Jeff Keane, executive VP marketing, Schieffelin &Somerset; Ron Anderson, executive VP commercial strategy, Diageo North America; Paul Clinton, CEO,

Transcription

1 Pictured left to right: Jeff Keane, executive VP marketing, Schieffelin &Somerset; Ron Anderson, executive VP commercial strategy, Diageo North America; Paul Clinton, CEO, Diageo North America; Mark Waller, executive VP, consumer strategy and marketing, Diageo North America; John Esposito, president, Schieffelin & Somerset; Ivan Menezes, president and COO, Diageo North America.

2 Earning your Business The Industry s Largest Supplier Knows It s Better Execution, Not Size, That Keeps Licensees Coming Back. By Kristen Wolfe Photographs by Andrew Kist The executive teams of Diageo and Schieffelin & Somerset talk a lot about the focus on improving efficiency, about new alignment with customers and consumers, and creative strategies for increasing the value offered by each of the companies brands. What you won t hear anyone talk about is size. Diageo is the world s largest supplier of beverage alcohol, but no one within the organization seems to dwell on that. Our goal is to be a resource that retailers can look to for innovation, creativity and tremendous brand support, says John Esposito, president, Schieffelin & Somerset. It is not about size; it is about being best in class, and leading an industry towards the future. From an operations standpoint, Ivan Menezes, president and COO, Diageo North America, also finds size to be irrelevant. We have to earn our business every day with every customer by demonstrating we can execute better than anyone else, he says. But sometimes size may have its advantages. It enables you to effect dramatic change, and in the case of Diageo and Schieffelin & Somerset, it s allowing them to transform an industry. The companies created a big buzz over a year ago when they began a process to select a strategic distributor in each state and build dedicated sales forces within them that focus entirely on their brands. Although much of the industry was anxious about these changes, Diageo North America s CEO, Paul Clinton, believes they will improve wholesaler relations in the longterm. When we deal with our customers, we want them to deal with us because they want to; because they like our brands and the way we do business, he says. Our goal is to develop a single-minded approach to the marketplace with regard to wholesalers. By working more closely with our strategic distributors, the relationship can grow closer, communication and social responsibility programs will improve and all three tiers can achieve growth. Understanding how Diageo got to where it is today requires a study of its past. Diageo was formed in 1997 by the merger of Grand Metropolitan and Guinness. For many years, GrandMet operated under old familiar industry names such as Heublein and Paddington. GrandMet was a highly diverse company with more than half of its income generated from well-recognized brands in food and retail. In 2000, Diageo announced a new strategy, which focused the company on its premium drinks business. Since that time, Diageo has concluded major transactions including the sales of Pillsbury and Burger King, and the acquisition (jointly with Pernod Ricard) of the Seagram s spirits and wine business. Schieffelin & Somerset was established in 1794 as an apothecary in New York City. During prohibition, Schieffelin & Co. as it was then known, was granted permission to import medicinal liquor and began its association with Moët & Chandon Champagne. Business was so good that Dr. William Schieffelin decided to create a wine and spirits importing division immediately following repeal. In 1980 Moët-Hennessy, a holding company formed by the leading Champagne and Cognac houses, acquired con-

