Diageo has been doing some interesting things. I took this directly off the web from the public Documents on Diageo’s corporate Investor site. It’s the contents of an Investors meeting done in November 2013. As far as American Bourbon and Rye go Diageo has been active with the Bulleit Rye, Bourbon and Dickel. In comparison with other markets and non-American Whiskey brands I had thought that was fairly small. The meeting info was fascinating to see and feel the inner workings of how the brands are looked at and consumer marketing and approach. It also talks directly at the new brands to directly compete with Van Winkle. I’m not a Marketer but loved the usage of the words “Statusful” and “Premiumization”.
Lets jump into it. I have edited out the things that I didn’t think would be interesting so read the entire document for the exact transcript and content. I have put the link to the Doc at the end. You might want to pdf it asap in the event it disappears. I have added nothing other than bolding some items to highlight them. Nothing was previously bolded.
North American Whiskey
Chief Marketing and Innovation Officer, Diageo North America
• North American whiskey, or NAW, is the second-largest spirit category in the US, representing 23% of sales and growing at nearly twice the rate of the total spirits category. It’s also driving 53% of the total industry’s value growth this past year, and there are several consumer trends that are at play in driving this robust growth.
• Diageo is well positioned with NAW with strong and growing brands. We have a 23% share of the category value, and we’re investing for growth in our current brands, in new innovation and in our supply capabilities. Our Crown Royal brand is the number-two brand in NAW and selling nearly 4.5m cases annually at super-premium and ultra-premium price points.
• Bulleit Bourbon is another remarkable brand, positioned at super-premium price points and now one of the fastest-growing bourbons in America and the leading brand within rye whiskey.
• …premiumization is an important trend in fueling the category growth. As you can see here, super-premium and ultra-premium brands represent 53% of the category value but are driving nearly 90% of the category growth this past year. And in my discussion today, I’ll focus my conversation on the brands of Crown Royal, Bulleit and George Dickel, which are all positioned in the super and ultra-premium price tier within the NAW category.
• New flavored whiskeys are also driving category growth. Flavored whiskeys came into play just a few years ago and currently make up only 11% of the category, but as you can see here, are driving more than half of the category value growth this past year. Flavors make whiskey more approachable to consumers and they help to recruit women, younger LDA and multicultural consumers into the whiskey category.
• In fact, a recent study revealed that nearly half of the flavored whiskey drinkers were not previously whiskey consumers. In addition to new flavors, there’s also significant growth coming from unflavored crafted American whiskeys. Consumers perceive American whiskey as authentic and a product representing classic American values, and consumers’ interest in the growing and rapidly unflavored whiskeys come about in forms such as bourbon and rye. And as you can see here, these two segments grew 12% and 51% this past year.
• I’m going to start first with a brand that hopefully you all had a chance to try last night, Crown Royal. Crown Royal is a strong brand and it is building momentum. With a scale of more than 4m cases, it’s the number-two brand in the NAW category, and it’s positioned at a significant price premium to the number-one and third-bestselling brands within the category. And Nielsen data reveals that Crown Royal has been outpacing the value growth rate of both the category leader as well as the number-three player in the category.
• Crown’s growth lies the fact that the brand has a well-established position as a statusful yet approachable, smooth-tasting whiskey. And this positions Crown to enable it to recruit from consumers across all of the super-premium whiskey segments.
• And as we look at future growth opportunities to fuel our growth, we’re pleased that our Crown Royal consumer franchise is more diverse than the NAW category and positions our brand to recruit from a broader pool of consumers. Our current franchise over-indexes in women, and this is particularly important as more women are entering the NAW category and serve as an important source of growth for the category.• Our Black and our Maple variants now make up 15% of our Crown franchise, and both have proven incremental to the base brand, which grew 6% this past fiscal year.
• This spring, we’ll be launching a new innovation called Crown Royal XO. It’s a unique blend, specially finished in cognac casks from the Limousin forests of France, and the thoughtfully crafted approach creates an extraordinary whiskey, deliciously balanced with hints of vanilla, spice and rich dried fruit, closing with an impeccably smooth finish.
• We’re very excited about this innovation, because consumer research indicates that there’s a significant overlap between NA whiskey and cognac drinkers, so we believe Crown Royal XO will help to recruit a new wave of multicultural consumers into our Crown franchise.
• Crown XO will have a suggested retail price point that’s twice that of our base brand, so we’ll be launching it and managing it like many of Diageo’s high-end reserve brands, engaging consumers through luxury touch points, including high-end print publications, influencer programs and statusful activation events.• Also, next summer we’ll be introducing a luxurious whiskey to commemorate the 75th anniversary of the launch of Crown Royal and King George VI’s visit to Canada back in 1939. This limited-edition Monarch blend will be created to celebrate the anniversary with an ultra-premium whiskey, featuring unique rye whiskeys from our historic still, blended with some of our most exquisite and aged whiskey stock.
