DIAGEO INVESTOR CONFERENCE: DISTRIBUTOR CHANGES AND UPSCALE AIMS
Diageo held its annual investor conference today in which the company gives a not-so-brief overview of its inner workings and plans. As cfo Nick Rose put it, “Our aim is quite simple, that you will learn a bit more about Diageo and particularly the opportunities that we see for further growth.”
The five success-driving themes that Diageo claims is apparent throughout its entire business are the following:
1. Brand innovation
2. Premiumization around those brands
3. Leadership and marketing to support our brands
4. Building the best routes to market in each of our regions
5. Improving sales capability to a level comparable to the very best consumer goods businesses around the world.
ALCOHOL + WATER = SMIRNOFF SOURCE. Diageo’s wide range of brands (which currently make up 9 of the top 20 alcohol beverage brands) has helped drive growth the most in all markets, said Nick. But wait, what about RTDs? Clearly, the RTD business has seen some declining numbers as of late but Nick claimed it “is still a profitable business for us globally and we are doing some exciting things with it.”
Furthermore, lines of pre-mixed cocktails have helped to premiumize the category, while Diageo has also developed a number of RTDs, including Smirnoff Mojito and Jose Cuervo Margaritas, to “address consumers’ busy lives.”
“Innovation is key in the RTD segments and this summer we will see the regional launch of Smirnoff Source, which is alcohol plus spring water and the national rollout of Smirnoff Raw Tea,” said Diageo North America president Ivan Menezes.
Other growing trends include flavored spirits and the ever-present premiumization. According to Diageo, the flavored segment has opened up a wide opportunity, especially for Smirnoff Twist. At the same time, premiumization trends are apparent throughout the world and are evident in brands like Oronoco. Diageo has also expanded some of its franchises into the more premium territory, including Tanqueray No. Ten, Crown Royal XR and Johnnie Walker Blue Label. Reportedly, the Tony Sinclair campaign is turning the Tanqueray brand around in the U.S.
“As you know, Scotch is one of our most profitable and fastest growing categories,” said Nick, “especially for premium Scotch which led us to announced increased investment in Scotch during our interim.”
IRONING OUT ROUTE TO MARKET. Diageo has increasingly put more emphasis on improving its distribution network in the United States which now consists of a consolidated network of wholesalers in forty markets and over 2,000 sales people. Currently, the spirits giant is in the process of renewing contracts with its distributors. Let’s take a look at what the executives have to say on the subject.
“We are in the process of renewing our contracts with our distributors. The main issue is improving the game, which Jeff talked about, and moving forward in improving our relationship with our wholesalers. It’s about really building the muscle and capability to drive sustained top line growth. I’ll give you an example. In New York where we’re restructuring our arrangements right now, we are going to have a significantly stepped up presence on the on-premise in New York City. We have about 28 people building our luxury brands in New York and that’s the type of arrangements we are driving for,” said Diageo North American president Ivan Menezes.
However, later in the question and answer portion of the conference, Ivan expressed some blatant dissatisfaction with Diageo’s wholesalers:
“We have not set a specific goal to de-stock inventory levels right now but we are working through the efficiencies in the system to improve customer service first. I’d say that US wholesalers are still notoriously weak on customer service . If you walk into a supermarket in California on a Monday morning you’ll still find many stores out of Cuervo, out of Smirnoff because wine and spirits distributors for the most part do not deliver on Saturdays.”
“We have negotiated terms that are set at inventory levels and managing those down slightly every year, but our core goal here is to keep high customer service right through the system. We’re also working on much more collaborative planning.”
As far as inventory goes, Ivan remarked that “45 days is fairly typical.”
DIAGEO “DELIGHTED” WITH WINE BUSINESS. Ivan said the company’s wine business is on a roll showing 11% growth last fiscal year as the U.S. wine market continues to enjoy growing popularity, especially at the premium end of the market at over $10 a bottle. “In that segment of over $10 we are now the number two supplier in value,” he said.
