DIAGEO IS POISED TO MAKE AN ALL-OUT marketing assault that will start to hit over the next year and significantly boost total marketing spending. The company is focusing exclusively on its alcohol lines and upgrading the marketing support behind key brands after selling off its two largest non-alcohol properties (Pillsbury in 2001 to General Mills in a $10.5 billion stock swap; Burger King earlier this year to Texas Pacific Group for $2.3 billion), and integrating new assets (acquired Seagram for $5.3 billion in 2001 through a partnership with Pernod Ricard). The plan calls for more consumer-driven promotion, leveraging a year’s worth of consumer research and upgraded research tools that Diageo has persuaded distributors to adopt.
The marketing acceleration stems from Diageo’s new corporate-wide growth initiative. “Over the last 12 months we’ve put a lot of work into understanding what drives our consumers and developing the right sort of promotion strategy,” says Mark Waller, executive VP, consumer strategy and marketing. “That’s taken a lot of hard analytical work. You’ll start to see over the next 12 months the output of that new promotional focus.” That means more direct marketing, more tailored promos for regional brands, more ethnic marketing and more consumer trial.
Diageo devoted $210.7 million to media spending in 2002 and $66.9 million through May 2003, per TNS Media Intelligence/CMR and Publishers Information Bureau. Gaining market share in today’s economy is an uphill battle, even for Diageo. In 2003 the company does not expect to beat the 1% organic growth volume and 4% organic net sales growth it registered in the first half of the year. “Diageo is trying to build brands in a category that’s fairly limited in terms of the types of tools you can use — even in promotion,” says Bryan Spillane, beverage analyst at New York City-based Banc of America Securities. “There are no national TV spots for many brands, and regulations vary widely on promotions from state to state. Diageo has to find ways to build its equity.”
When it comes to promotion, the “new” Diageo “wants to be known for being good, not just for being big,” Waller says.
There’s no question that Diageo is big. Its portfolio dominates the spirits industry with 10 of the top 20 spirits and 23% market share (nearly double the next closest competitor).
As for “being good,” Diageo has started by acquiring a better sense of who its customers are across the entire brand portfolio, in part by convincing distributors to invest more heavily in tracking sales data as well as expanding the relationship management components of Diageo campaigns.
The company is building the right databases for the right brands. “Direct dialog is a fundamental driver,” says Waller. As a result, the company has begun to build more direct-to-consumer work, including sampling, trial and on-premises, for key brands — including Crown Royal, Guinness and Bailey’s.
Guinness, for example, is entering the second year of its Believer mentor program designed to convert Guinness drinkers into effective brand ambassadors. Borrowing the idea from sister brand Johnnie Walker, Guinness develops targeted lists of consumers who are passionate about the Guinness brand and keeps a close eye on their attitudes. “We know where they stand when they walk through the door and where they stand on the brand six months later,” says Tom Lynch, account director at Darien, CT-based Colangelo Synergy Marketing, which handles the program. Prospective brand ambassadors gather for a social outing and receive training on how to promote the Guinness line.
Stirring the mix
While Diageo will focus the bulk of its resources on its “global priority brands” (Johnnie Walker, Cuervo, Smirnoff, Bailey’s), its “local priority brands” (Captain Morgan and Crown Royal) will also get the attention they require. “Brand emphasis varies by market and by state,” says Waller. “A brand like Crown Royal is massive in the Southeast, but not such a big brand in the Northeast. Does that mean it doesn’t get priority? Absolutely not.”
If Diageo has a success model it wishes to replicate for other brands, it’s Smirnoff. “Five years ago it was a relatively stagnant and pedestrian brand in the industry,” Waller says. “Now it’s growing in double-digit rates. More importantly, it’s got an excitement and vibrancy due to product innovations like Smirnoff Ice and Twist that have really re-energized the brand. Smirnoff is as much about how we’ve taken it to market as it is how we’ve positioned it strategically.”
Starting this month, Diageo will re-invent the entire Smirnoff trademark, complete with new advertising, new promotion and new packaging. “The only thing we haven’t changed is the liquid,” says brand manager Sharon Lichten-Stenger. Playing off the reality TV craze, the Smirnoff campaign, called Get Discovered, dangles the chance for a consumer to star in a Smirnoff TV spot.
While Diageo branding appeals to a wide range of consumers, Smirnoff promotions have been especially diverse, ranging from aggressive initiatives toward gays (including sponsorship of gay rights organization Pride) to sponsorship of NASCAR Winston Cup driver Matt Kenseth.
Similarly, Crown Royal has adjusted promotion for its own diverse base, which spans the gamut from African-Americans to Asians to fishermen (yes, fishermen). One of Crown Royal’s most successful programs is Team Crown Royal, featuring 22 professional anglers. The five-year-old program has gone beyond tournament sponsorships to on-premise activities that include a simulator that lets participants fish.
