Diageo Sets U.S. Priorities, Aiming To Win In Whisk(e)y And Tequila

After downgrading its outlook for the fiscal first half ending in December on Friday owing to struggles in Latin America, Diageo’s top executives said yesterday that they continue to expect improvement in the U.S. market over the coming months, with consumer sentiment moving in a positive direction, particularly in regard to the on-premise.

In North America, after a period of post-pandemic normalization the spirits industry’s growth is now trending at “nearly mid single digits,” Diageo CEO Debra Crew told investors at the company’s Capital Markets Day in New York. “While we’re not yet back to winning share in total beverage alcohol, trends have stabilized and we are taking bold steps to change the trajectory.” Diageo North America’s business is now 41% larger by value than it was pre-pandemic, Crew noted. “We have increased investment in this market consistently over the past several years, but there is still plenty of room to grow given we still only have 7.5% market share of U.S. total beverage alcohol.”

Crucial to Diageo’s growth ambitions in the U.S. moving forward are the whisk(e)y and Tequila categories. Crown Royal—a franchise with total retail sales value of $2.4 billion, larger than the gin category in the U.S.—is kicking off a new campaign behind its flagship Deluxe variant this month. “Consumers have told us that they don’t know enough about the brand,” explained Sally Grimes, who took the helm as CEO of Diageo North America on October 1. “So we’re investing in a marketing campaign that showcases what makes Crown Royal distinct. The first TV ad just aired last Monday.”

On the new product front, Crown Royal launched a 30-year-old expression this month, which retails at $500 a bottle. Next year, the brand will introduce a new Blackberry flavor extension. Excluding flavors and cocktails, Impact Databank projects the core Crown Royal to slip approximately 4.5% to 3.75 million cases in the U.S. this calendar year.

In American whiskey, Impact Databank projects Bulleit to increase 7.5% to 1.85 million cases in the U.S. in 2023. Bulleit is recruiting new consumers with its ready-to-serve Manhattan and Old Fashioned cocktails ($26 a 750-ml.), Grimes noted. “75% of Bulleit ready-to-serve drinkers are incremental, and 18% of those who tried Bulleit ready-to-serve then purchased Bulleit whiskey in the six months after trying ready-to-serve,” she said. Diageo NA president and COO Claudia Schubert added that the company is now targeting its messaging on brands like Crown and Bulleit down to the zip code level, allowing it to pinpoint consumers with greater accuracy and maximize its marketing investments.

Buchanan’s Scotch whisky is also growing this year, with its Pineapple flavor creating momentum. Among the Pineapple extension’s audience, “80% of these consumers are new to buying Buchanan’s within the last year and 50% of these consumers had not purchased Scotch in the past year,” said Grimes.

In Tequila, while Casamigos has slowed some this year, Impact Databank projects that it will exceed 2.5 million cases in 2023 and become Diageo’s fourth-largest brand by volume, ahead of Ketel One. Meanwhile, Don Julio is projected to increase by double-digits in volume terms. “Casamigos grew 70% CAGR over the last few years,” said Schubert. Even so, she added, “the unaided awareness of Casamigos compared to leading brands in this category is small. So we see an opportunity to raise that awareness.” Toward that end, Diageo has launched the brand in different sizes to target different occasions, and has also extended Casamigos with a Cristalino variant ($61 a 750-ml.), to which “the response has been very good from the trade,” Schubert noted, gaining menu placements in on-premise national accounts.

In addition to Don Julio and Casamigos, Grimes explained that Diageo is targeting different market segments and occasions with other Tequila labels like DeLeón, Astral, and 21 Seeds, as more consumers continue to migrate into the category. Earlier this year, Astral launched a Reposado retailing for around $28 and an Añejo at $35, and next year it will add a ready-to-serve Margarita to its portfolio. “Household penetration (of Tequila) remains lower than that of other categories,” Grimes said, allowing further headroom for growth looking ahead. —Daniel Marsteller

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