Diageo Gets in the Economic Spirit
Times are tough but Diageo says it’s prepared to battle the waning economy and changing consumer trends with a number of strategies and programs in place.
“It’s a good time to be in the alcohol business,” said Ivan Menezes, president of Diageo North America at the company’s Investor Conference. “Alcohol is resilient and spirits, beer and wine trends are holding steady.”
ECONOMY. He noted that since the trading environment is changing, the company has to be prepared to make quick decisions and at the same time stay focused on their long term strategy. Ivan admitted there is evidence that lower price brands are picking up and high end brands are slowing, but luckily premium growth continues.
“We believe part of the reason you’re seeing some softness is because of channel switching...consumers are switching to club and supercenters which aren’t tracked by IRI,” said Diageo North America’s senior vp of consumer planning and research, Jim Moseley.
All in all, the spirits category is growing at about 2% which is at par with last year’s numbers. There is a slowdown in top end growth but super and ultra premium brands are still outpacing growth in the low end. Research has shown that consumers are trading down to premium brands because those brands offer the best bang for their buck.
“Yes, we are seeing some trading down, but premium brands are not dead and trading up is not dead. You’ll simply see it less frequently then it has been and much more selectively,” said Jim.
BRAND POSITIONING. Ivan said Diageo’s benefits from its wide range of brands across categories and price points that appeal to a variety of consumers. The company is positioning certain brands for consumers who want to trade down and spending tactically to support the lower tier brands. However, they don’t want to switch the pendulum too far to value brands.
Premium brands remain the heart of the business. “This is where we intend to win,” said Ivan. Diageo particularly hopes to use marketing to drive strong growth in top tier vodka and Scotch
Diageo’s reserve brands are growing “nicely,” particularly Ciroc which “is on fire.” In the last four weeks volume was up over 75% over last year.
The company will continue investing in its brands with marketing because “evidence shows that companies that increase marketing during a downturn increase share during the downturn and for years to come,” said Ivan.
Diageo believes consumers are choosing brands that have a strong heritage, such as Captain Morgan and Smirnoff that also offers value for their money. As Jim put it, “consumers are not willing to pay for a bottle because it’s pretty.”
Jon Potter, CMO, said the company will continue to invest selectively in its reserve portfolio because it believes strong growth will return to super and ultra premium brands once the economy improves. And since the company wants to be prepared when consumers start trading back up, it is investing in the following reserve brands: Johnnie Walker Blue, Don Julio Blanco, Singleton, Ciroc, Ketel One, Nuvo and Ron Zacapa.
NEW PRODUCT LAUNCH. Similarly, Peter McDonough, general manager of innovation, said a recession is a good time to launch new products as long as they’re unique, relevant, properly priced and marketed well.
For example, Diageo recently launched new flavors for Smirnoff and is planning to expand its offerings with a Pomegranate flavor.
It’s also hoping to revive Jose Cuervo by tapping into consumer demand for silver tequila with its new upscale Especial Silver extension. “Consumers have an impression about what silver tequila represents,” he said.
In the spring, Diageo will launch more prepared cocktails, including Smirnoff Tuscan Lemonade, Captain Morgan Long Island Iced Tea, Captain Morgan Tropical Mojito Citrus and Mojito Mango. It’s also offering a new coffee flavored Baileys.
“We’re talking about engineered products that are hard to make. Its convenience and value...a value equation,” said Ivan.
ON PREMISE VS. OFF PREMISE. Another way the company is staying current with consumer trends is offering products meant for off-premise consumption. Many consumers are opting to drink at home to save money, so Diageo is offering more prepared cocktail with drinks such as mojitos and margaritas that are harder to make.
However, it’s not a huge shift from on-premise to off-premise. Jim noted that the vast majority of volume stays in the on-premise although it is slowing a bit from an average 75% to 72-73%.
Major urban centers are not seeing a major shift. It’s more in neighborhood bars and restaurants.
A new “Simply Cocktail” section in retail will help consumers make cocktails from scratch. The displays are found on the shelf, end of aisle or stand alone portable displays. The company is currently testing the strategy at select retail locations.
In terms of value brands, Diageo is implementing a “Smart Choice” program in markets where consumers are particularly hard hit. It will include merchandizing, packaging and promotional coupons.