3 trol of Schieffelin & Co., exclusive importer of the two lines. Today, Schieffelin & Somerset Co. is a joint venture of Diageo and LVMH (Moët Hennessy Louis Vuitton). Today, North America represents 40-percent of all Diageo s business. The company has a 25-percent volume share of the US spirits market, but that number is even higher in dollar terms (since a big part of the nation s business is done in low-end spirits). Yet in spite of the success of Diageo and Schieffelin & Somerset in the marketplace, the leadership believes progress has been hindered by inefficiencies within the system; inefficiencies often driven by suppliers at the distribution level that prohibited their Our consolidation process is nearly complete, but the real work is about to begin as we work more closely with our strategic distributors and get closer to the consumer. Paul Clinton, CEO, Diageo brands from reaching full potential. We had all these Diageo companies operating independently, all using different wholesalers. There was very little synergy among them, explains Ron Anderson, executive VP commercial strategy for Diageo, who is the key architect of the company s wholesaler consolidation initiative. Anderson began the process by surveying 23 leading wholesalers from around the country so that he could learn from them how to improve efficiency and effectiveness. He set out to find where value was created and where value was destroyed and he discovered that suppliers were responsible for much of the confusion and wasted resources. Wholesalers and retailers could not capture efficiencies because of the way that suppliers conducted their business, he explains. Even in a simple customer service situation, different suppliers have different policies and the distributors have to deal with this. If you look at the value chain, our business system was relatively inefficient from the supplier base to the end consumer, observes Menezes. As we are studying our supply structure we will be doing collaborative forecasting and planning with the distributors instead of planning separately and telling them what to do. We will work with a shared vision of how to grow the business. Just how will all of this benefit the licensee? For retailers, there is less waste, more unity, and a clear understanding of the amount of support they are getting from each brand, says Esposito. Communication with the retailer will be enhanced through the dedicated sales forces within our strategic distributors and brokers, and that provides the opportunity to grow this business for the longterm for all three tiers. Because all three tiers will be aligned with a similar vision. When described in these terms, Diageo and Schieffelin & Somerset s new way of doing business makes sense. After all, most other industries work this way, and it is clearly a more organized way of utilizing resources. And while these changes seem dramatic, the companies are quick to emphasize that they are a means to a much more profitable, efficient end. "One thing that is important for us is to ensure that our customers understand that our goal is to make as little disruption as possible, and they start to see the benefits as soon as possible," Clinton stresses. It is about making things happen that are good for the business, says Esposito, adding that evolution is a natural and healthy process. As this industry starts to understand that when all three tiers work together to achieve a common goal, it is better for each tier. That will really start to benefit our brands and the retailers bottom line. One of the main motivations behind consolidating their brands was to create a dedicated sales division within each wholesaler that will know the brands intimately and drive growth. Having dedicated teams gives us a group of people that understand and appreciate our brands inside and out, says Menezes. The difference that retailers will see from this arrangement will be better focused and tailored programs. There were so many costs built into the old system that are far better used toward innovation and building new brands. With these teams, Diageo and Schieffelin & Somerset feel more comfortable sharing information that it used to keep close to the vest. Aligning our brands with one distributor allows us to be totally open, and to share our consumer insights and plans for each brand, which is then shared with retailers, explains Esposito. Traditionally, the role of marketing was left to the distributor, Esposito

4 explains. In the past, we would be doing things for the consumer that the retailer would not be aware of, therefore he wouldn t know how to take advantage of it. Studying the Marketplace There are advantages to size when it comes to gaining more consumer knowledge. For the last five years, Diageo and Schieffelin & Somerset have been conducting marketby-market research to find out what consumers want, and how they can meet their needs with various brands. We are uniquely positioned to take advantage of this information and we have the infrastructure to do something with it, says Mark Waller, executive VP consumer strategy and marketing. Another advantage is that our research exposes us to a greater number of consumer opportunities that we are able to execute against, locally and nationally as a whole. In place of narrow, more traditional research, Diageo and Schieffelin & Somerset cast a wide net. They have completed numerous consumer behavior studies that aim to benefit the entire supply chain. We want to grow the whole pie, not just our share of the pie, says Clinton. We need to find new ways to build business. Recently, the companies conducted a study on the retail environment for the Texas Package Store Association. In an effort to help the retailer be more effective, the study revealed numerous ways to create a better shopping experience, particularly for female customers. Our studies showed that the consumer was treating the liquor store shopping experience as a convenience store shopping experience; in and out with a particular purchase in mind. We found ways to hold that consumer longer to shop the entire store. Waller believes offering this kind of intelligence and support builds trust with the retailer and has a measurable impact on everyone s business. While this research can provide valuable information about what consumers want, it also enables Diageo and Schieffelin & Somerset to understand what kinds of social responsibility messaging is most effective. Research has helped Diageo and Schieffelin & Somerset develop what is to date the most stringent social responsibility marketing and advertising code in the industry. Says Clinton, There is no question that we have a huge responsibility to promote responsible use of our products, because it is the right thing to do. As an industry, we have a lot of wind at our back because of recent media reports that point to the positive aspects of beverage alcohol consumption; on the other hand we know that this is a product that has a unique place in America and has to therefore be dealt with in a very disciplined way. We work very hard with people like The Century Council in order to make sure that the industry stands for what is proper, what is right, stresses Esposito. It is important that we communicate about proper consumption and about a marketing code that is the strictest in the industry, in order to help the industry remain healthy going forward. The Perfect Marriage Enabling both companies to have such a clear picture of consumer behavior is their relationship with one another. We have a complementary relationship with Schieffelin & Somerset, says Clinton. It works because it operates as a luxury brands distribution and marketing arm. There is no overlap with Diageo products and it allows the sales people to have a range of brands while augmenting the premium aspect of all of our brands. Together, Diageo and Schieffelin & Somerset are able to offer an array of brands. We are able to have a total beverage alcohol perspective and understand that the same consumer that

