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How The Global Drinks Business Works HospoLive 12 May 2020 Philip Duff Liquid Solutions 2020

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Updated version of Philip Duff's 2011 seminar, presented live on the Facebook page of HospoLive on 12 May 2020.

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How The Global Drinks Business Works HospoLive 12 May 2020 Philip Duff Liquid Solutions 2020

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  52. 52. 52 Marketing a new discipline, a la Peter Drucker. Previously, focus was production Ernest Saunders an early convert to marketing, ex Beechams and Nestle, hired as professional manager to turn around Guinness, market cap $239m Brought in Bain consulting, who spread tendrils throughout Guinness 1759: Guinness founded 1877: Distillers Company Limited (DCL) founded by 6 Scotch continual distillers 1934: MRMA / Grand Met founded (hotels, real estate) 1981: Guinness market cap $239m 1985: Guinness buys Arthur Bell's Scotch whisky 1986: Guinness buys DCL, becomes Guinness-UDV (United Distillers & Vintners) 1997: Guinness merges with Grand Met, becomes Diageo 2001: Diageo buys large parts of Seagrams spirits 2010: Diageo market cap of $42bn (grew 175 times bigger in under 30 years!)
  53. 53. 53 Marketing a new discipline, a la Peter Drucker. Previously, focus was production Ernest Saunders an early convert to marketing, ex Beechams and Nestle, hired as professional manager to turn around Guinness, market cap $239m Brought in Bain consulting, who spread tendrils throughout Guinness 1759: Guinness founded 1877: Distillers Company Limited (DCL) founded by 6 Scotch continual distillers 1934: MRMA / Grand Met founded (hotels, real estate) 1981: Guinness market cap $239m 1985: Guinness buys Arthur Bell's Scotch whisky 1986: Guinness buys DCL, becomes Guinness-UDV (United Distillers & Vintners) 1997: Guinness merges with Grand Met, becomes Diageo 2001: Diageo buys large parts of Seagrams spirits 2010: Diageo market cap of $42bn (grew 175 times bigger in under 30 years!)
  54. 54. 54 Marketing a new discipline, a la Peter Drucker. Previously, focus was production Ernest Saunders an early convert to marketing, ex Beechams and Nestle, hired as professional manager to turn around Guinness, market cap $239m Brought in Bain consulting, who spread tendrils throughout Guinness 1759: Guinness founded 1877: Distillers Company Limited (DCL) founded by 6 Scotch continual distillers 1934: MRMA / Grand Met founded (hotels, real estate) 1981: Guinness market cap $239m 1985: Guinness buys Arthur Bell's Scotch whisky 1986: Guinness buys DCL, becomes Guinness-UDV (United Distillers & Vintners) 1997: Guinness merges with Grand Met, becomes Diageo 2001: Diageo buys large parts of Seagrams spirits 2010: Diageo market cap of $42bn (grew 175 times bigger in under 30 years!)
  55. 55. 55 Marketing a new discipline, a la Peter Drucker. Previously, focus was production Ernest Saunders an early convert to marketing, ex Beechams and Nestle, hired as professional manager to turn around Guinness, market cap $239m Brought in Bain consulting, who spread tendrils throughout Guinness 1759: Guinness founded 1877: Distillers Company Limited (DCL) founded by 6 Scotch continual distillers 1934: MRMA / Grand Met founded (hotels, real estate) 1981: Guinness market cap $239m 1985: Guinness buys Arthur Bell's Scotch whisky 1986: Guinness buys DCL, becomes Guinness-UDV (United Distillers & Vintners) 1997: Guinness merges with Grand Met, becomes Diageo 2001: Diageo buys large parts of Seagrams spirits 2010: Diageo market cap of $42bn (grew 175 times bigger in under 30 years!)
  56. 56. 56 ...sales projected to decline 50%
  57. 57. 57 When signed contract, couldn't find Guinness to toast with in Geneva! Marketing a new discipline, a la Peter Drucker. Previously, focus was production Ernest Saunders an early convert to marketing, ex Beechams and Nestle, hired as professional manager to turn around Guinness, market cap $239m Brought in Bain consulting, who spread tendrils throughout Guinness 1759: Guinness founded 1877: Distillers Company Limited (DCL) founded by 6 Scotch continual distillers 1934: MRMA / Grand Met founded (hotels, real estate) 1981: Guinness market cap $239m 1985: Guinness buys Arthur Bell's Scotch whisky 1986: Guinness buys DCL, becomes Guinness-UDV (United Distillers & Vintners) 1997: Guinness merges with Grand Met, becomes Diageo 2001: Diageo buys large parts of Seagrams spirits 2010: Diageo market cap of $42bn (grew 175 times bigger in under 30 years!)
