A merger, or acquisition, may be the best way to achieve a strong presence in the wine sector, as consolidation continues to be strong amongst wine firms. The global wine industry has yet to settle down from the period of intense merger and acquisition activity witnessed over the last few years. The acquisition of BRL Hardy by Constellation Brands in 2003 was the first major salvo, creating an environment of consolidation which remained in early 2005, with E&J Gallo acquiring Barefoot Cellars and the integration of Robert Mondavi into Constellation Brands’s fine wine division, not to mention Diageo’s own acquisition of Chalone. (Diageo Plc, 2005)

External Environment Opportunities and Challenges

An analysis of the external environmental opportunities and challenges facing Diageo’s wine business, in some of its major markets, is based primarily on the fact that the company’s portfolio is firmly rooted in the still light grape wine sector. It does have a few rosé and sparkling wines, notably extensions to the UK-focused Blossom Hill, but these are unlikely to have a significant impact on the company’s sales going forward despite the predicted growth of around 27% in the UK still rosé sector and 6% in UK sparkling wine. Within its other key markets, Spain and Ireland, Diageo’s wine portfolio is likely to see mixed results. Whilst in Ireland, which has come late to wine-drinking, the potential of an immature market is apparent. Increased interest in wine as consumers develop more sophisticated tastes is expected to lead to growth of around 92% in red wine and 80% in white wine, offering Diageo great potential once its distribution channels have been widened.

In contrast, the Spanish wine market is much slower, suffering from maturity and the same change in family habits that has had such a negative impact on the French wine industry. As a result, static growth rates are expected, although it is likely that with Spanish consumers exchanging quantity for quality, the potential for Diageo’s premium wine portfolio remains. In the US, where wine drinking is still a relatively new activity, the growth potential for the company’s wide premium wine portfolio is good. Red wine growth of around 26% is anticipated over the five years to 2009, as US consumers grow increasingly interested in wine and sophisticated in their tastes. This growth will be significantly faster than the developed UK market, which is expected to grow only by a further 3% in total as it ma