• All right, let’s turn now to Bulleit Frontier Whiskey, which is personally one of my favorite brands and a true gem within the Diageo whiskey portfolio. And it’s clear that many American consumers share my love for this brand, as Bulleit now is one of the fastest-growing bourbon brands of scale in America.
• As you can see from this chart, our Bulleit sales have consistently grown at a highly accelerated pace for the past several years, and we believe that our Bulleit brand could grow to become a million cases in the foreseeable future. The Bulleit brand came into the Diageo portfolio back during the Seagram’s acquisition…
• At the heart of Bulleit’s discovery marketing model is the brand’s focused investment to build adoration and respect of bartenders, or what we refer to as gatekeepers. Gatekeeper advocacy is a proven strategy for building brand trial. Consumers love getting a recommendation from bartenders as they experiment beyond their normal brand of choice, and our focus on bartenders has been an important strategy in driving the growth of this brand.
• As you can see here, on-premise sales for Bulleit grew more than 100% last year, and this rapid growth in the on premise has a strong correlation in driving purchase of Bulleit in the off premise, which grew 64%.
• Here’s an example of our print and outdoor advertising creative, which, consistent with our discovery model, is rather simple and understated. Glamorous photography to showcase our product as the hero, and to reinforce Bulleit’s image as an authentic brand of real substance.
• And as you can see from this chart, our base bourbon brand continues to be the engine for the total trademark’s rapid growth. We had a singular focus on our base bourbon for well over a decade before launching our first innovation, which was our Bulleit Rye, in 2011. And two years later we introduced a limited-edition 10-year-old bourbon.
• And as you saw in the earlier chart, Bulleit’s expansion into rye has proven to be not only a source of growth but a new stake in market leadership. After being launched just a couple of years ago, Bulleit now has become the number-one-selling rye in America.
• So between the rapid growth that we’re seeing in North America and our plans for international expansion, we are remarkably excited about this brand. Now, before I leave my discussion of Bulleit, let’s take a look at how this brand comes to life in popular American culture.
• My final whiskey brand for today’s discussion is George Dickel. George Dickel Tennessee Whiskey
• What’s remarkable is that I must confess that it’s a brand that hasn’t been marketed for several decades, just beautifully crafted and distributed, with minimal attention and minimal investment. That is, until we reactivated marketing support in 2011 to capitalize on the whiskey renaissance that’s emerging in America.
• In 2012, we expanded the Dickel range to include a rye to capitalize on the growing interest in rye-based cocktails, and our Dickel Rye is finished in a style that made George Dickel famous. It’s a super-premium rye, which is chilled before passing through our proprietary charcoal filtration process using the native trees surrounding Cascade Hollow.
• The end result is a bright, spicy, flavorful rye with a smooth, fine finish. And, as I mentioned before, our Dickel Rye is now the number-three-selling rye in America and recipient of multiple industry awards.
• I want to quickly share two new programs that promise to accelerate our growth and reinforce the brand’s image and craftsmanship. The first is our Buy the Barrel program. It’s a program where you can literally purchase a barrel of aged whiskey that’s been resting in our rick house down in the distillery of Tullahoma.
• The whiskey barrel you select is then bottled by hand with your own personalized label. Now, we just started this program in September, and already, we’ve sold more than 200 barrels. This is a great program that delivers on consumers’ interest in personalized craftsmanship and exclusivity, and it creates a wonderful halo of craftsmanship for our brand.
• My last program on George Dickel is an exciting new innovation program that’s going to be launched this coming spring. It’s the launch of Dickel White Corn Whiskey, which is a super-premium unaged whiskey that’s crafted in the spirit of the Prohibition era. Using a long-established recipe from the Dickel archives and that old man Dickel himself would declare to be mellow as moonlight, it’s a great example of innovation that reinforces the brand’s heritage and craftsmanship, and I’m quite sure that whiskey lovers will grasp onto this very quickly when we launch it this spring.
• One example of how that could look is shown here with our Blade & Bow concept. This is a new-to-world brand that we’re evaluating for next spring, and it’s a whiskey innovation that romances Diageo’s historic Stitzel Weller distillery, located down in Kentucky. Now mothballed, when the Stitzel Weller distillery was operational, it served as the home to several iconic American whiskeys. And the Blade & Bow brand integrates images from this distillery and its storied past to create a new-to-world ultra-premium bourbon, deliciously crafted with finely aged and precious bourbon stock from our Kentucky rick house.
