Diageo's story begins in the founding of Guinness in 1759 by Arthur Guinness. The business was started with Guinness leasing for 9000 years a mill, storehouse, stable, house and two malthouses. Within 4 years beer production reached sustainable levels.
Arthur Guinness died in 1803, however the business wast taken over by his second oldest son, who was interestingly enough also called Arthur.
Under Guinness the brewery's production steadily increased, and this growth was increased by Arthur Guinness's decision to increase business levels in England.
A contributing factor in the rising star of Guinness PLCs success is the rumors and myths surrounding the beer from its earliest days. The belief that drinking Guinness created "strong muscles" and "enriched blood" carried over well into the 20th century.
In 1886 Guinness became a public company. Using the money raised on the London exchange the company went into an ambitious expansion drive that would soon see guinness sold in West Africa and the Caribbean.
Throughout the 20th century Guinness's expansion continued with many new breweries built in such locations as Malaysia and Nigeria. Also, in order to protect profits the company expanded into pharmaceuticals and confectionary.
Starting in 1950, the company's fortunes began to wane. Investors became concerned regarding Guinness's structure. Instead of the top 5 major breweries in the United Kingdom which owned pubs to sell their product in, Guinness was forced to contain the weight of a retailing division. Also the company faced union problems in its various domestic breweries which reduced the company's ability to cut costs.
Another serious issue facing Guinness PLC was its diversification plans had gone out of control. Between 1960 and 1980 the company acquired 270 businesses - most of them running at a deficit. A new beer designed to combine the taste of stout and ale turned out to be a £3 million mistake for the company.
Between 1950 and 1990 the only bright spot in Guinness PLCs activities was the development of Harp lager. The company observed greater number of British returning to the country with a taste for chilled lager beer and decided to capture this market. Soon after release Harp became the largest lager in the British market.
In an effort to solve the company's problems, the board looked beyond Guinness family members to find a CEO. Ultimately Ernest Saunders, a former executive at Nestle became the CEO of Guinness PLC in 1980.
Along with selling over 160 businesses acquired in the diversification drive earlier, Saunders achieved what many considered impossible - he organized and executed a takeover of Distillers Company. This exposed Guinness to many famous brands such as Tanqueray Gin and Johnnie Walker whisky. At this time, Guinness was half the size of Distillers Company, and ultimately the business would pay £2.5 billion for the takeover.
Almost immediately, there were rumors of corruption and insider trading regarding the takeover. It was exposed that Guinness used a variety of banks and investors to inflate Guinness stock to enable the company to purchase Distillers Company. Saunders would ultimately be asked to step down from his position, and was sentenced to 2 years jail.
Guinness's next CEO focused the company on brewing and distilling. Other business interests where quickly sold yet the company continued to be in financial trouble. It was announced in 1996 that it was planning a takeover of Grand Metropolitan or it will divest its brewing operations.
Grand Metropolitan had for many years been mirroring Guinness's operating strategy by investing heavily into food and beverages. GrandMet's most significant acquisition was that of International Distillers & Vintners which brought Smirnoff and Bristol Sherrys under their control.
In 1997 the two companies announced that they would merge to form Diageo PLC.
The businesses of Guinness and GrandMet were largely complimentary causing very few clashes in product lines. Due to competition issues Dewars Scotch and Bombay Gin where sold to Bacardi Ltd.
Under the combined management many non beverage businesses where sold off. In 2000 Pillsbury was sold to General Mills and in 2002 Burger King was sold to the US Firm Texas Pacific for $1.5 billion USD.
Diageo has continued it's investment in LVMH Moët Hennessy Louis Vuitton S.A. owning 34% of the business. LVMH also owns 11% of Diageo PLC.
Diageo was struck by critisim due to its action regarding its handling of the Cardhu brand. In 2003 Cardhu went from being a single malt scotch to being a blended malt due to unexpected demand in the spanish market. The bottle and label design was not changed until industry pressure caused Diageo to make adjustments. In 2006 Cardhu quietly became a single malt scotch again.
Post merger, Diageo has continued to focus on their beverage businesses, conducting acquisitions where necessary to maximize shareholder value. This management has allowed Diageo to become the largest global beverage company.
Single Malt Scotch
Diageo also has extensive holdings in scotch whisky distilleries holding such brands as Blair Athol, Caol Ila, Cardhu, Knockando, Glen Elgin, Clynelish, Craggamore, Dalwhinnie, Glenkinchie, Glen Ord, Oban, Royal Lochnagar and Talisker.
Many distilleries are not sold as separate products but used in Diageo's various blended scotch brands.