Look for Diageo to bolster ethnic initiatives as well. “You’ll see significantly more emphasis proportionate to the size of the ethnic opportunity,” Waller says. “Something like Crown Royal has a massively diverse ethnic consumer base, while other brands don’t. Our approach won’t be a one-size fits all.”
Diageo is continuing to look for franchise promotions such as Team Crown Royal and the Captain Morgan Keys to Adventure. “These demonstrate that consistency in activity and messaging is fundamental for promotions just as it is in advertising,” Waller says.
Bottoms up for beer
Diageo may be the 800-pound gorilla when it comes to spirits, but it’s a lesser force when it comes to beer, at least in the U.S. — and in the U.S., beer is king. Diageo’s brands such as Guinness, Harp, Red Stripe (and formerly Bass) accounted for 1.7 million barrels last year, a fraction of leader Anheuser-Busch’s 102.5 million barrels, per industry newsletter Beer Marketer’s Insights.
Losing Bass when Diageo returned distribution rights to Belgium-based Interbrew SA in July “was a big hit to their portfolio,” says Eric Shepard, executive editor at Beer Marketer’s Insights. “If you take out Smirnoff Ice, that makes them a smaller player in the U.S. than something like Boston Beer.”
While Diageo doesn’t enjoy the distribution advantages with beer that it does with spirits, the company is looking to gain more of a foothold for its Guinness and Red Stripe brands. “Guinness has always had good support. Of all our imports, we invest more per case on Guinness. In recent years, we’ve moved away from on-premise with Guinness Draft to off-premise with Guinness Draft in a Bottle,” says Chris Parsons, marketing director for beer.
In October, Guinness will introduce St. Pumpkin’s Day, a merchandising program for Halloween, one of the best-selling holidays for the alcohol industry. “It’s a wink and a nod to Guinness’ ownership of St. Patrick’s Day,” Colangelo’s Lynch says. The program will include both on- and off-premise displays.
Meanwhile, Red Stripe is rising above the T&A themes that dominate much of today’s beer marketing by focusing instead on its Jamaican origins (and not just beach parties). “Red Stripe has gone from zero support three years ago to really ramping up investment,” Parsons says.
The three-year-old Red Stripe Jamaican Independence Day sweepstakes has become a franchise for the brand. The sweeps dangles a trip to Jamaica for Independence Day on Aug. 6, and fills the long haul between July 4 and Labor Day, when beer brands have little to tie into. “It’s a great opportunity to own something legitimate and not have to fight for Fourth of July display space against the big beers,” Lynch says.
Playing rough
Whether marketing beer or spirits, Diageo has bucked the rules. Last year it tried to get NBC to depart from long-time voluntary restrictions on TV ads for spirits; negotiations fell through on a national level, but Diageo was able to recruit about 400 local TV stations to take its ads. Diageo is also pushing to reform laws that prohibit the sale of alcohol on Sunday, a revision that many cash-strapped states are considering.
“I don’t think we’re challenging [the standards]; I think consumer trends are changing,” Waller says. “Many of the laws that exist were written in the 19th century and lot has changed — how consumers shop, how they buy, how they view media — in the last 71 years. I don’t see it as our agenda, but a consumer agenda.”
One of Diageo’s more revolutionary moves has been the overhaul of its distribution network to consolidate distributor accounts. Diageo now deals with as little as one distributor for an entire state — a far cry from the complexity of distribution that forces distillers to split their brand portfolio among multiple distributors. Fewer layers means better service. “Nobody focuses on distribution like Diageo,” says Tom Pirko, president of Santa Barbara, CA-based consultancy BevMark LLC. “They give distributors everything they need.”
The company signs five-year contracts and gets distributors to secure better shelf space for Diageo brands, conduct more on-premise marketing and acquire a better sense of what consumers want through retailer data and on-premise promotion.
It also offers some key efficiencies for distributors. “We get to sell the whole portfolio,” says Julian Burdynski, executive VP at Diageo distributor Judge & Dolf. “In the old way, Diageo wouldn’t share consumer-based information with distributors because the distributor would be working with several different suppliers. Now I have one person for Smirnoff and Bailey’s just for Illinois. She can concentrate on those brands and talk to retailers to really find out what’s working and what’s not.”
Diageo can also field a dedicated sales force in each market, similar to what Anheuser-Busch has done to gain dominance in the U.S. beer market. Today, 75% of Diageo’s U.S. volume is already sold through distributors using or creating a dedicated sales force for Diageo brands. “The ability to take all of our activities through one single, dedicated selling force will offer massive added value,” Waller says. “First, we can implement more activities; second, we can measure and evaluate them more; third, and probably most importantly, we can ensure distributor buy-in as those are the only activities they’ve got to run.”
Diageo consolidated its on-premise promotion accounts with New York City-based U.S. Concepts this summer to execute programs more efficiently. “We’ll be able to put more focus around fewer, bigger ideas to drive focus and attention,” Waller says.