  58. 58. 58 Marketing a new discipline, a la Peter Drucker. Previously, focus was production Ernest Saunders an early convert to marketing, ex Beechams and Nestle, hired as professional manager to turn around Guinness, market cap $239m Brought in Bain consulting, who spread tendrils throughout Guinness 1759: Guinness founded 1877: Distillers Company Limited (DCL) founded by 6 Scotch continual distillers 1934: MRMA / Grand Met founded (hotels, real estate) 1981: Guinness market cap $239m 1985: Guinness buys Arthur Bell's Scotch whisky 1986: Guinness buys DCL, becomes Guinness-UDV (United Distillers & Vintners) 1997: Guinness merges with Grand Met, becomes Diageo 2001: Diageo buys large parts of Seagrams spirits 2010: Diageo market cap of $42bn (grew 175 times bigger in under 30 years!)
  59. 59. 59 Marketing a new discipline, a la Peter Drucker. Previously, focus was production Ernest Saunders an early convert to marketing, ex Beechams and Nestle, hired as professional manager to turn around Guinness, market cap $239m Brought in Bain consulting, who spread tendrils throughout Guinness 1759: Guinness founded 1877: Distillers Company Limited (DCL) founded by 6 Scotch continual distillers 1934: MRMA / Grand Met founded (hotels, real estate) 1981: Guinness market cap $239m 1985: Guinness buys Arthur Bell's Scotch whisky 1986: Guinness buys DCL, becomes Guinness-UDV (United Distillers & Vintners) 1997: Guinness merges with Grand Met, becomes Diageo 2001: Diageo buys large parts of Seagrams spirits 2010: Diageo market cap of $42bn (grew 175 times bigger in under 30 years!)
  60. 60. 60 Marketing a new discipline, a la Peter Drucker. Previously, focus was production Ernest Saunders an early convert to marketing, ex Beechams and Nestle, hired as professional manager to turn around Guinness, market cap $239m Brought in Bain consulting, who spread tendrils throughout Guinness 1759: Guinness founded 1877: Distillers Company Limited (DCL) founded by 6 Scotch continual distillers 1934: MRMA / Grand Met founded (hotels, real estate) 1981: Guinness market cap $239m 1985: Guinness buys Arthur Bell's Scotch whisky 1986: Guinness buys DCL, becomes Guinness-UDV (United Distillers & Vintners) 1997: Guinness merges with Grand Met, becomes Diageo 2001: Diageo buys large parts of Seagrams spirits 2010: Diageo market cap of $42bn (grew 175 times bigger in under 30 years!)
  61. 61. 61 Marketing a new discipline, a la Peter Drucker. Previously, focus was production Ernest Saunders an early convert to marketing, ex Beechams and Nestle, hired as professional manager to turn around Guinness, market cap $239m Brought in Bain consulting, who spread tendrils throughout Guinness 1759: Guinness founded 1877: Distillers Company Limited (DCL) founded by 6 Scotch continual distillers 1934: MRMA / Grand Met founded (hotels, real estate) 1981: Guinness market cap $239m 1985: Guinness buys Arthur Bell's Scotch whisky 1986: Guinness buys DCL, becomes Guinness-UDV (United Distillers & Vintners) 1997: Guinness merges with Grand Met, becomes Diageo 2001: Diageo buys large parts of Seagrams spirits 2010: Diageo market cap of $42bn (grew 175 times bigger in under 30 years!)
  62. 62. 62 Marketing a new discipline, a la Peter Drucker. Previously, focus was production Ernest Saunders an early convert to marketing, ex Beechams and Nestle, hired as professional manager to turn around Guinness, market cap $239m Brought in Bain consulting, who spread tendrils throughout Guinness 1759: Guinness founded 1877: Distillers Company Limited (DCL) founded by 6 Scotch continual distillers 1934: MRMA / Grand Met founded (hotels, real estate) 1981: Guinness market cap $239m 1985: Guinness buys Arthur Bell's Scotch whisky 1986: Guinness buys DCL, becomes Guinness-UDV (United Distillers & Vintners) 1997: Guinness merges with Grand Met, becomes Diageo 2001: Diageo buys large parts of Seagrams spirits 2010: Diageo market cap of $42bn (grew 175 times bigger in under 30 years!)