Although Diageo wants to offer its value portfolio for consumers who are interested in trading down, it doesn’t want the focus to go from its premium brands. As a result, Diageo said it won’t advertise value brands on TV. It will stick to the right channels and in the right stores.
“We want to have that [value display] for that consumer who is coming in looking for that value and in fact inclined to trade down. In store execution will have the value brands more actively displayed.”
As the economy worsens, Ivan said we will likely see a small variety of alcohol beverage brands in the on-premise as retailers try to keep up.
“I do think as we go through this and the pressure from a category management standpoint in retailers will lead to strong brands getting a stronger share on the shelf,” said Ivan. “In wine, the smaller companies and brands will come under a lot more pressure....those dynamics favor strong brands. That’s a part of our advantage.”
DEMOGRAPHICS. Jim told listeners that there are roughly 104.6 million total beverage alcohol consumers in the U.S. About 62 million only drink spirits, while 52.4 million drink wine and 71 million drink beer.
For the first time, consumers in the 21-29 year old demographic (millennials) are more likely to consume wine then previous generations. The 30-34 year old segment historically switched consumption to beer but nowadays is more open to spirits and beer. Lastly, 50-69 year olds remain strong, mainly sticking to spirits and wine.
Hispanic consumers are generating a very strong growth rate. Almost half of millennial consumers will be Hispanics in the foreseeable future. Consumption growth of African-Americans also outpaces the rest of the market. Interestingly, Diageo said African-American drinkers have a huge impact on overall trends and can make or break brands.
POSSIBLE ACQUSITIONS? We don’t think it will happen in the near future since Ivan seemed focused on organic growth, however it’s always interesting to speculate. “Organic growth and innovation will continue...it will be selective, smart and even more disciplined in these times...with the right opportunities we definitely will move but we fundamentally see coming through this with strong organic growth and marketing, innovation will give us strong performance,” said Ivan.
HOLIDAYS. Ivan said he “feels confident going into the holidays...we feel consumers will be there to pick up well known, trusted brands...execution will make the difference.”
Stay tuned for our coverage on Diageo’s wine portfolio Monday...
CALIFORNIA INCREASES ALCOHOL TAXES
Times are tough in California. In effort to make up for a huge budget gap, Gov. Schwarzenegger proposed $4.4 billion in new taxes yesterday. This includes a nickel-a-drink on beer, wine and spirits at the wholesale level, according to the AP. In all, the state will raise an extra $293 million this year. Schwarzenegger also proposed a 1.5% hike in sales tax.
"It's unfortunate that at a time when the hospitality industry is under such stress the Governor would propose an increase on the already burdensome alcohol excise tax. As restaurants throughout the state continue to struggle through this economic downturn, now is not the time to hit these businesses with a tax increase," said Discus vp Adam Smith.
WSD BRIEFS:
RUTHERFORD WINE COMPANY ANNOUNCED THE APPOINTMENT OF Bruce Held as senior vp, national sales. Bruce spent over 20 years with The Robert Mondavi Corporation in key sales capacities including V.P. Sales for the Eastern U.S.
PERNOD SELLING VINEYARDS? A report in French Publication Challenges claims Pernod has appointed two investment banks to oversee the sale of vineyard operations in Spain, reports Just-Drinks. Pernod declined to comment. Both Patrick Ricard and Pierre Pringuet have mentioned the possibility of disposing of more marginal brands.
REMY COINTREAU USA SAYS Jennifer Simonetti-Bryan, RCUSA National Educator, receives Master of Wine (MW) title from the Institute of Masters of Wine (IMW). She is the fourth woman in the U.S. to obtain the Master of Wine Title.
ANGOSTURA HOPES TO EXPORT 1M CASES OF APPLE RUM to the U.S. within the next three years said its new chairman Lawrence Duprey.
Until Monday,
Megan
“I have learned to use the word 'impossible' with the greatest caution.”
Wernher von Braun
Herbert Bayard Swope
--------- Sell Day Calendar ----------
Today's Sell Day: 5
Sell days this month: 19
Sell days this month last year: 21
This month ends on a: Fri.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1
BEER SUMMIT 2009 - The Four Seasons, Austin, Texas - Join us for great speakers, intelligent discourse, good food, and of course great beer at the next Beer Summit on March 1 - 2, 2009. Click here: http://tinyurl.com/beersummit
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
“It’s a good time to be in the alcohol business,” said Ivan Menezes, president of Diageo North America at the company’s Investor Conference. “Alcohol is resilient and spirits, beer and wine trends are holding steady.”
