Diageo Sees Potential in Lower Volume Offerings

FILED SEPTEMBER 13, 2011

Dear Client:

Diageo is taking a page from other companies, such as MillerCoors' craft beer subsidiary Tenth & Blake and even Beam's Rising Stars strategy, and creating its own standalone division that will focus on developing smaller, lower volume brands. Or what Diageo calls in its statement, "high potential brands." They hinted at this in their year-end earnings release a few weeks ago, but at the time did not give any further details. The current president of Diageo Chateau & Estate Wines, Sandra LeDrew, will head the new Catalyst unit and report to Diageo USA president Larry Schwartz. And what exactly are those brands? Tanqueray Sterling Vodka, Pimms, Moon Mountain Vodka, Rokk Vodka, Ursus Vodka, Jeremiah Weed, Parrot Bay, Myers's Rum, Rumple Minz and Goldschlager to name a few. Just the vodkas alone are answers to fast growing competitors like Svedka, for example. Don't know much about the bulk of the Catalyst brands? Neither do we but apparently Diageo is hoping to change that and has a goal to double sales from where they are now at about $250 million to $500 million by the summer of 2014.

There's evidence of consumers shying from large national brands like Smirnoff and Captain Morgan. They want choice and they want the thrill of discovery. On the one hand you're seeing growth from smaller, premium and super-premium brands, and on the other hand a number of lower-priced offerings are doing well as Americans continue to drink more at home. So it's probably not a bad idea for Diageo to allocate more resources to these lower-volume brands because it can't hurt, right? Certainly they have the money.

UPDATE ON DC&E. The departure of Sandra as president of DC&E leaves a hole that will be filled by Greg Kryder. Greg has a lot on his plate as he will lead DC&E into becoming a fully integrated wine supply and demand function. Now that DC&E has completed the divestment of its non-core brands, it has joined with Diageo's spirits selling divisions to be one corporate-wide sales team. Recall that since 2010, Diageo has entered into a 20-year sale and leaseback arrangement for Beaulieu and Sterling. It also sold its Barton & Guestier Bordeaux business, Canoe Ridge, Sagelands, Echelon Vineyards and Moon Mountain. As with other spirits companies, it looks like Diageo is shying away from wine and focusing on the more financially predictable spirits side.

Greg was one of the founding members of DC&E when it was formed over 10 years ago, where he then served as vp of finance. Currently he serves as finance director at Diageo Great Britain and will transition to his new position over the coming weeks. He will then become a member of Diageo's North American Executive team and will report to David Cutter, president Americas Supply, effective October 1.

This most recent development comes after Diageo has made a number of changes to its distributor agreements, which includes aligning more closely with Southern Wine & Spirits and sending former execs to head dedicated sales teams within its major distributors, including Glazer's, Southern and Charmer Sunbelt.

WSD BRIEFS:

PAUL WALSH TAKES A PAY CUT. But don't feel sorry for him - he still made almost $7 million in the year ended June 30, according to Diageo's 10-K filing. That included $1.94 million under a long-term incentive plan, down from $4.5 million last year, $2.96 million from an annual incentive plan and a base salary of $1.8 million. New cfo Deirdre Mahlan was paid a total of $2.47.

IVANA B SKINNY HITS SHELVES, CHALLENGES SKINNYGIRL. International Spirits has launched Ivana B Skinny, a low-calorie, wine-based cocktail that is available in Margarita, Cosmopolitan and Appletini flavors with more flavors on the way. "Celebrity is great for launching a product, but if your product can't satisfy the tastes of your audience, it's not going to sustain you," said ceo Tony Elward, seemingly targeting Skinngirl which was created by reality star Bethenny Frankel. But at the growth level they are experiencing, they're bound to see a host of competitors. "The bottom line: people prefer the flavor of Ivana B Skinny Cocktails over other brands," he claimed. It can currently be found in IN, MO, KS, LA, TN, AR, KY, FL, TX, CA, GA, SC, DC, MD, NM and AZ, with plans to expand to an additional 20 states in 2012. They plan to distribute 50,000 cases through the end of 2011 with up to an additional 500,000 cases shipped in 2012. It comes in a 750ml glass bottle with a suggested retail of $13.99.

DON JULIO BRINGS IN SOMETHING NEW. Tequila is becoming a highly competitive category, particularly among the higher priced set. And Don Julio is looking to differentiate by bringing in an Anejo Claro, which is a combination of Anejo and Blanco flavors, to brand extension Tequila Don Julio 70. It contains the "smooth and complex" flavor of an Anejo but is filtered to bring back the agave flavor typically found in a Blanco, the company said. The blue agave is distilled and aged for 18 months in American White Oak barrels before it is filtered. The end product comes out clear. It will be available in the fall nationwide with a suggested retail price of $70. Check out the bottle shot below.

TREASURY WINE ESTATES KICKS OFF BRAND FOCUSED REORG. Beginning with the appointment of Angus McPherson as the managing director of Rosemount, effective Oct 1, Treasury Wine Estates is rolling out a new global organizational structure. It will consist of 5 new brand managing director positions and a new chief supply officer position in addition to the existing regional and corporate set-up. Angus has worked both with Casella Wines and Brown-Forman in the past. Most recently he was export sales manager for Casella. He will report directly to Treasury Wine Estates chief David Dearie.

WSD PIC: Don Julio 70:




Until tomorrow, Megan

"Those who dream by day are cognizant of many things which escape those who dream only by night."
Edgar Allan Poe

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