Diageo: A Market Drying Up?
By: Sean McCormick
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Diving into Diageo
Diageo Plc (Diageo) is an alcoholic beverage manufacturer based in London, England and the second-largest company in the alcohol industry, holding an 18 percent market share worldwide. The company is dominant in the spirits industry, with globally recognized brands such as Johnnie Walker, Guinness, and Ciroc. Its extensive distribution network and marketing expertise allows it to reach diverse demographics and respond to shifting preferences. Its extensive portfolio features over 200 brands, where 75 percent of sales come from spirit brands, and the rest comprises beer (16 percent) and other products (9 percent). The company is valued at $54 billion, with yearly sales of $20 billion.
In its long history, dating back to the 1600s, Diageo has proven to be a powerful consolidator in the food and beverage industry. Its success has lied in its ability to adapt to consumer trends and maintain a strong lineup of premium brands. However, the US Surgeon General's call for cancer warnings on alcoholic beverages in January 2025 presents a new challenge and an exciting business opportunity for Diageo.
Dry Days Ahead?
On January 3rd, 2025, Surgeon General Vivek Murthy recommended to Congress that labels be required on alcohol packaging to warn the public of the product's carcinogenic risks. His report found that in 2020, alcohol consumption contributed to over 700,000 cancer cases worldwide. As few as one drink a day led to higher rates of breast, throat, and mouth cancer. However, due to lobbying efforts and marketing campaigns, which are only temporary solutions to the problem, public awareness of these risks remains low, with only 45 percent of those surveyed recognizing alcohol as a carcinogen, compared to 89 percent for smoking. After the report’s release, shares of Diageo fell by 4 percent. This decline indicates that, contrary to consumers, investors are beginning to acknowledge the risks posed by the lagging shift in consumer sentiment. Additionally, the magnitude of this downside scenario becomes twofold when you factor in the growing popularity of “dry” social trends.
The number of Americans who believe alcohol is poor for their health has risen from 28 percent in 2018 to 39 percent in 2023. In 2018, only 34 percent of Americans aged 18-34 believed alcohol was harmful to health; by 2023, that figure had risen to 52 percent. The COVID pandemic has also created a more pronounced effect among the younger demographic. The University of Michigan’s alcohol consumption survey of 12th graders found that in 2018, 53 percent had consumed alcohol, but by 2023, this had declined to 45 percent. The trending decline of youth drinking shows similarities to the long-term decline of smoking in North America. These social changes suggest that the alcohol industry may face a similar fate if companies fail to adapt.
Smoked Out of the Market: Parallels with the Tobacco Industry
In 1998, the attorney general combined the individual lawsuits from 46 states for the damage tobacco firms caused to public health into one Master Settlement Agreement (MSA). The conditions of the MSA were the suspension of all smoking advertising, a clear warning label on all products, and payments of $206 billion over the next 25 years to the states. The months following the agreement, shares of tobacco companies fell by more than 30 percent. Since the 1964 report, per capita cigarette consumption has fallen by over 75 percent. What did the fall of smoking look like, and is a similar trend occurring in alcohol?
The decline of smoking was gradual and took a generation to occur. In 1964, only 40 percent of Americans believed that smoking causes lung cancer, and it wasn’t until the 2000s that 95 percent of Americans agreed. The smoking industry declined slowly, led by younger generations who smoked less and less—a trend beginning to take shape in the alcohol industry.
Shots? Nah, We’re Doing Squats: The Great Booze Break-Up
One key driver behind the decline in alcohol consumption among younger generations is the broader cultural shift toward wellness and moderation. Consumers today are more focused on their physical and mental well-being, and alcohol is increasingly seen as counterproductive to these goals. The rise of the "sober curious" movement and trends such as Dry January highlight how younger consumers are reevaluating their relationship with alcohol. Additionally, social media has amplified awareness of health risks, making it easier for younger generations to access and spread information on the adverse effects of alcohol. Diageo must recognize that these shifts are not temporary but a long-term transformation in consumer behaviour.
The driving force behind the cultural shift to moderation is the rise of alternative social activities that do not center around drinking. Younger consumers are increasingly engaging in activities that promote wellness, such as group fitness classes, mental health retreats, and outdoor adventures. These experiences offer social engagement without the downsides associated with alcohol consumption. Diageo must acknowledge this shift by exploring ways to integrate non-alcoholic options into these lifestyle trends. Partnering with wellness events, sponsoring alcohol-free social gatherings, and creating products tailored to these experiences can provide new avenues for growth while aligning with changing consumer preferences.
Government regulations and policy changes also pose a significant risk to Diageo's traditional business model. As public health concerns grow, so will the pressure for stricter labelling requirements, higher excise taxes, and advertising restrictions on alcoholic beverages. Countries such as Canada and Ireland have already implemented warning labels and limited marketing practices for alcohol, setting a precedent that could extend globally. Diageo can anticipate and adapt to these regulatory shifts by accelerating its expansion into its adjacent non-alcoholic beverage segment.
Liquid Death: Adding New Life to the Party
Another path forward is introducing new, non-alcoholic drinks to fill gaps in the market. Companies such as Liquid Death, a canned water company founded in 2017, seek to redefine the fine line between traditional soft drinks and zero-proof replicas of famous spirits. Recently raising capital at a valuation of $1.4 billion, Liquid Death’s $263 million in sales in 2023 demonstrates that a sizable addressable market exists for this novel, alternatively advertised beverage segment.
Consumers are drawn to Liquid Death's aggressive branding, bold marketing, and edgy reputation. Its distinctive canned packaging resembles seltzer or beer more closely than traditional sparkling waters, creating a socially acceptable alternative at drinking events. The provocative tagline, "Murder Your Thirst," empowers designated drivers, non-drinkers, and others to confidently participate in social occasions, enjoying the atmosphere without the drawbacks associated with consuming alcohol.
