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Diageo Sees Innovation Driving Share Gains In U.S.

May 23, 2019

Diageo says an improved focus on innovation has put its business on a stronger trajectory in the U.S. market in recent months. Up until about six to nine months ago, the company had been losing share in the U.S., where it accounts for about 20% of the spirits market. Now that trend has reversed, notes Diageo North America president Deirdre Mahlan. She credits a recent push in data-driven analytics and a sharper focus on specific drinking occasions as paying off for the company.

Speaking at Diageo’s Capital Markets Day event in New York yesterday, both Mahlan and Diageo CEO Ivan Menezes stressed that the drinks giant is now striving to produce “lasting innovation,” rather than new products that tend to start fast but fizzle just as quickly, as has been the case with many flavored vodka extensions. Aiding those efforts are new analytic tools—such as an application called Trax—that allow Diageo to study category trends, consumer occasions, and geographic differentiation as they apply to the portfolio.

The result has been a number of successful innovation plays, including Ketel One Botanicals, Johnnie Walker White Walker, Cîroc Brandy, Crown Royal Peach, Captain Morgan Apple Smash, and Smirnoff Vodka Moscow Mule. Overall, Diageo owns seven spots out of the top 10 new items launched in the last 52 weeks in Nielsen channels, Mahlan observed.

Ketel One’s Botanicals range, which launched a year ago, is a key example. Menezes said that the Botanicals ($25 a 750-ml.), which are at 30% abv and have 73 calories a serving, are attracting consumers in the early evening occasion, taking share from beer and wine.

Mahlan pointed out that the occasion-based approach has also paid dividends for Crown Royal. The brand’s Regal Apple offshoot, which grew 10.5% to 1.5 million cases last year, according to Impact Databank, has allowed the brand to play in “high-energy on-premise occasions,” which Crown’s core Deluxe Canadian whisky wasn’t accessing. Still, she added that the company still has work to do, particularly in vodka, where it’s hoping that its new innovation approach can lift the fortunes of Smirnoff and Cîroc in a competitive category. Smirnoff’s Zero Sugar Infusions range, which is launching now, is part of those plans.

Meanwhile, Mahlan said that Diageo’s blockbuster investment in Casamigos Tequila is progressing ahead of schedule. Both Casamigos and portfoliomate Don Julio have gained a percentage point of share in luxury Tequila over the past year, she noted. According to Impact Databank, Don Julio jumped 38.3% to 745,000 cases in the U.S. last year, and Casamigos grew by 69% to reach 333,000 cases. While the two brands share similar price positioning, Mahlan observed, they appeal to different consumers, with Don Julio focused on tradition and heritage and Casamigos taking a more casual, lifestyle-oriented approach.

Summing up, Menezes said Diageo expects to continue to see mid single-digit organic sales growth over the medium term, with operating profit growing ahead of sales, within a range of 5%-7%.—Daniel Marsteller

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