  63. 63. 63 Marketers – sometimes but not always the producer Usually sold as a brand Brand = product + emotion+personality. Malibu made initially UK! Both anticipate and respond to demand Companies became big through vertical integration then were de-merged from Prohibition (US) and 1989 (Supply of Beer act, UK) to, respectively, zero and max. 2000, then became multinationals Portability affects internationalisation - beer first, wine last Pre 1960s, drinks business profitable but easy, little internationalisation, run by nice chaps, fat margins, little professionalisation, lots of family firms Good: little pressure for immediate growth: Grand Met initially real estate, no pressure no drinks division Marketing a new discipline, a la Peter Drucker. Previously, focus was production BUT families has a face, a la Michel Roux, Tom Ford, etc – is this because drinks is about the product while fragrances are about hype? Brought in Bain consulting, who spread tendrils throughout Guinness Current situation: the Big Guys consider their expertise to be production/finishing and marketing Global priority: managed same everywhere, local priority, category brands Cheaper to buy a brand
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  65. 65. 65 Partner deals – Diddy 60k to 400k in 1 year! $14m investment, now 1m case brand
  66. 66. 66 Partner deals – Diddy 60k to 400k in 1 year! $14m investment, now 1m case brand
  67. 67. 67 Partner deals – Diddy 60k to 400k in 1 year! $14m investment, now 1m case brand
  68. 68. 68 Partner deals – Diddy 60k to 400k in 1 year! $14m investment, now 1m case brand
  69. 69. 69 Partner deals – Diddy 60k to 400k in 1 year! $14m investment, now 1m case brand
  70. 70. 70 Distribution is key – van Munching example Be listed in bars that love your brand Biggest issue is delegation, brand owner thinking they know the market better Getting attention from distributors How to pick? - Structure – Portfolio – emphasis on/off trade – sales force & managers Vertical integration – UK pubs, US pre-Prohibition, govt monopolies Sweden, Canada Margin squeezing, layers of mgmt removed US: 3 tier system allows little guys to compete, distrib collects taxes, but de factor ownerships, states set own rules – Missouri only went wet again in 1966 Southern – 20% mkt, $7bn sales 2006 Small brands need own PR and sales manager Choices: little brands – little distribs = little reach What's your strategy – disrupt/ Build? Get attention? Must give distrib margin, agree to split A&P – Roux example of passing on higher selling rpice to supply chain Distribs rarely go 50/50 on A&P, often brandowner above the line, distrib below the line World grey market
  71. 71. 71 Production compliance, label, liquid, alcohol percentage, permitted colourings
  72. 72. 72 Wholesalers do not build brands – they move boxes Post Prohibition, retailers opposed consumer-friendly changes like opening hours and days Margins squeezed and (for the big guys) dictated European wholesalers and retailers created listing fees in the 1960s, spread to multiple grocers and bigbox stores, infected European businesses Carry many competing lines, want to deliver one-stop-shop to shops and bar owners, therefore one-stop-shop vodkas, flavours, whiskies, extra facings Growth of wine warehouses UK, WalMart US Canada shops don't stock soft drinks
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  79. 79. 79 Production compliance, label, liquid, alcohol percentage, permitted colourings
  80. 80. 80 Production compliance, label, liquid, alcohol percentage, permitted colourings
  81. 81. 81 Huge shift towards spirits since 1990, globally DISCUS: US retail up 60% 97-05, to $53bn Premiums 2002-2005 +19% On-trade is the equivalent of couture Listing fees skew the balance Bars operate on a 10% net margin, best-case US system of effective listing fees, booking parties, dinner etc. Ambassadors increasingly being used to supplement the work of sales reps with 300+ accounts (Roux advised 40) US – regulations prohibit shipping from producer to store or from store to bar, so PR agencies and distributors are de factor couriers! Shops - the off-trade - include duty-free and military supplies Often limited shelf space, cater to wide range of consumers (unlike bars) Sometimes government controlled Easiest highest-margin sale compared to bars Bars – the on-trade High influence-ability of consumers High profile in on-trade drives media attention and listings in off-trade = drives volume Growing and extremely competitive n
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