ECONOMY. He noted that since the trading environment is changing, the company has to be prepared to make quick decisions and at the same time stay focused on their long term strategy. Ivan admitted there is evidence that lower price brands are picking up and high end brands are slowing, but luckily premium growth continues.
“We believe part of the reason you’re seeing some softness is because of channel switching...consumers are switching to club and supercenters which aren’t tracked by IRI,” said Diageo North America’s senior vp of consumer planning and research, Jim Moseley.
All in all, the spirits category is growing at about 2% which is at par with last year’s numbers. There is a slowdown in top end growth but super and ultra premium brands are still outpacing growth in the low end. Research has shown that consumers are trading down to premium brands because those brands offer the best bang for their buck.
“Yes, we are seeing some trading down, but premium brands are not dead and trading up is not dead. You’ll simply see it less frequently then it has been and much more selectively,” said Jim.
BRAND POSITIONING. Ivan said Diageo’s benefits from its wide range of brands across categories and price points that appeal to a variety of consumers. The company is positioning certain brands for consumers who want to trade down and spending tactically to support the lower tier brands. However, they don’t want to switch the pendulum too far to value brands.
Premium brands remain the heart of the business. “This is where we intend to win,” said Ivan. Diageo particularly hopes to use marketing to drive strong growth in top tier vodka and Scotch
Diageo’s reserve brands are growing “nicely,” particularly Ciroc which “is on fire.” In the last four weeks volume was up over 75% over last year.
The company will continue investing in its brands with marketing because “evidence shows that companies that increase marketing during a downturn increase share during the downturn and for years to come,” said Ivan.
Diageo believes consumers are choosing brands that have a strong heritage, such as Captain Morgan and Smirnoff that also offers value for their money. As Jim put it, “consumers are not willing to pay for a bottle because it’s pretty.”
Jon Potter, CMO, said the company will continue to invest selectively in its reserve portfolio because it believes strong growth will return to super and ultra premium brands once the economy improves. And since the company wants to be prepared when consumers start trading back up, it is investing in the following reserve brands: Johnnie Walker Blue, Don Julio Blanco, Singleton, Ciroc, Ketel One, Nuvo and Ron Zacapa.
NEW PRODUCT LAUNCH. Similarly, Peter McDonough, general manager of innovation, said a recession is a good time to launch new products as long as they’re unique, relevant, properly priced and marketed well.
For example, Diageo recently launched new flavors for Smirnoff and is planning to expand its offerings with a Pomegranate flavor.
It’s also hoping to revive Jose Cuervo by tapping into consumer demand for silver tequila with its new upscale Especial Silver extension. “Consumers have an impression about what silver tequila represents,” he said.
In the spring, Diageo will launch more prepared cocktails, including Smirnoff Tuscan Lemonade, Captain Morgan Long Island Iced Tea, Captain Morgan Tropical Mojito Citrus and Mojito Mango. It’s also offering a new coffee flavored Baileys.
“We’re talking about engineered products that are hard to make. Its convenience and value...a value equation,” said Ivan.
ON PREMISE VS. OFF PREMISE. Another way the company is staying current with consumer trends is offering products meant for off-premise consumption. Many consumers are opting to drink at home to save money, so Diageo is offering more prepared cocktail with drinks such as mojitos and margaritas that are harder to make.
However, it’s not a huge shift from on-premise to off-premise. Jim noted that the vast majority of volume stays in the on-premise although it is slowing a bit from an average 75% to 72-73%.
Major urban centers are not seeing a major shift. It’s more in neighborhood bars and restaurants.
A new “Simply Cocktail” section in retail will help consumers make cocktails from scratch. The displays are found on the shelf, end of aisle or stand alone portable displays. The company is currently testing the strategy at select retail locations.
In terms of value brands, Diageo is implementing a “Smart Choice” program in markets where consumers are particularly hard hit. It will include merchandizing, packaging and promotional coupons.
