Rudy Paoli, managing director of Diageo Global Reserve, details how craftsmanship & consumer experiences are driving double-digit growth globally
Its an interesting Its an interesting time for Diageo, the world’s biggest spirits company and owner of ‘super-deluxe’ spirits brands such as Johnnie Walker Platinum Label, Ketel One, Zacapa, Cîroc and Tanqueray No. Ten. It currently holds 34% of LVMH’s Moët Hennessy, and with it brands such as Moët & Chandon, Veuve Clicquot and Hennessy.
As recently as last week, Diageo announced plans to purchase 53% of India’s United Spirits for approximately $2 billion, in a bid to expand its footprint in a fast-growing, whiskey-loving country it has long failed to crack.
The deal gives Diageo control of the world’s largest liquor company by volume and an extensive distribution network in India for its flagship drinks, which include Johnnie Walker scotch and Smirnoff vodka (WSJ).
“ Sales of super deluxe Johnnie Walker whiskies in China have risen 40-50% year on year ”
Global Reserve has also been focusing great efforts on Asia, specifically in China, where sales of its ‘super deluxe’ Johnnie Walker whiskies are defying the economic slowdown. Sales of its top whiskies have risen 40-50% year on year for the past eight quarters and there is no sign that the Chinese demand is slowing (FT).
The total value of the super deluxe spirits industry is estimated at €18.5-31 billion, of which Diego currently commands a 15% market share. The category grew at a compound average growth (CAGR) of 14% from 2009 to 2011, during which period Diageo’s Global Reserve far outpaced the market, with CAGR of 35%.
Recent research reveals that consumers continue to prioritise quality over price when it comes to purchasing fine spirits. And indeed, in Rudy’s experience, consumers are becoming more sophisticated and discerning, looking for roots in heritage, craftsmanship and genuine rarity.
As Diageo continues its push further into BRICs and beyond, we spoke with Rudy Paoli to examine key strategies driving its success.
Diamond Jubilee by John Walker & Sons
What changes have you witnessed since you joined Diageo in 2002, which have fundamentally altered Diageo’s strategy?
Diageo Reserve was created in 2004 to focus on the fast growing luxury business that was previously an untapped opportunity for Diageo. It brought together brands with global spread across all categories, built on strong heritage, craftsmanship and authenticity, providing consumers with affordable luxury experiences in austere times.
Our acquisitions over recent years have included Ketel One vodka, inspired by over 300-years of the Nolet family’s distilling experience and Ron Zacapa from Guatamela, the luxury rum, which is aged above the clouds at 2,300m above sea level. These brands have broadened our portfolio even further, giving us leading positions across different categories
I joined as MD of Diageo Reserve in 2009 – the year that saw an unprecedented financial crisis – where people questioned if luxury would prevail. We knew we had to change and adapt our approach. Prior to 2009, there was little focus on the smaller but higher margin brands. We weren’t familiar with our luxury customers, and more importantly we did not know what to say to them or how to sell to them.
“ We weren’t familiar with our luxury customers, we did not know what to say to them or how to sell to them ”
We didn’t have the time or expertise to drive luxury execution in the market place. We also did not have a clear understanding of the key pillars of great marketing and innovation required to win in the market segment. And our consumer and customer facing initiatives were lacking the luxury standards and execution excellence. The challenge was tough, but exciting.
To achieve our goal of growing Diageo Reserve, we have implemented a strategic model focused on three key pillars: a specialised sales force targeting key top accounts, luxury marketing excellence – focusing on gifting and limited editions, physical experiential spaces for our brands and spectacular events – and a focus on innovation to keep our portfolio fresh and adapt to the changing needs of consumers.
Johnnie Walker Blue Label limited edition collection, in collaboration with Porsche Design Studio
Which geographical regions are driving the most significant revenues for Reserve brands?
We have built a strong luxury business that is still gaining momentum. Our F12 figures showcased strong double-digit growth across all regions. We were up 30% in North America, 30% in Asia, 39% in Latin America and 32% in Africa.
Even in the challenging economic environment in Europe, we achieved a 10% increase from our Reserve brands – an incremental £232 million net sales for Diageo. It is important to mention that Diageo Reserve is generating strong growth from developing and developed markets, with +31% and +26% net sales growth respectively in F12.
