewers to take a new look at Guinness. "Bicycle," which was filmed in a style reminiscent of 1940s movies, depicts a world without men. Against a backdrop of the song "I'm Gonna Wash That Man Right Out of My Hair," the commercial portrays women in jobs traditionally held by blue-collar men. After these women drink beer, arm wrestle, and shoot pool, the commercial moves to a scene of a starkly empty maternity ward. Gloria Steinem's famous quote, "A woman needs a man like a fish needs a bicycle," flashes on the screen. What follows is the image of a fish riding a bicycle and the campaign's tag line, "Not everything in black and white makes sense." "Old Man" similarly set out to shock the viewer with its surprising ending. The commercial sets out with the sad scene of an old man dressing alone in his apartment. Singer Pete Townshend's quote appears on screen: "I hope I die before I grow old." It turns out, though, that the old man is donning his formal wear to marry a heavily pregnant buxom blonde.

While Guinness's sales rose over the life of the campaign, the company was not entirely pleased with Ogilvy & Mather's efforts. Two spots in particular sparked firestorms of controversy, which were not the sort of notoriety Guinness was hoping to achieve with its advertising. One, involving sadomasochistic practices, was decried as a reference to the death by hanging of a conservative member of Parliament that was rumored to have had sexual undertones. The other, which never actually ran, featured two gay men enjoying a tranquil breakfast. Tabloid newspapers, which got wind of the proposed commercial, chastised Guinness for condoning homosexual behavior. When the company responded by denying that it ever intended to do so and that it never would in the future, the gay community was outraged. Ultimately, Guinness fired Ogilvy & Mather and shifted its advertising business to Abbott Mead Vickers. That agency's first campaign for the stout giant featured more traditional advertising focusing on the quality of the beer.

HISTORICAL CONTEXT

Guinness beer was founded under near-mythic circumstances in 1759, when Arthur Guinness took over an abandoned brewery at St. James Gate in Dublin, Ireland, and began producing a dark beer called porter. In later years the company named one of its strongest brews Guinness Extra Stout Porter. The porter appellation was in time dropped, and thus the stout category of beer was born. Guinness's distinctive black color derived from the fact that some of the barley used in the production was roasted, rather like coffee beans. The darkness of the beer contrasted with the "blonde" foam that resulted from the beer being poured or "pulled" from the tap.

The company also had a venerable history of advertising. Beginning in the 1930s the SH Benson ad agency coined the slogan "Guinness is good for you." At the same time the "My Goodness, My Guinness" poster ads, which featured a balding zookeeper whose Guinness was perpetually stolen by larcenous animals, received critical and popular acclaim. Even as early as the 1930s, however, the company used advertising to reposition the brand. The Guardian newspaper has explained that, for example, the "Guinness for Strength" campaign of that decade, which portrayed an archetypal workman in the midst of his labor, was designed to give the beer "a more masculine, macho image." Nearly 40 years later the company sought to again reposition itself. In order to appeal to women and to soften the brand's primary association with working-class men, Guinness designed glossy, stylish ads that appeared in British fashion magazines.

In the 1980s Guinness again shifted its image through its advertising campaign. The seven commercials of the "Guinnless" campaign targeted 24- to 34-year-old men by depicting humorous scenarios of Guinness drinkers who were deprived of their coveted brew. In the late 1980s Guinness signed on with ad agency Ogilvy & Mather and released the "Man with the Guinness" campaign, which once more deliberately tried to reposition the brand—this time "as a drink for strong, confident individuals," according to The Guardian.

Yet by the mid-1990s the cultural world of which Guinness was a part had again shifted. Not only had other Irish stout beers entered the market with their own distinctive advertising campaigns, but stout beers as a whole were losing British drinkers. Guinness became convinced that viewers had become too comfortable with the overwhelmingly popular seven-year "Man with the Guinness" campaign. To reinvigorate its marketing, the company went back to the drawing board with Ogilvy & Mather and nearly two years later released the first two "Black and White" commercials.