Spending ‘crazy money’
Having dedicated distributors can also help Diageo secure space for new products. Since Smirnoff Ice rejuvenated the entire Smirnoff line, Diageo is looking for more product innovations to bolster market share and create new retail opportunities. This year, Diageo introduced Smirnoff Ice Triple Black and Bailey’s Minis to move the latter brand beyond the traditional liquor store.
However, new products are risky, as Diageo is well aware. Flush with success from Smirnoff Ice, Diageo introduced Captain Morgan Gold, based on its popular rum brand. Once in market, though, Diageo found itself buying back shipments from distributors. Diageo dropped Captain Morgan Gold in October 2002.
“Flavored malt beverages are a narrow definition of a much bigger opportunity, which is consumers looking for new experiences,” Waller says. “You never manage a new opportunity without some failure. We’ve been hugely successful with Smirnoff Ice, not so successful with Captain Morgan Gold. Hopefully we won’t repeat those same mistakes.”
One of the bigger mistakes Diageo could make right now is playing it too safe. “The company has had a string of good luck,” says Pirko. “They could make a mistake by not growing it out further. That doesn’t mean just adding brands, it means spending money on the brands they’ve already got. Diageo has momentum on their side; it’s time to spend crazy money.”
And that sounds exactly like what Diageo is going to do. “We have the jewels of the industry and in some cases paid a lot of money for them,” Waller says. “Making them grow has to be our core priority.”
All in the Family
PART OF DIAGEO’S strategy is to work more closely with its marketing agencies. “Historically, we’ve been relatively ad hoc in how we’ve taken on agencies and scattered in our approach,” says Mark Waller, executive VP, consumer marketing and strategy at Diageo. “We’re beginning to learn there’s a much more powerful way to manage an agency through a closer relationship.”
That means coordinating more closely with agencies in the field. “Diageo has built an infrastructure with points of contact for all individual disciplines,” says Tom Lynch, account director at Darien, CT-based Colangelo Synergy Marketing, which began working with Diageo beer brands in 2000 and has since expanded to spirits such as the Smirnoff trademark. “Rather than have the brand teams solely accountable for everything, there is excellent support to focus on specific areas.”
In July, Diageo tapped New York City-based U.S. Concepts as agency of record for on-premise marketing for Diageo North America and Diageo-Guinness brands. U.S. Concepts also renewed its contract with Schieffelin & Somerset, the joint venture between Diageo and LMVH Moet Hennessy Louis Vuitton. Diageo also renewed its contract with CoActive Marketing Group, which will handle consumer sampling and restaurant training for 20 brands, including Smirnoff, Captain Morgan and Johnnie Walker.
“We’re developing much more strategic relationships,” Waller says. [Our agencies are] working across a range of brands and are starting to be much more part of our planning and strategic process rather than just the agency you call in to handle a specific idea.”
In some cases, that may include seeding the ranks. Robert Bernstein, former VP-regional marketing for Seagram, joined U.S. Concepts as executive VP and will oversee the agency’s work with Diageo. “I think there’s a huge value to having people move across disciplines,” says Waller. “That’s how you learn how the whole toolkit works and also how you transfer knowledge to your agency. In Bob’s case, he’s bringing massive understanding of brands that they’re just picking up and starting to deal with. He also brings expertise on the way those brands were built on-premise previously.”
The Party’s Over
THE TREASURY DEPARTMENT could take some of the fizz out of the “malternatives” segment by seeking to reclassify the beverages as spirits rather than beer.
In March, the department’s Alcohol and Tobacco Tax and Trade Bureau (TTB) announced that it was eyeing the products more closely after discovering that many malternatives derived a significant portion of their alcohol from flavorings containing distilled spirits.
A change in formulation could result in higher taxes for manufactures, as well as limit the marketing options for malternatives since liquor brands are prohibited from advertising on TV.
However, an even bigger problem for distillers is the waning popularity of the segment among consumers. At its height, the malternatives segment generated $600 million in sales, with marketers devoting more than $70 million to advertising, according to New York City-based CMR. Since then, market share has slipped dramatically. Diageo had a smash hit with Smirnoff Ice but a complete bust with Captain Morgan Gold. The company, which identifies malternatives as a “ready to drink” (RTD) category, says that despite weakness it expects RTD volume to be up 5% for the full year. But while flagship brand Smirnoff Ice continues to dominate the flavored malt beverage category with 37% market share, Diageo expects brand volume for Smirnoff Ice to be down 12% for the full year.
“This category started losing share last fall,” says Eric Shepard, executive editor at trade newsletter Beer Marketer’s Insights. “Defenders like Diageo said that maybe this was more of a summer product and consumers would be going back to it. It’s still too early to predict the demise of malternatives, but we don’t see consumers coming back to them.”
And with popularity slipping, a reclassification could push marketers to abandon malternatives. “This is a fading category,” says Tom Pirko, president of Santa Clara, CA-based consultancy BevMark. “Consumers haven’t shown any real interest, and while the big guys like Smirnoff and Bacardi have enough market share to continue, any additional rulings are going to have other manufacturers wondering if [malternatives] are worth it.”
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