Although Diageo wants to offer its value portfolio for consumers who are interested in trading down, it doesn’t want the focus to go from its premium brands. As a result, Diageo said it won’t advertise value brands on TV. It will stick to the right channels and in the right stores.
“We want to have that [value display] for that consumer who is coming in looking for that value and in fact inclined to trade down. In store execution will have the value brands more actively displayed.”
As the economy worsens, Ivan said we will likely see a small variety of alcohol beverage brands in the on-premise as retailers try to keep up.
“I do think as we go through this and the pressure from a category management standpoint in retailers will lead to strong brands getting a stronger share on the shelf,” said Ivan. “In wine, the smaller companies and brands will come under a lot more pressure....those dynamics favor strong brands. That’s a part of our advantage.”
DEMOGRAPHICS. Jim told listeners that there are roughly 104.6 million total beverage alcohol consumers in the U.S. About 62 million only drink spirits, while 52.4 million drink wine and 71 million drink beer.
For the first time, consumers in the 21-29 year old demographic (millennials) are more likely to consume wine then previous generations. The 30-34 year old segment historically switched consumption to beer but nowadays is more open to spirits and beer. Lastly, 50-69 year olds remain strong, mainly sticking to spirits and wine.
Hispanic consumers are generating a very strong growth rate. Almost half of millennial consumers will be Hispanics in the foreseeable future. Consumption growth of African-Americans also outpaces the rest of the market. Interestingly, Diageo said African-American drinkers have a huge impact on overall trends and can make or break brands.
POSSIBLE ACQUSITIONS? We don’t think it will happen in the near future since Ivan seemed focused on organic growth, however it’s always interesting to speculate. “Organic growth and innovation will continue...it will be selective, smart and even more disciplined in these times...with the right opportunities we definitely will move but we fundamentally see coming through this with strong organic growth and marketing, innovation will give us strong performance,” said Ivan.
HOLIDAYS. Ivan said he “feels confident going into the holidays...we feel consumers will be there to pick up well known, trusted brands...execution will make the difference.”
Stay tuned for our coverage on Diageo’s wine portfolio Monday...
CALIFORNIA INCREASES ALCOHOL TAXES
Times are tough in California. In effort to make up for a huge budget gap, Gov. Schwarzenegger proposed $4.4 billion in new taxes yesterday. This includes a nickel-a-drink on beer, wine and spirits at the wholesale level, according to the AP. In all, the state will raise an extra $293 million this year. Schwarzenegger also proposed a 1.5% hike in sales tax.
"It's unfortunate that at a time when the hospitality industry is under such stress the Governor would propose an increase on the already burdensome alcohol excise tax. As restaurants throughout the state continue to struggle through this economic downturn, now is not the time to hit these businesses with a tax increase," said Discus vp Adam Smith.
WSD BRIEFS:
RUTHERFORD WINE COMPANY ANNOUNCED THE APPOINTMENT OF Bruce Held as senior vp, national sales. Bruce spent over 20 years with The Robert Mondavi Corporation in key sales capacities including V.P. Sales for the Eastern U.S.
PERNOD SELLING VINEYARDS? A report in French Publication Challenges claims Pernod has appointed two investment banks to oversee the sale of vineyard operations in Spain, reports Just-Drinks. Pernod declined to comment. Both Patrick Ricard and Pierre Pringuet have mentioned the possibility of disposing of more marginal brands.
REMY COINTREAU USA SAYS Jennifer Simonetti-Bryan, RCUSA National Educator, receives Master of Wine (MW) title from the Institute of Masters of Wine (IMW). She is the fourth woman in the U.S. to obtain the Master of Wine Title.
ANGOSTURA HOPES TO EXPORT 1M CASES OF APPLE RUM to the U.S. within the next three years said its new chairman Lawrence Duprey.
Until Monday,
Megan
“I have learned to use the word 'impossible' with the greatest caution.”
Wernher von Braun
Herbert Bayard Swope
--------- Sell Day Calendar ----------
Today's Sell Day: 5
Sell days this month: 19
Sell days this month last year: 21
This month ends on a: Fri.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1
BEER SUMMIT 2009 - The Four Seasons, Austin, Texas - Join us for great speakers, intelligent discourse, good food, and of course great beer at the next Beer Summit on March 1 - 2, 2009. Click here: http://tinyurl.com/beersummit
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
posted at 2:16 PM
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