Which markets do you believe will play a more important role in the coming decade?
Our focus markets are currently Brazil, Mexico, US, UK, France, China, Australia, India and Russia, and these will continue to play important roles in the coming decade. They are based on current business opportunities, potential for growth, concentration of HNWIs, the emerging middle class, luxury tourism/low-tax shopping, concentration of wealthy female consumers and trend setting potential.
Travel Retail is also a key priority ‘market’ for us. Tourists now account for 40 percent of global luxury spending. As tourism and luxury spending become more tightly intertwined, the experiential dimension of luxury consumption becomes as critical for brands to deliver as their products (Bain & Reuters Oct 15th).
“ Sales were up 30% in North America, 30% in Asia, 39% in Latin America & 32% in Africa ”
Many recent results announcements by luxury brands have noted definite slowdowns, specifically in China. How is this impacting the Reserve portfolio?
We continue to have confidence in developing markets like China. According to a recent study by Boston Consulting Group, approximately 40% of Chinese consumers intend to increase spending in the next 12 months. Johnnie Walker super deluxe sales actually grew in China in F12 by +64% net sales value.
China’s affluents are becoming more emotional in purchasing behaviours and first tier cities are looking for more discernment. We are addressing these trends through our initiatives such as the launch of Johnnie Walker House in Shanghai, an embassy for whisky mentorship, and John Walker & Sons’ Voyager, a luxury yacht travelling Asia hosting luxury events for our consumers and customers, launching John Walker & Sons Odyssey.
Inside John Walker & Sons own yacht, Voyager, with interior design by Alfred Dunhill
The lines between premium and luxury are becoming increasingly blurred across the greater industry. Therefore, how do you define a true luxury spirits product, as opposed to spirits that are merely expensive?
Within luxury there is a strong movement towards authenticity – brands that have heritage, craftsmanship and quality at the heart. The luxury consumer continues to look for something remarkable and truly special. Stories of collaboration, provenance, quality and exclusivity create products of true luxury status, rather than the price tag.
When you look at our Johnnie Walker Blue Label, only one in 10,000 casks, containing whisky of sufficient character, were chosen to deliver its remarkably smooth signature taste. Each is handpicked by the Master Blender himself, who forms part of an unbroken lineage of Master Blenders stretching back over 190 years. We feel that it is the ultimate expression of whisky, a remarkable achievement for the modern era.
We also believe that luxury is about creating consumer experiences. Again in the case of Johnnie Walker Blue Label, we recently partnered on a collection with Porsche Design Studio, where the pinnacle is a limited edition Private Bar priced from £150,000.
All Private Bar buyers have access to an added dimension of exclusivity, in that every piece is one-of-a-kind, based on each buyer’s selection of rare, handpicked materials of timeless appeal.
“ We recently partnered with Porsche Design Studio to develop a one-of-a-kind Private Bar priced from £150,000 ”
Much of your communications strategy is based around creating events and experiences. Why is this particularly important for the Global Reserve brands?
Luxury is all about the experience and we know that the more we can immerse our consumers into the world of Reserve brands, the more of a connection they’ll have with our brands. We do this through a multiple approach that includes both traditional PR and experiential activation.
We opened the world’s first Johnnie Walker House in Shanghai in May 2011. This stunning property is an embassy for whisky culture and the first of its kind outside Scotland. As a leader in the industry, this demonstrates our commitment to building the Scotch category globally.
This game-changing initiative is the ultimate experience for hosting our consumers and customers. It provides the ideal environment to reframe the understanding of the category and engagement with the brand. The Johnnie Walker House also offers a highly exclusive bespoke offering, allowing tailored-made whisky for affluent consumers starting from a minimum of £250,000.
John Walker & Sons also recently launched its own yacht, Voyager, with plans for a tour of nine Asian cities, complimented with a dedicated digital microsite. Part of the interior design was also completed with the assistance of Alfred Dunhill.
The luxury market in Asia Pacific continues to boom. For the first time in recent history, we have witnessed the number of millionaires in Asia outstrip those in Europe or America. We knew that this region was the perfect platform to launch the initiative, to ensure that we are best placed to provide lovers of luxury spirits with products and experiences that reflect their status and celebrate their success.
by Sophie Doran