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Interview: Diageo NA President Deirdre Mahlan And CMO James Thompson

March 13, 2018

Diageo North America posted a net sales increase of 2% to $3.1 billion in the six months through December, with operating profit rising 3% to $1.4 billion. While growth has been slightly behind the overall market lately, largely owing to the struggles of the vodka category, Diageo remains by far the leader of the spirits industry in the U.S. The retail value of its portfolio—at nearly $9 billion, according to Impact Databank—is roughly twice the size of its closest competitor, Bacardi. SND managing editor Daniel Marsteller recently interviewed Diageo North America president Deirdre Mahlan and CMO James Thompson at the company’s Norwalk, Connecticut headquarters on the state of the business and the road ahead.

SND: What market factors in the U.S. are most encouraging right now, and where are the areas of concern?

Mahlan: If you look across the last 12 months and use NABCA as a bellwether, the industry has seen some soft months. But we’re still experiencing a long, historic trend of around 4% growth. We don’t see anything that will materially move that. In terms of economic conditions, we may be starting to see a little bit of inflation, which would be helpful. So we see conditions as positive, and expect to continue that 4% growth rate. Our first-half performance was still behind the industry, but that’s mainly due to the challenging conditions in vodka. We’re taking action there, and expect to continue improving. The rest of our core brands have been gaining share. We’ll continue to invest in our brands with confidence. Our U.S. spirits net sales were up 3% in the first half, and our marketing spend was up about 8%, so we’re upweighting that investment.

SND: How do you view the craft spirits phenomenon? Is it a threat to mainstream brands?

Thompson: A few things are underpinning why craft is popular, but the main one is about authenticity. Consumers want great products with proper stories, well made by real people. We’ve got that more than anyone else. On Johnnie Walker, we have new ads showing the people who make the product and where they do it. On Guinness, we’ve been doing that for quite some time. The narrative behind Crown Royal—made for the royal visit to Canada just before World War II—is another authentic brand story. It’s the same for Don Julio, and we’ve set up a visitors center at the distillery in Mexico to showcase the process. Tom Bulleit founded one of the great craft brands, and we’re now investing $10 million in a visitors center at the new Bulleit Distillery in Shelbyville, Kentucky, to celebrate that. In vodka, Ketel One is perhaps the original craft vodka—made in the same still by the same family for 11 generations. So we have great craft stories, and we’re telling them.

SND: There has been much discussion about the impact of marijuana on drinks sales in states where it has been legalized. What’s your take?

Mahlan: This is an area we’re watching closely. When we talk about the future of socializing, of course we should be interested in what other products people use on social occasions. I won’t comment specifically on any plans we may or may not have, but that category is going to continue to develop. We see that happening as it expands in Canada and some states in the U.S.

SND: Perhaps the biggest story for Diageo over the past year was the acquisition of Casamigos. How is progress since the deal?

Mahlan: In the first half, Casamigos grew by about 70% in Nielsen channels, and nearly doubled in NABCA. Its performance has been in line with what we’ve expected—and in line with the fantastic growth the Casamigos team has achieved since the brand was founded. The original management is still operating Casamigos as a separate unit, and we expect that to continue for the foreseeable future. We want to have as little disruption as possible given the incredible trajectory of the brand.

SND: Will Casamigos continue to be made by a third-party distiller? Would you consider making it at the Don Julio facility, or even building a new distillery altogether?

Mahlan: We have no current plans to make a change. The production is done by a third party, and we expect that to continue.

The full interview with Diageo NA’s Deirdre Mahlan and James Thompson, along with accompanying data, appears in Impact’s March 1&15 issue.

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