David Smith, Diageo Ireland’s Country Manager here for the past eight months (since replacing John Kennedy, now Diageo’s Chief Operating Officer for Western Europe), is slight of frame, but don’t let that fool you. The 44 year-old Leicester man likes to pound the gym about three times a week before work. Having done so, he’s more than happy to explain how Diageo’s new sectoral arrangement works in practice.
As we sit down to chat he reports a good start to 2012.
“One-third of our on-trade customers have grown their volume purchasing in the past three months,” he tells me (no mention of a value figure here however).
“Clearly the trade is still challenging but it does feel like the market is declining by less than it was. I’ve been talking to licensees and I get the feeling that there’s more optimism about and that we have begun to see the bottom.”
MAT figures to January this year indicate that Diageo’s value share of the total RoI alcohol market rests at around 40.1 per cent, its share of the LAD market 51.4 per cent.
Last year, Guinness Stout experienced a low single digit decline in line with the market while sales of Baileys were flat. However Bushmills volumes grew by eight per cent over the 12 months to April and Guinness still enjoys a volume and value share hovering around the 32 per cent mark – one in every three pints sold in the on-trade.
“It’s been incredibly stable at one in three,” he points out.
Beer accounts for about two-thirds of Diageo Ireland’s volume here with spirits comprising the vast majority of the remainder.
The Irish off-trade would be skewed slightly more towards spirits while globally, the scales would be two-thirds skewed towards spirits.
Diageo’s sectoral approach
Diageo’s new sectoral approach to global markets saw Country Managers replace Managing Directors and the introduction of Global Category Directors.
“It allows us put huge focus on emerging markets,” he tells me of markets which once contributed a mere 30 per cent to Diageo’s turnover.
“Our emerging market business grew net sales 18 per cent and operating profit 23 per cent and now accounts for almost 40 per cent of our business” and of which Diageo aims to take to 50 per cent by 2015.
“It’s brilliant for brands like Guinness, Baileys and Bushmills,” says David, “We make 2.7 million pints a day here, 79 per cent of which are exported and six million cases of Baileys a year, 90 per cent of which are exported.”
Diageo buys 13 per cent of Ireland’s barley and five per cent of its milk – that’s 40,000 cows in Baileys money – a big agri-food success story in a growing export environment.
“The second thing we’ve done is to rearrange our developed market business to try and have greater focus on the customer, so for Western Europe we created a Western Europe marketing team.”
All the marketing for Diageo’s European beers is run out of Dublin now. “This means that in the individual countries – Ireland, Great Britain etc – more autonomy has been given to the Country Director to lead the business and really spend time focusing on customers.”
David cites four key avenues here.
“Firstly it’s about being easy to do business with, for example offering customers online ordering or statement-checking at any time.
“Secondly it’s about building great relationships and partnerships with our customers, examining how we can build their business, not just our own.
“The third part involves having great brand programmes to help make the trade busier – for example Arthur’s Day or through Innovation, activation around rugby.
“Customers are much more willing to work with us now in partnership to grow their business. It’s become a very event-led on-trade environment so we work hard with customers to try and create events. There are some very strong entrepreneurial customers who really are putting on a good experience in their pub that will help them maintain and build business,” he says, citing Dublin Does Fridays as a case in communal point.
The fourth area involves building and enhancing the reputation of the business.
Despite this ‘working together’ philosophy, Diageo appears to run against the vintners’ grain in matters like minimum pricing and structural separation. It’s not in favour of either.
“We’re totally committed to working to tackle alcohol misuse both as a business and as suppliers to the industry,” he says, laying his cards on the table, “In that respect we don’t believe that setting a minimum price will work to tackle alcohol misuse. The people misusing alcohol aren’t very price-sensitive so if you put up the price, you just penalise the responsible drinkers.
“Maybe it appears good for the on-trade at first sight, however given that minimum pricing is illegal, it’s most likely that the minimum price mechanic would be excise duty which would be very bad for the on-trade.
“As for structural separation, I don’t believe that this will tackle alcohol misuse, that the alcohol category warrants being treated in such a way.
What does it say about our category if you can’t sell it openly?
“We don’t believe minimum pricing and structural separation will tackle alcohol misuse or help turn around the on-trade. We have to work together to turnaround the on-trade. I am very committed to doing that; it’s the life blood of our business; we spend millions of €uro supporting pubs every year and have over 250 people whose job is to work to support pubs being busier. It’s too narrow just to look at those two issues only.”
Seeing how we’re in choppy waters, I lob in the perennial exploding price-rise pomegranate…
“We haven’t taken a price increase for almost four years,” he points out, “During that time our costs have gone up significantly – and given the global commodities market, those costs are likely to continue to go up. Therefore we absolutely cannot rule out cost increases.”
And as he quite rightly points out, the company has just committed €153 million to build a new brewery at St James’s Gate, securing the future of the Irish operation for decades to come.
Bearing that in mind, perhaps it’s not such a bad time for David Smith to be Country Director at the home of Guinness.
David first joined ‘Guinness’ as a marketeer on a graduate scheme in the UK 22 years ago. Within three days he was over in Dublin seeing for himself the spiritual home of Guinness Stout. A spell marketing for Cadbury was followed 12 years ago by his return to Diageo as Marketing Director for Guinness in the UK. He moved onto the sales side for five years before becoming Sales Director for Guinness there, his first general manager’s job before coming over to Dublin last August as Country Director.
Diageo has just announced its first major ad campaign for Guinness Mid-Strength and David can point to another great area for innovation: Smithwick’s Pale Ale enters a very buoyant craft beer sector.
“Captain Morgan continues to be very successful — probably our most successful innovation,” he says, “Then there’s the draught spirit innovation for Mojito which provides a great margin for the trade, great speed of serve and great delivery for the consumer as well. It’s been doing very well.”