TARGET MARKET

The target of Guinness's new campaign revealed once more a strategic repositioning of the brand. As of 1996 the stout sector of the beer market was in decline. Although 79 percent of British drinkers over the age of 55 drank stout, only 35 percent of young adults consumed it. Thus, while Guinness held more than 80 percent of the draught stout market, the company's growth could not be fueled by gaining more within the segment. Instead Guinness had to focus on winning over younger drinkers to its distinctive stout beer. As a result, the brewing titan targeted its new campaign to 18- to 34-year old males. "Guinness need[ed] … consumers to rethink their choice of beers," reported Advertising Age International. The goal, in short, was to appeal to the target market to "rethink stubbornness when making up one's mind."

In order to reach out to its target, the campaign sought to reflect the values of young adults in the 1990s. In an era dominated by postmodern philosophy that posited the ultimate relativity of all things including truth, the campaign resonated perfectly with the abundant insecurity and introspection of the times. "Research shows people today are more inwardly focused," said the Independent-London. "The current message is: think again about life, your inner self, Guinness. All is not how it appears at first glance." Each of the commercials opened with a statement that appeared to be categorical, but as the commercial progressed the assertion became more tenuous and open to debate.

Moreover, the look of the campaign was crafted to reach out to its target audience. It was stylish enough to appeal to a segment of the population that was raised with television and advertising. And it did not resort to the exclusivity that was the hallmark of other beer advertising. "Bicycle" was decidedly non-sexist and attempted to challenge the viewer with issues of gender. Ogilvy & Mather even produced a commercial that featured two gay men together at the breakfast table engaging in a decidedly normal kiss. The spot was leaked to tabloid newspapers before its release, however, and in the ensuing ruckus Guinness chose not to release the commercial.

COMPETITION

While other stout beer producers were not challenging social mores in quite the same way, Guinness did begin to feel pressure from stout brands that challenged Guinness's hegemony. Irish brands, including Murphy's Irish Stout, Caffrey's, Beamish, and Bass Ale, were expanding their market share at Guinness's expense. Many of these brands laid claim to an Irish heritage through their advertising. These Gaelic ties were significant because, as the largest minority group in Britain, the Irish wielded considerable spending power. More importantly, however, was the fact that both in Britain and abroad (especially in the United States), the love of Irish culture had exploded in the 1990s to the point that all things of Ireland were trendy. Murphy's sought to capitalize on this dynamic with the "Vincent Murphy" campaign. In one spot the quintessentially Irish Vincent Murphy sips his beer while he observes a ranting old man at the pub. As the man complains, Murphy quips, "Unlike the Murphy's, he's very bitter." This underhanded dig at Guinness's supposed bitter taste also subtly conveyed Murphy's "genuine" Irish heritage. Caffrey's ads, on the other hand, focused on the "New Ireland." "There's warmth and lyricism mixed with cosmopolitan and contemporary appeal," a spokesperson for the company told the Independent-London. Beamish trumpeted its status as the "only brand that brews only in Ireland."

A FROTHING GOOD IDEA

One of the distinctive features of Guinness was the light head atop the dark body when a pint was poured from the tap. Guinness wanted to be able to offer that signature look in its line of canned beer as well. To do so, the company invested five years and better than $7.5 million in an effort to come up with an in-can system that could replicate the pint pour. After investigating such methods as pouring the beer through nylon stockings and sandpaper-lined cans, Guinness's engineers came up with the widget. This device, a plastic chamber with a small hole placed at the bottom of the can, generated enough pressure when the can was opened to create the desired head.

According to The Guardian, the "Black and White" campaign served to reassert "Guinness's superiority in a marketplace that had suddenly become saturated with Irish stouts." On the one hand, the explicit premise of the campaign—that not everything was as it appeared or claimed to be—addressed Guinness's rival's claims of cultural integrity as well as the competitors' snipes at Guinness itself. The campaign also sought to reflect Guinness's clout in the market. Controlling nearly 80 percent of the stout sector and 4.4 percent of total beer consumption in Great Britain, Guinness was, without question, the dominant beer in its category. The creativity and quality of the "Black and White" commercials sought to highlight the status of the beer itself.

