in the future and in turn could impair brand equity and adversely affect Diageo’s business.Demand for Diageo’s products may be adversely affected by many factors, including changes inconsumer preferences and tastes and adverse impacts of a declining economyDiageo’s collection ofbrands includes some of the world’s leading beverage alcohol brands as well as brands of localprominence. Maintaining Diageo’s competitive position depends on its continued ability to offerproducts that have a strong appeal to consumers. Consumer preferences may shift due to a variety offactors including changes in demographic and social trends, public health regulations, changes in travel,vacation or leisure activity patterns, weather effects and a downturn in economic conditions, which mayreduce consumers’ willingness to purchase premium branded products. In addition, concerns about26
Business description (continued)health effects due to negative publicity regarding alcohol consumption, negative dietary effects,regulatory action or any litigation or customer complaints against companies in the industry may havean adverse effect on Diageo’s profitability.The competitive position of Diageo’s brands could also be affected adversely by any failure toachieve consistent, reliable quality in the product or service levels to customers.In addition, both the launch and ongoing success of new products is inherently uncertain especiallyas to their appeal to consumers. The failure to launch a new product successfully can give rise toinventory write-offs and other costs and can affect consumer perception of an existing brand. Growth inDiageo’s business has been based on both the launch of new products and the growth of existingproducts. Product innovation remains a significant aspect of Diageo’s plans for growth. There can be noassurance as to Diageo’s continuing ability to develop and launch successful new products or variants ofexisting products or as to the profitable lifespan of newly or recently developed products. Anysignificant changes in consumer preferences and failure to anticipate and react to such changes couldresult in reduced demand for Diageo’s products and erosion of its competitive and financial position.Continued economic pressures could lead to consumer selection of products at lower price points,whether Diageo’s or those of competitors, which may have an adverse effect on Diageo’s profitability.If the social acceptability of Diageo’s products declines, Diageo’s sales volume could decrease and thebusiness could be materially adversely affectedIn recent years, there has been increased social andpolitical attention directed to the beverage alcohol industry. Diageo believes that this attention is theresult of public concern over problems related to alcohol abuse, including drink driving, underagedrinking and health consequences from the misuse of alcohol. If, as a result, the general socialacceptability of beverage alcohol were to decline significantly, sales of Diageo’s products couldmaterially decrease.