“Our portfolio includes the two leading Napa wine brands, B.V. and Sterling, and a collection of other strong brands from California and Washington State, including Charlone Vineyards and Acacia. We are also the leading U.S. importer for high-end French wines, mainly Bordeaux and Burgundy. In addition, we have premium brands from Argentina, Australia and New Zealand.”
The company said those brands have helped drive growth in the critical on-premise market.
MOVING TOWARDS UPSCALE SPIRITS. In the past 52 weeks, Diageo’s spirits volume grew 4% with value up almost 6% in the U.S. Currently, Diageo’s spirits business is heavily focused on the premium, super-premium and ultra-premium segments which makes up 81% of its volume and 92% of its net value.
“Premium alcohol remains an affordable luxury that consumers are not willing to give up,” stated Ivan.
Consequently, Diageo’s portfolio allows it to compete on various pricing tiers, not just high-end. The various pricing segments “give us a great edge on our competitors as our brands can reach a range of consumers and eventually have them trade up to other Diageo products.”
Ivan feels confident that “our consumers are willing to pay more for our brands,” which has allowed Diageo to continue in price increases. The company claimed it is increasing and sustaining price premiums next to its most significant competitor. For example, one slide demonstrated the pricing increase Diageo has over its most significant competitor: Scotch +12%, Rum +14%, Gin +11%, Liqueur +3%, Tequila +21%.
In its quest for premiumization, Diageo named four core trends that will affect consumer trends in the U.S.
1. Premium Experiences
2. Experiential Leisure
3. Individual Expression
4. Celebrating Roots
5. Busy Lives
MILLENNIALS AND BABY BOOMERS. “Premium spirits represent the ultimate affordable luxury. In addition, the growth of 21-29 year olds and the baby boomer demographic is leading to an increase in the number of consumers who are most influenced by this desire to have it all.”
“21-29 yr. olds are seeking the hip, the cool and variety, and whatever is the latest and greatest out there.”
“There is evidence that the 25-29 year olds have grown up quicker than previous generations as a result of 9/11, terrorist threats and two wars. As a result they have adopted so-called ‘mature products,’ such as premium scotch whiskey, earlier than usual. Additionally, 25-29 year olds are switching from quantity to quality further fueling premiumization and further benefiting our brands.”
“Boomers are seeking complexity and character in addition to variety. This is leading them not only to brown spirits but to cocktails that remind them of their parent’s generation updated to reflect their contemporary taste and styles.”
A new campaign for Don Julio, along with the new Tanqueray Rangpur and Johnnie Walker Blue labels are just some of the ways Diageo is tapping into this “premium” opportunity. Ivan did recognize, however, that Diageo needs a higher share of luxury vodka.
“Consumers will not longer compromise because of their busy schedules,” said Ivan. “They won’t sacrifice taste for speed because they’ve learned they don’t have to. ‘If you don’t have what I want, I’ll go somewhere else.’”
UNDERWEIGHT IN ULTRA-PREMIUM SPIRITS. Although Diageo is working to grow in the ultra-premium category, it remains underweight in the U.S. with only 20% share. During the question and answer section, Ivan was asked further about their strategy, which includes a shift to luxury, organic growth and future acquisitions.
“Our goal is to grow faster than the category, so overtime we are going to grow share there."
“It’s going to happen in a combination of three things. One is the “big shift” in which we are significantly changing to end focus on luxury. We are stepping up our resources in PR, we are stepping up the ambassador and on-premise support, and in our distributors, again, we are carving our dedicated focus.”
“We will have much more feet on the street focused on building luxury.”
“It’s a combination of three things. First, organic growth of our luxury brands – some of which are hugely underdeveloped but we are optimistically hopefully about, like Don Julio, Johnny Walker Blue, Ciroc (growing at 25%). Second will be innovation. I think Nuvo will play in that space. And the third, we selectively and clearly look at acquisitions when the opportunities arise . Our strategic focus is on winning in reserve and winning in luxury.”