MARKETING STRATEGY

As the definitive leader in its category, Guinness could not count on converting drinkers of rival stout brands as a means of continuing to expanding the brand. Instead, it had to win the loyalty of those who did not drink stout beeror had never tasted the black ale. In short, the campaign had to convince consumers to reevaluate their choice of beers. According to the Sunday Business Post, the goal of the "Black and White" campaign "was three-fold: to bring non-draught Guinness drinkers into the brand, to make Guinness a regular choice for occasional drinkers, and to dissuade regular drinkers from switching to competitive stouts."

Part of this agenda involved "updating" the brand's image among younger British consumers. The campaign set out to accomplish this goal through daring commercials that clearly reached beyond Guinness's solid, middle-age base. One of the more infamous spots of the "Black and White" campaign portrayed a sadomasochistic man hanging by chains from the ceiling (in a leather straightjacket) beneath a picture of British Prime Minister John Major. Other commercials in the campaign displayed similar moxie. A series of print ads featuring a satanic priest and an overweight nudist appealed to a more youthful audience. The company not only used mainstream publications to display the campaign's ads but also selected smaller magazines that directly reached the campaign's target. The sadomasochistic ad, for instance, ran solely in FHM, a publication with a circulation of only about 500,000 readers, most of whom, however, were young men drawn to the magazine's glossy coverage of "fashion, football, and women," according to the London Sunday Telegraph.

Guinness strove to reposition itself outside the realm of television and print also. The company sponsored the Cheltenham festival in Britain as well as the Fleadh Irish Music Festival in New York. By aligning the brand with international rock stars such as Sinead O'Connor, Van Morrison, and Shane MacGowan, Guinness sought to increase its allure with a younger and more cosmopolitan segment of the British population.

OUTCOME

The Guinness "Black and White" campaign was deemed a success from the outset. According to the company's marketing department, the brand achieved its highest-ever share of the beer market—5.2 percent—after the campaign broke. The November 1997 Adwatch survey revealed a 56 percent recall among consumers across socioeconomic and gender lines. The survey also emphasized that the commercials performed especially well among the target audience. The campaign garnered industry accolades as well. Bob Garfield acknowledged the spots in Advertising Age International.

In March 1998, however, Guinness indicated in a bold fashion that it was not entirely pleased with the high-profile "Black and White" campaign when it left Ogilvy & Mather and placed its advertising account with Abbott Mead Vickers instead. Officially the company stated to the Times of London that "part of the Guinness ethos has always been to move on before we have to" and that "Ogilvy & Mather's work cannot be delivered any further." Yet the rift between Guinness and Ogilvy & Mather ran deeper. The spot featuring the two gay men (which never ran) unleashed a storm of protest from conservative viewers and shareholders. After Guinness furiously backpedaled in response, claiming that "at no time, did we set out to make a so-called 'gay' ad, nor will we be screening one," the gay community became outraged. Later the spot picturing the hanging sadomasochistic man drew another round of criticism, especially from Tory politicians who insisted the ad was a reference to the death by hanging of Tory Member of Parliament Stephen Milligan.

Furthermore, Guinness hinted that the "Black and White" campaign was "elitist" and inaccessible to younger consumers. Analysts speculated that the commercials had not touted the brand's essential "Irishness" enough or that they had cultivated too serious an image for the beer. Guinness followed "Black and White" with Abbot Mead Vickers's "Good Things Come to Those Who Wait." These new commercials were decidedly non-surreal and lacked the "artistic" feel of the grainy "Black and White" spots. One spot portrays an elderly swimmer attempting to cross the village bay before his pint of Guinness, poured by his bartender brother, has settled. The old-fashioned style of the commercial contrasted with "Black and White's" postmodern style.