Pestel Diageo

Pestel – Diageo

The PESTEL analysis is used within an organization as a tool. So marketers can analyse and monitor the macro environment factors that could have an impact on the organization. This analysis comes from the same framework as a SWOT. A organization can identify its strengths, weaknesses and its threats within its external market environment. This is with the hope that the organization can avoid any barriers or obstacles. Diageo being one of the largest drink distributers in the world, trading in over 180 different countries producing a  number of different products all around the world faces some of these obstacles and barriers each day. From this simple PESTEL we can see some of the external issues that Diageo has to face on a yearly basis.

Political - Diageo’s biggest concern with political factors that effect the organization is the regualtions and legal barriers that have been growing world wide to prevent and control the consumption of Alcohol. Within Europe the Eurpean center for  monitoring alcholol marketing (EUCAM) has taken action to ban all alchololic adventismnet within Europe at sporting and other events. Diageo have responded by heavily advertising drinking awareness and drinking responsilbly when branding there products. Dispite this it is still an inevitable problem that Diageo have to face.

Another political concern for Diageo is economic policies which effect economic growth, inflation rates and consumer spending. Government policies which result in economic instability and effects consumer spending. These policies vary depending on the markets and country as Diageo is involved within 80 different countries world wide. Currently parts of Europe such as Ireland, recorded -0.36 pre cent inflation in 2015 and in the United states recorded -0.04 percent which economically indicates low growth in consumer prices. When coupled with positive economic growth, this has a positive effect on consumer spending.  However, the political intervention in the economy effects the development and growth of Diageo as those economic effects are so difficult to predict it disrupts business planning  which adversity can have an effect when planning capital investment and the price mechanicals of Diageo.

Taxation laws are every organizations nightmare and has a massive effect on large organizations making it competitive when I come to entering new markets. Corporation taxes is the main attractiveness for organizations like Diageo. These taxes can have a direct effect on price mechanisms forcing Diageo to lose money or increase sale prices. Diageo is know and praises its self for having affordable liquor evidently having an effect on on brand image and product pricing. Ireland is the home of the Guinness production in corporation with Diageo. Ireland has a reputably known for have one of the lowest corporation taxes in European 12.5 percent. Compared to other nations this is seen as very low, for examples England have 20 percent, Germany are at 15 percent and France are at 33 percent. This is why many organizations have there head quarters based in Ireland.

Socio-cultural – This referse to population change and how changes in population, lifestyle and culture can effect an organization. Diageo as mentioned before has thighs all over the world and is involved in many global markets. Within Europe the organization is split between Western Europe, Russia, Eastern Europe and Turkey.

Economic – Economic factors can create big obstacles for organizations like Diageo. Business cycles are effected causing change in trends having a direct relation to interest rates, cost of raw materials, cost of shipping and GDP trend – disposable income peoples wealth

With the current rise of intrest rates it makes it challeneging for Diageo to find the right opportunity to borrow capital investment inorder to develop its brands. Yet at the same time the rise and fall of interest rates can in the long run give them a high return when borrowing thus working in Diageos favour depending on the economic status. This shows how vital it is that Diageo’s analysists know exactly when is the best time to borrow capital and from where.

The cost of raw materials is another economic challenge that Diageo have to face. With demand growing far greater than supply it makes it difficult for Diageo when trying to find the best price for raw materials. Materials such as water which is 90 percent of the composition in alcholoic drinks is a very high demanded material that is becoming a scares resource. At present it is not a real issue but in the future this will become the worlds most wanted resource and it is limited. Other resources such as Barley and rye are other materials used in production at Diageo. With the price of water to go up would mean the cost of production of these materials would increase as well. Thus this will have an effect on Dieago when it comes to the cost of production. It is recorded that the organization have contributed 274 million euro to the agriculture sector in Ireland to produce some of its very well known brands such as Guinness and Baileys.(point)