5 As this industry starts to understand that when all three tiers work together to achieve a common goal, it is better for each tier. That will really start to benefit our brands and the retailers bottom line. John Esposito, president, Schieffelin & Somerset drinks Champagne is also drinking Scotch and Gin and wine, says Jeff Keane, executive VP marketing, Schieffelin & Somerset. Keane believes that the relationship is productive because of the distinctiveness of both companies, and the ability to learn from one another. Historically, the core competencies of Schieffelin & Somerset have been on-premise and when it comes to off-premise particularly chains that is one of Diageo s strengths. They have provided their expertise in these channels. In turn, Diageo has learned from Schieffelin & Somerset how to capitalize on the opportunities in the on-premise. The idea of gatekeepers of brands Smirnoff Twist is the leader in flavored vodkas with upwards of 35% of the market last year. is important, says Waller, noting that Schieffelin has perfected this strategy. I suspect a bartender or retailer is highly aware of consumer trends, and we need to spend more time listening to them. Together, Diageo and Schieffelin & Somerset represent some of the hottest, most historically successful brands available. But although Moët & Chandon is over 257 years old, and Johnnie Walker more than 125 years, consumer tastes change and brands need to evolve just as companies do. The key to staying on top of the next trend is being plugged into the market. I think differentiated packaging is driving consumers right now. There also seems to be a move towards smaller sizes in non-alcoholic beverages, says Waller. We need to understand these things in order to drive innovation in our industry. Right now, flavors seem to be driving product growth. This trend is not restricted to beverage alcohol, as Waller is quick to note. It s flavor in general that is hot right now. Smirnoff is a great example. In the last four years, the brand has taken off because of our knowledge of the flavor marketplace. Keane agrees, remarking that taste profiles are evolving. It may not be as dramatic as a flavor, but perhaps flavor profiles in Champagne sweetness levels, etc. People are always looking for variety. Much of a brand s success is a reflection of society s mood and desires. Why is rum growing as fast as it is? Waller feels it is a drink that promotes a communal, convivial feeling. Recently, Diageo has seen sales of Captain Morgan sky rocket. Similarly, Baileys is experiencing tremendous growth. There is something relaxing and intimate about Baileys, says Waller. It is meeting a consumer moment in time. This is a time that people are looking for things that are slightly more approachable. Reaping the Rewards Diageo and Schieffelin & Somerset have progressed quite far in announcing strategic distributors in 26 states. According to Clinton: Our consolidation process is nearly completed. The real work is about to begin as we transition to our new wholesalers, build resources and get closer to the consumer. The benefits should start becoming apparent later this year. Menezes believes the quantum shift will take place in July, and retailers will start feeling the real benefits. Diageo and Schieffelin & Somerset have no illusions about the difficulty of doing business in the current economic climate, or, for that matter, the stiff competition that challenges each brand in the marketplace. In this environment, we aren t going to expand our business just because we are Diageo, emphasizes Anderson. We are going to grow because we can demonstrate there is a difference in our brands. Retailers aren t going to have suppliers telling them what to do. We believe that our brands are positioned better toward the consumer, but we need to convince retailers and we need to earn their business in every store.