The five success-driving themes that Diageo claims is apparent throughout its entire business are the following:
1. Brand innovation
2. Premiumization around those brands
3. Leadership and marketing to support our brands
4. Building the best routes to market in each of our regions
5. Improving sales capability to a level comparable to the very best consumer goods businesses around the world.
ALCOHOL + WATER = SMIRNOFF SOURCE. Diageo’s wide range of brands (which currently make up 9 of the top 20 alcohol beverage brands) has helped drive growth the most in all markets, said Nick. But wait, what about RTDs? Clearly, the RTD business has seen some declining numbers as of late but Nick claimed it “is still a profitable business for us globally and we are doing some exciting things with it.”
Furthermore, lines of pre-mixed cocktails have helped to premiumize the category, while Diageo has also developed a number of RTDs, including Smirnoff Mojito and Jose Cuervo Margaritas, to “address consumers’ busy lives.”
“Innovation is key in the RTD segments and this summer we will see the regional launch of Smirnoff Source, which is alcohol plus spring water and the national rollout of Smirnoff Raw Tea,” said Diageo North America president Ivan Menezes.
Other growing trends include flavored spirits and the ever-present premiumization. According to Diageo, the flavored segment has opened up a wide opportunity, especially for Smirnoff Twist. At the same time, premiumization trends are apparent throughout the world and are evident in brands like Oronoco. Diageo has also expanded some of its franchises into the more premium territory, including Tanqueray No. Ten, Crown Royal XR and Johnnie Walker Blue Label. Reportedly, the Tony Sinclair campaign is turning the Tanqueray brand around in the U.S.
“As you know, Scotch is one of our most profitable and fastest growing categories,” said Nick, “especially for premium Scotch which led us to announced increased investment in Scotch during our interim.”
IRONING OUT ROUTE TO MARKET. Diageo has increasingly put more emphasis on improving its distribution network in the United States which now consists of a consolidated network of wholesalers in forty markets and over 2,000 sales people. Currently, the spirits giant is in the process of renewing contracts with its distributors. Let’s take a look at what the executives have to say on the subject.
“We are in the process of renewing our contracts with our distributors. The main issue is improving the game, which Jeff talked about, and moving forward in improving our relationship with our wholesalers. It’s about really building the muscle and capability to drive sustained top line growth. I’ll give you an example. In New York where we’re restructuring our arrangements right now, we are going to have a significantly stepped up presence on the on-premise in New York City. We have about 28 people building our luxury brands in New York and that’s the type of arrangements we are driving for,” said Diageo North American president Ivan Menezes.
However, later in the question and answer portion of the conference, Ivan expressed some blatant dissatisfaction with Diageo’s wholesalers:
“We have not set a specific goal to de-stock inventory levels right now but we are working through the efficiencies in the system to improve customer service first. I’d say that US wholesalers are still notoriously weak on customer service . If you walk into a supermarket in California on a Monday morning you’ll still find many stores out of Cuervo, out of Smirnoff because wine and spirits distributors for the most part do not deliver on Saturdays.”
“We have negotiated terms that are set at inventory levels and managing those down slightly every year, but our core goal here is to keep high customer service right through the system. We’re also working on much more collaborative planning.”
As far as inventory goes, Ivan remarked that “45 days is fairly typical.”
DIAGEO “DELIGHTED” WITH WINE BUSINESS. Ivan said the company’s wine business is on a roll showing 11% growth last fiscal year as the U.S. wine market continues to enjoy growing popularity, especially at the premium end of the market at over $10 a bottle. “In that segment of over $10 we are now the number two supplier in value,” he said.
