The mantra for Diageo right now in both the on and off-trades is 'the perfect serve'. The trouble with perfection is it often takes longer to achieve than one might like.
Take the fortunes of Guinness. A surger kit was launched exclusively in Tesco Extras 11 months ago. It's the latest gadget for the off-trade (following the success of the 'widget' in 1997) and allows the devoted Guinness drinker to create, at home, the unique Guinness 'surge' thanks to a special base unit that injects the nitrogen fizzy into cans.
"People love the theatre," says Slay. "That's innovation. With alcohol, we are trying to create an element of discovery. We need to learn from companies like P&G. No-one's waiting to discover the next razor blade, but they manage to create excitement. That's how it should work in alcohol."
A perfect serve, indeed, and, according to Slay, the surger is performing well, helping Guinness to a good on-trade performance. But the 'surger' has involved a lengthy learning curve. There have been trials to determine the right deal (a choice between a discount on the unit or a promotion on the beer), and there were packaging issues, as the initial design wasn't easy to stack in displays.
As a result, there are still no plans to roll out the surger. "We'll see full off-trade listings only when we've got the learnings. It's about repeat purchase cycles because it's a separate beer. We want to see the customers back eight times. Otherwise, it's a fad. At the moment we're ahead on can sales and behind on unit sales, so it looks like we've got good loyalty already, but is the scale right?"
The 'perfect serve' approach is also being applied in spirits. With market-leaders such as Smirnoff, Bell's and Gordon's well-established, Diageo has launched drinks with the 'perfect' amount of mixer: 'classic mix' bottles of gin & tonic and vodka & tonic in 70cl bottles, at a price point that's similar to wine and with a lower abv (8%). Has it served Diageo well? Enough to help both Smirnoff (12.4%) and Gordon's (5.7%) to healthy growth last year, with Bell's (2.4%) also recording an uplift [ACNielsen w/e 7 October ].
But the other big brand in its portfolio - Bailey's - had a torrid time last year, down 6.5%, with deep discounting (a bottle was selling for as little as £9.84) during Christmas 2005 failing to inspire a boost. And no amount of innovation, including chocolate mint and crème caramel variants, as well as a single-serve unit designed to sell in coffee bars, appeared able to offset the tipple's reliance on the festive season in 2006, according to sources.
At least Diageo was happy with the price this time. A two-for-£25 deal may not have been enough to salvage volume loss year-on-year, but protecting value was crucial. "It is a 20% discount, but we feel good about where the brand sits."
No question, the likeable ex-PepsiCo man is operating in a difficult market. In the US, Diageo is going gangbusters. In international, it's even better. But in Europe, of which GB is the most important market, volumes are up just 1%, net sales are static, and although operating profits are up 6%, that's partly thanks to a reduction of 4% in marketing budgets. "Cost initiatives" - presumably including the decision to rationalise the previous use of twin MDs in GB operations for on and off-trades - have also played a part.
In the UK Slay faces a number of problems. On-trade sales of beer are down due to the ban on smoking in Scotland, the long hot summer and the Magners factor in cider. Price-cutting is rife. The RTD market is in freefall. Innovation is expensive and without the guarantee of retailer support. And legislation is both stifling and unpredictable, as a recent bust-up with the ASA confirms. "We weren't exactly happy about the Smirnoff Ice decision," says Slay, with understatement.
A natural salesman, Slay sees plenty of positives, however. "We have strong, premium products in difficult markets trading well." What? Even in RTDs, where Smirnoff Ice, the one-time market leader, saw a 15.9% drop in sales, and fell further behind WKD, the only major RTD to buck the market? "Our performance has matched the category. But ready-to-drink is still a £720m market. There's lots more we can do."
Slay singles out Quinn's, the 100% fruit-flavoured RTD launched last year - Diageo's biggest launch for five years, with a £5m budget. "I think Quinn's is around for the long-term. It is only unit of alcohol. It fits the healthy and natural zeitgeist."
The challenge now is "to cement the innovation [with further marketing and promotion] because one thing we've learnt in the past two years is that a new launch needs consistent nurturing or else it gets absorbed into the mainstream".
Slay won't dismiss other launches, but job one, he says, is to get everything right on Smirnoff Ice. "One shouldn't get carried away about innovation. It's important. But there were 756 innovations in drinks in the past two years. Our first goal is to work our existing brands that bit harder."
Slay is also upbeat about its seasonal favourites: Baileys and Pimm's. Pimm's Winter arrived last year and Baileys Flavours has done "much better than expected in the UK and Europe".
