Diageo shifts more into advertising

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LONDON -- Diageo, the international food and drinks company formed last year from the merger of Guinness and Grand Metropolitan, says the group's marketing spend for the 12 months to June 1998 was up 3% to $2.79 billion.

Throughout the world and across such brands as Pillsbury foods, Guinness beer, Johnnie Walker whisky and Burger King, Diageo is shifting money away from discounts and promotions and channeling its resources into advertising.

In its North American spirits business, Diageo's UDV spirits division has implemented a major move from promotional spend to advertising. While the UDV total advertising, marketing and promotional spend in the region is up 7%, advertising is up 18%. UDV is also breaking away from the industry practice of discounting. "In the U.S., some price increases have been taken at a time when inflation is negligible within an industry where price increases are often accompanied by significant discounting during the year. UDV North America has reduced this type of discounting during the year,'' John McGrath, Diageo group chief executive, said at the combined group's first annual preliminary results meeting in London.

Within Diageo's UDV spirits division on a worldwide basis, the company is finding success with its "value driven" strategy of concentrating its marketing spend on brand/market combinations. Such combinations of J&B/Spain; Cuervo, Smirnoff, Bailey's and Johnnie Walker Black Label in the U.S.; and Smirnoff Red in the U.K. has seen volume sales increase 7%, while sales across UDV's entire drinks portfolio is up only 2%.

UDV has cut back on advertising in the depressed Asian markets, but not altogether. "Consumers there still want our brands, it's just that they don't have the cash in their pockets. We have to keep the image of our brands in their minds," says Mr. McGrath, "We have to be in the best position when the market returns for our premium brands."

Within foods, Pillsbury North America's long term strategy is to reduce marketing spend on lower margin brands such as canned vegetables, desserts and baking mixes and focus resources on higher margin items like Pillsbury Refrigerated Baked Goods and the Breakfast Category. While total marketing spend on U.S. foods was down 2%, advertising spending was up 11% on refrigerated baked goods and down 23% on desserts and mixes in 1998.

Within the beer category, Diageo is also diverting money into advertising in an effort to recruit new consumers. In the U.K. during 1995, of the marketing budget aimed at the retail market for canned draft Guinness, only 16% was spent on advertising. In 1998, advertising accounted for 54% of the marketing budget. As a result of this shift in spending during the last two years, prices are up 5% and customers sales are up 8%.

Colin Storm, chief executive of Guinness Ltd., says the company has "high aspirations" for the Guinness brand in the U.S. Last year, its sales grew there by 28% and the company intends "bring forward" investments to make it the category leader for imported beers.

Copyright September 1998, Crain Communications Inc.

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