“Our portfolio includes the two leading Napa wine brands, B.V. and Sterling, and a collection of other strong brands from California and Washington State, including Charlone Vineyards and Acacia. We are also the leading U.S. importer for high-end French wines, mainly Bordeaux and Burgundy. In addition, we have premium brands from Argentina, Australia and New Zealand.”
The company said those brands have helped drive growth in the critical on-premise market.
MOVING TOWARDS UPSCALE SPIRITS. In the past 52 weeks, Diageo’s spirits volume grew 4% with value up almost 6% in the U.S. Currently, Diageo’s spirits business is heavily focused on the premium, super-premium and ultra-premium segments which makes up 81% of its volume and 92% of its net value.
“Premium alcohol remains an affordable luxury that consumers are not willing to give up,” stated Ivan.
Consequently, Diageo’s portfolio allows it to compete on various pricing tiers, not just high-end. The various pricing segments “give us a great edge on our competitors as our brands can reach a range of consumers and eventually have them trade up to other Diageo products.”
Ivan feels confident that “our consumers are willing to pay more for our brands,” which has allowed Diageo to continue in price increases. The company claimed it is increasing and sustaining price premiums next to its most significant competitor. For example, one slide demonstrated the pricing increase Diageo has over its most significant competitor: Scotch +12%, Rum +14%, Gin +11%, Liqueur +3%, Tequila +21%.
In its quest for premiumization, Diageo named four core trends that will affect consumer trends in the U.S.
1. Premium Experiences
2. Experiential Leisure
3. Individual Expression
4. Celebrating Roots
5. Busy Lives
MILLENNIALS AND BABY BOOMERS. “Premium spirits represent the ultimate affordable luxury. In addition, the growth of 21-29 year olds and the baby boomer demographic is leading to an increase in the number of consumers who are most influenced by this desire to have it all.”
“21-29 yr. olds are seeking the hip, the cool and variety, and whatever is the latest and greatest out there.”
“There is evidence that the 25-29 year olds have grown up quicker than previous generations as a result of 9/11, terrorist threats and two wars. As a result they have adopted so-called ‘mature products,’ such as premium scotch whiskey, earlier than usual. Additionally, 25-29 year olds are switching from quantity to quality further fueling premiumization and further benefiting our brands.”
“Boomers are seeking complexity and character in addition to variety. This is leading them not only to brown spirits but to cocktails that remind them of their parent’s generation updated to reflect their contemporary taste and styles.”
A new campaign for Don Julio, along with the new Tanqueray Rangpur and Johnnie Walker Blue labels are just some of the ways Diageo is tapping into this “premium” opportunity. Ivan did recognize, however, that Diageo needs a higher share of luxury vodka.
“Consumers will not longer compromise because of their busy schedules,” said Ivan. “They won’t sacrifice taste for speed because they’ve learned they don’t have to. ‘If you don’t have what I want, I’ll go somewhere else.’”
UNDERWEIGHT IN ULTRA-PREMIUM SPIRITS. Although Diageo is working to grow in the ultra-premium category, it remains underweight in the U.S. with only 20% share. During the question and answer section, Ivan was asked further about their strategy, which includes a shift to luxury, organic growth and future acquisitions.
“Our goal is to grow faster than the category, so overtime we are going to grow share there."
“It’s going to happen in a combination of three things. One is the “big shift” in which we are significantly changing to end focus on luxury. We are stepping up our resources in PR, we are stepping up the ambassador and on-premise support, and in our distributors, again, we are carving our dedicated focus.”
“We will have much more feet on the street focused on building luxury.”
“It’s a combination of three things. First, organic growth of our luxury brands – some of which are hugely underdeveloped but we are optimistically hopefully about, like Don Julio, Johnny Walker Blue, Ciroc (growing at 25%). Second will be innovation. I think Nuvo will play in that space. And the third, we selectively and clearly look at acquisitions when the opportunities arise . Our strategic focus is on winning in reserve and winning in luxury.”
posted at 3:06 PM
<< Home