Whether through original TV content, new product and packaging innovation, dedicated distributor networks and strides toward exposure on network TV, Diageo has brashly gone where few industry players have ventured.
"You have to give them credit for applying non-spirits brand-building in the spirits business," said Arthur Shapiro, AM Shapiro & Associates, and a former Seagram Co. executive.
Three years ago, Diageo defied doubters by acquiring Seagram, the company that first broke the liquor industry's voluntary ban on TV advertising in 1996. Two years ago, it launched a bid to become the first spirits marketer since 1946 to run spirits ads on TV, coming close to a deal with General Electric Co.'s NBC and other networks. When that effort unraveled, in May 2002 determined Diageo cobbled together a national unwired TV network to run $200 million in TV ads.
"We are a very patient company," said Peter Isaia, director of advertising, media and media sponsorships for Diageo at the time. "We're going to find the way to get the media companies to help drive the growth of our business."
It has undeniably helped change the landscape for spirits ads: Today, 487 TV stations accept spirits ads in 142 markets, according to Grey Global Group's MediaCom. But Diageo's not done yet. In the next year or so, it will be focused on branded TV content and expanding its now 400-station unwired TV network.
Then last September, the company wrangled an unprecedented pact with the Washington Redskins that gave it signs and TV exposure on FedEx Field, a feat considering beer had been alcohol's only visual at stadiums. "This levels the playing field," said a spokesman at the time. "Beer, wine and spirits are the same."
But with only 0.5% of the U.S. beer industry and 1.2% in wines, Diageo's strong suit is still in spirits, which fill more than one in five American cocktail glasses, according to Impact.
Diageo's sales have grown from 29 million cases in 1995 to more than 31 million last year, according to Impact. Its market share, at 21% of the U.S. spirits industry, makes it far and away the spirits-category leader. Bryan Spillane, VP-beverage analyst at Bank of America Securities, said Diageo could enhance its market to 25% or so within five years if it focuses its U.S. sales force, doesn't spread itself too thinly and appropriately prioritizes marketing dollars.
Diageo's percentage increase on advertising has outpaced its percentage increase of net sales since the late 1990s, a trend the company maintains will continue. Diageo spent $119 million on measured media in 2002, almost three times its closest competitor, Bacardi Co., and about one-third of the industry total, according to TNS Media Intelligence/CMR. Its major ad agencies include Omnicom Group's BBDO Worldwide; Grey Global Group's Grey Worldwide and WPP Group's J. Walter Thompson. The media agency is MediaCom.
Like many alcohol marketers with an international portfolio, London-based Diageo appears almost contemptuous of U.S. spirits industry advertising conventions, likening them to rules that mandate church attendance, according to its May 2003 Investor Relations Newsletter. "We're relentless in challenging orthodoxies," the company's 2002 annual review boasted.
But it's still got a way to go. "We've only fairly recently begun to realize how much opportunity there is for our existing brands," said James Thompson, senior VP-marketing. He noted that Diageo wants new ways to extend products, such as its highly profitable ready-to-drink beverages Smirnoff Twisted V, Jose Cuervo on tap, Guinness Draft in a bottle and Bailey's minis. "We've only scratched the surface in innovation."
In an effort to elevate its Smirnoff brand without alienating current consumers, Diageo has embarked on a $400 million makeover of the vodka's portfolio. The effort includes a new ad campaign to "re-educate" consumers to "Enjoy it neat," along with quality messages and 50% more media weight than the $49 million ascribed by TNS Media Intelligence/CMR last year. An executive close to the company said it would launch a nationwide talent tour for people to appear in Smirnoff ads.
Diageo is proficient at squeezing distributors for every penny, which it spends on marketing and the bottom line, Mr. Shapiro said. It's now fleshing out a system whereby it will have one distributor in each state. While the distributor can also handle competing products it must also have a sales force-not paid by Diageo-dedicated to its products only.
"Our goal with consolidating distributors was to help increase the efficiency and effectiveness of the value chain," said a Diageo spokesman. "Distributors choose us as much as we choose them to distribute our brands, and it's all upside at this point where we've been able to begin building very substantive relationships. They were mutual business decisions based on mutual growth."
Hip social-responsibility ads against drunken driving and underage imbibing are also part of its strategy. Accounting for 20% of Diageo's TV spending, they aim to normalize spirits while placing their labels in front of consumers, important in allowing this profit-conscious company to demonstrate a return to investors, said one former executive.
"It's a profit-oriented business," said Frank Walters, Impact's director of research. "They don't go into things blind."
But some consumer watchdogs doubt marketer-produced alcohol-awareness messages are effective in reducing alcohol problems.
"Those messages are thinly veiled messages to drink," said George Hacker, director-alcohol policies project for the Center for Science in the Public Interest. "It doesn't make sense for the fox to guard the henhouse. Part of Diageo's strategy is to endear liquor in the hearts of legislators."
"We're very proud of our brand and of our advertising," countered a Diageo spokesman. "Our advertising and marketing practices follow the strictest code across the category and our research has shown that these messages on responsibility are coming through."