The most intriguing development is Guinness Red. A lighter roast, it's undergoing tests. If successful, Slay promises a 2007 launch but concedes it is unlikely to go to the off-trade. "It's expensive to put draught innovation into the market."
Perhaps the biggest threat is legislation to tackle binge-drinking. Isn't the company on a collision course? "We don't need people to drink more; we need people to drink more premium products," Slay argues.
Another problem is spirits not being seen as important in convenience. Diageo is keen to change this, working with the likes of Spar, MBL and Somerfield to find effective ways to promote and merchandise. One innovation is a promotion box that simultaneously aims to educate and overcome crime. "The average basket in a c-store is £5. If you can bring spirits into the equation it makes a big difference," Slay adds.
It is only on the subject of the retailers' obsession with price that Slay sounds a note of caution. "Pricing is often not the competitive position. It's about theatre. Selling alcohol, even in a big supermarket, you need to create an experience. I was in a Tesco the other day, and there was an ice unit next to a Magners display, so it's do-able. That takes courage, though, and it takes space so shoppers can see what's going on. That's in a perfect world. But with the growth of electronics and clothes in supermarkets, space is under pressure."
Perfection, it would seem, will have to wait a little longer.n
Q&A
Divided loyalties
Born in Wales to an English father and Irish mother Benet Slay says he's had divided loyalties ever since. A keen rugby player in his youth, he supports Wales. "But my father supported England and my mother supported Ireland. It was a tolerant home but with many heated debates, as you can imagine!"
Career path
After studying Economics at Cambridge University, Benet joined Lever Brothers in 1984, working in distribution, buying and commercial. He joined Deloitte Consulting in 1988 and worked on a number of fmcg business strategy programmes. After moving to PepsiCo in 1991, he was involved in an aggressive M&A and joint-venture-based expansion program for the beverage business in Southern Europe. After moving to a sales role in the US, he returned to Portugal as general manager, before joining Walkers snacks business in the UK in 1996 on the sales side. Benet joined Diageo in 2004 initially as MD for on-trade but is now also responsible for GB off-trade, Diageo Wines Europe and the sales functional agenda.
A natural fit
Slay is not unhappy that Guinness sponsors the Rugby Premiership. "Guinness has a natural fit with rugby," he offers.
Family life
Benet lives in Henley with his wife Jenny and has two daughters Philippa (10) and Ellen (8). "None of them play rugby - yet," he jokes.
Take the fortunes of Guinness. A surger kit was launched exclusively in Tesco Extras 11 months ago. It's the latest gadget for the off-trade (following the success of the 'widget' in 1997) and allows the devoted Guinness drinker to create, at home, the unique Guinness 'surge' thanks to a special base unit that injects the nitrogen fizzy into cans.
"People love the theatre," says Slay. "That's innovation. With alcohol, we are trying to create an element of discovery. We need to learn from companies like P&G. No-one's waiting to discover the next razor blade, but they manage to create excitement. That's how it should work in alcohol."
A perfect serve, indeed, and, according to Slay, the surger is performing well, helping Guinness to a good on-trade performance. But the 'surger' has involved a lengthy learning curve. There have been trials to determine the right deal (a choice between a discount on the unit or a promotion on the beer), and there were packaging issues, as the initial design wasn't easy to stack in displays.
As a result, there are still no plans to roll out the surger. "We'll see full off-trade listings only when we've got the learnings. It's about repeat purchase cycles because it's a separate beer. We want to see the customers back eight times. Otherwise, it's a fad. At the moment we're ahead on can sales and behind on unit sales, so it looks like we've got good loyalty already, but is the scale right?"
The 'perfect serve' approach is also being applied in spirits. With market-leaders such as Smirnoff, Bell's and Gordon's well-established, Diageo has launched drinks with the 'perfect' amount of mixer: 'classic mix' bottles of gin & tonic and vodka & tonic in 70cl bottles, at a price point that's similar to wine and with a lower abv (8%). Has it served Diageo well? Enough to help both Smirnoff (12.4%) and Gordon's (5.7%) to healthy growth last year, with Bell's (2.4%) also recording an uplift [ACNielsen w/e 7 October ].
But the other big brand in its portfolio - Bailey's - had a torrid time last year, down 6.5%, with deep discounting (a bottle was selling for as little as £9.84) during Christmas 2005 failing to inspire a boost. And no amount of innovation, including chocolate mint and crème caramel variants, as well as a single-serve unit designed to sell in coffee bars, appeared able to offset the tipple's reliance on the festive season in 2006, according to sources.
