E-Malt.com News article: North America: Diageo overhauling North American marketing operations in order to reverse weak sales

Diageo PLC said it is overhauling its North American marketing operations and putting more emphasis on consumer research as it looks to reverse weak sales in its largest market, The Wall Street Journal reported on November 12.

The British-based liquor company has lost market share in the U.S. as it struggles with brands like Smirnoff and Captain Morgan. It recently installed Deirdre Mahlan, its former chief financial officer, as the head of its North American business and charged her with turning it around.

Following an investor conference in New York on November 11, Ms. Mahlan said Diageo was restructuring and investing in marketing because it came “to rely perhaps too heavily” on its U.S. distribution network and hadn’t “devoted enough resources to consumer insights.”

She said the company is building several new marketing functions, including an insights team that will be dedicated to analysing consumer trends. The division is designed to address shifting consumer interests in the U.S. where once-red-hot categories like flavored vodka have fizzled while bourbon has taken off.

“Just because you have distribution does not mean you’re going to grow brands for the sustainable future,” Ms. Mahlan said. She added, “We are structuring ourselves now in a much more deliberate and specific way because we think we’ve been underdelivering our potential with respect to consumer insights.”

Diageo expects net sales in North America to be down 2% this year. The company is facing increasing competition as the number of new brands in the U.S. rose 67% over the past five years, according to industry tracker IWSR.

The move to beef up its marketing efforts comes during a year of tumult in the company’s North American operations. In July, the company confirmed a probe by the U.S. Securities and Exchange Commission into its distribution practices. The SEC was investigating whether Diageo had been shipping excess inventory to distributors in an effort to boost results, according to people familiar with the inquiry.

Diageo Chief Executive Ivan Menezes said on November 11 that the company had “fully complied” with the SEC inquiry but declined to elaborate on the status of the probe.

The New York investor conference was Diageo’s first in two years, Mr. Menezes said. It came at a time when Diageo has been streamlining operations by selling off wine businesses in California and Argentina and beer brands like Red Stripe. Mr. Menezes said the company plans to fully exit the wine business—except for small, local operations in Turkey and India—after it sells off remaining brands like California’s Chalone Vineyard Estate.

Though some analysts have speculated the company could also divest its Guinness beer business, Mr. Menezes said Guinness remains important to the company because of its “incredible platform” in Africa. The company is using its Guinness distribution network to expand sales of its liquor brands across the continent.

Mr. Menezes said that Anheuser-Busch InBev NV’s planned takeover of SABMiller PLC shouldn’t affect that push because beer is a local business. But he acknowledged that it sets the stage for increased competition in Africa.

“There is no doubt they will be a formidable competitor, and we absolutely plan to hold our own,” Mr. Menezes said. “We have very big growth ambitions for Africa.”


13 November, 2015