At least Diageo was happy with the price this time. A two-for-£25 deal may not have been enough to salvage volume loss year-on-year, but protecting value was crucial. "It is a 20% discount, but we feel good about where the brand sits."
No question, the likeable ex-PepsiCo man is operating in a difficult market. In the US, Diageo is going gangbusters. In international, it's even better. But in Europe, of which GB is the most important market, volumes are up just 1%, net sales are static, and although operating profits are up 6%, that's partly thanks to a reduction of 4% in marketing budgets. "Cost initiatives" - presumably including the decision to rationalise the previous use of twin MDs in GB operations for on and off-trades - have also played a part.
In the UK Slay faces a number of problems. On-trade sales of beer are down due to the ban on smoking in Scotland, the long hot summer and the Magners factor in cider. Price-cutting is rife. The RTD market is in freefall. Innovation is expensive and without the guarantee of retailer support. And legislation is both stifling and unpredictable, as a recent bust-up with the ASA confirms. "We weren't exactly happy about the Smirnoff Ice decision," says Slay, with understatement.
A natural salesman, Slay sees plenty of positives, however. "We have strong, premium products in difficult markets trading well." What? Even in RTDs, where Smirnoff Ice, the one-time market leader, saw a 15.9% drop in sales, and fell further behind WKD, the only major RTD to buck the market? "Our performance has matched the category. But ready-to-drink is still a £720m market. There's lots more we can do."
Slay singles out Quinn's, the 100% fruit-flavoured RTD launched last year - Diageo's biggest launch for five years, with a £5m budget. "I think Quinn's is around for the long-term. It is only unit of alcohol. It fits the healthy and natural zeitgeist."
The challenge now is "to cement the innovation [with further marketing and promotion] because one thing we've learnt in the past two years is that a new launch needs consistent nurturing or else it gets absorbed into the mainstream".
Slay won't dismiss other launches, but job one, he says, is to get everything right on Smirnoff Ice. "One shouldn't get carried away about innovation. It's important. But there were 756 innovations in drinks in the past two years. Our first goal is to work our existing brands that bit harder."
Slay is also upbeat about its seasonal favourites: Baileys and Pimm's. Pimm's Winter arrived last year and Baileys Flavours has done "much better than expected in the UK and Europe".
The most intriguing development is Guinness Red. A lighter roast, it's undergoing tests. If successful, Slay promises a 2007 launch but concedes it is unlikely to go to the off-trade. "It's expensive to put draught innovation into the market."
Perhaps the biggest threat is legislation to tackle binge-drinking. Isn't the company on a collision course? "We don't need people to drink more; we need people to drink more premium products," Slay argues.
Another problem is spirits not being seen as important in convenience. Diageo is keen to change this, working with the likes of Spar, MBL and Somerfield to find effective ways to promote and merchandise. One innovation is a promotion box that simultaneously aims to educate and overcome crime. "The average basket in a c-store is £5. If you can bring spirits into the equation it makes a big difference," Slay adds.
It is only on the subject of the retailers' obsession with price that Slay sounds a note of caution. "Pricing is often not the competitive position. It's about theatre. Selling alcohol, even in a big supermarket, you need to create an experience. I was in a Tesco the other day, and there was an ice unit next to a Magners display, so it's do-able. That takes courage, though, and it takes space so shoppers can see what's going on. That's in a perfect world. But with the growth of electronics and clothes in supermarkets, space is under pressure."
Perfection, it would seem, will have to wait a little longer.n
Q&A
Divided loyalties
Born in Wales to an English father and Irish mother Benet Slay says he's had divided loyalties ever since. A keen rugby player in his youth, he supports Wales. "But my father supported England and my mother supported Ireland. It was a tolerant home but with many heated debates, as you can imagine!"
Career path
After studying Economics at Cambridge University, Benet joined Lever Brothers in 1984, working in distribution, buying and commercial. He joined Deloitte Consulting in 1988 and worked on a number of fmcg business strategy programmes. After moving to PepsiCo in 1991, he was involved in an aggressive M&A and joint-venture-based expansion program for the beverage business in Southern Europe. After moving to a sales role in the US, he returned to Portugal as general manager, before joining Walkers snacks business in the UK in 1996 on the sales side. Benet joined Diageo in 2004 initially as MD for on-trade but is now also responsible for GB off-trade, Diageo Wines Europe and the sales functional agenda.
A natural fit
Slay is not unhappy that Guinness sponsors the Rugby Premiership. "Guinness has a natural fit with rugby," he offers.
Family life
Benet lives in Henley with his wife Jenny and has two daughters Philippa (10) and Ellen (8). "None of them play rugby - yet," he jokes.
No comments yet