• Diageo is fortunate to have an amazing stock of precious aged whiskeys. These whiskey stocks enable our innovation team to create new-to-world brands that feature thoughtfully crafted whiskeys using exquisitely aged and rare whiskey stocks from our barrelhouses. Another example of how we can bring these aged whiskey stocks to life is shown here with our Orphan Barrel concept.• Orphan Barrel is a program we intend to introduce early in the new year, and it serves as an umbrella or a parent trademark over a portfolio of several limited-edition aged and ultra-premium craft whiskeys. The two brands shown here, a 20-year-old Barterhouse and a 27-year-old Old Blowhard whiskey are just two examples of several new limited-edition brands that are currently in development by our innovation team.
Q&A Session Can you provide us with a perspective, maybe, of how big that brand can be maybe five years down the road, taking into account the inventories? I’m guessing the kind of growth you’ve showed is not necessarily sustainable also from a supply side?
And secondly, when we look at North American whiskey, including Canadian whiskey, you have a leadership position of 23%, if I remember correctly. But if you strip out the Crown Royal, I’m guessing you’re going to be probably still probably much smaller, maybe 1% or 2%. And what signs can we have that Department of Justice or antitrust authorities would indeed look at that category as a single category when assessing, maybe, consolidation? Thank you.
Okay, so I’ll start first and then turn it over to Larry to fill in. On Bulleit, you’ve seen the excitement and ambition for this brand. We feel very confident that we have the supply
capabilities in hand to grow this to a million cases in the foreseeable future. And we believe that, given the momentum that we’ve got within the North American market and our ambition to roll out internationally that that is not just a wishful CMO speaking. We really do believe in the power of this brand.
The second part of your question, related to North American whiskey, it’s a bit unfair to back out a large brand and say, well, what are you without that large brand? As you can see from this exercise, we are the number-two player within Tennessee whiskey. We have the fastest-growing ryes within the category, and yes, we have a very strong position with Crown Royal. But we believe that that positions us well across all of what we call North American whiskey, whether it be bourbon, whether it be Tennessee whiskey, whether it be American blends or Canadian whiskey.
Your question was can we own another bourbon? Yes.
I’m glad you said that.Peter McDonough
Yes. Any other questions? Yes, Tom.
From the floor
On your brand extensions, you show that the core George Dickel offer was a suggested retail price of $17.50.
From the floor
And I think it looks like it’s got a lot more value to the consumer than that price point suggests. That price may have come up a lot over the past couple of years, I’m just not sure of it, but it looks like you’d have considerable pricing ability.
An opportunity. Tom, I couldn’t agree with you more. I believe in the power of this brand. If you’ll recall, it was really just in 2011 that we went back in and reactivated this brand. With that, we have been steadily taking price since we’ve begun the marketing support of it. But you’re right, that brand should be — Dickel No. 8, which is the foundation, should be closer to $19, and then we go up to the Dickel 12, which is more like $24. The rye is line priced with that. And the new unaged variant is going to be priced at $22. So we are gravitating to higher price points, and with a little more time and a little more marketing, we’ll continue taking those up. Larry Schwartz
We’ve taken it up three price points, and we do think Dickel is precious. Those barrels that Peter talked about, to buy one of those barrels, you spend $10,000. One barrel equals 244 bottles. When we first started it, we built a little line there to do this. We thought we’d sell about 30 barrels. We’re going to sell 300 barrels at $10,000 a pop, which is pretty good.
Tony Bucalo from Santander. Just two quick questions. One, do you have 100% national distribution for these brands, because I didn’t see any sort of ACV numbers for these brands, and I don’t remember ever seeing George Dickel anywhere, ever, in my life? Peter McDonough
Ever, anywhere in your life, and where do you live?
I live here, but I’m from New York.
All right, I get that. But with a little more demand, we’ll bring it here to the UK. Tony Bucalo
But the second question is, in terms of brown spirits, it’s pretty obvious why Johnnie Walker took off with the marketing and just Keep Walking and all this. What happened with brown spirits that they sort of fell — American brown spirits fell back into favour. What trends do you think turned that around, because white spirits really sort of were carrying the day 10 years ago and now it’s brown spirits. What specifically happened, do you think, that got that back on trend? Peter McDonough
I think there were a couple of things that happened. One, the transformation that we’ve made in the States related to the Scotch category is we’ve been moving the brand to be viewed less as your father’s country club set to become a brand that’s much more relevant for millennial consumers and, importantly, recruiting multicultural consumers in that. So our work in Scotch actually works outside of the broader category. Scotch is not growing nearly as quickly as our Scotch portfolio is in the US, and that’s all about great marketing.The second part of your question is related to whiskey and what’s happening within whiskey. Whiskey wasn’t viewed as this statusful, discerning, old man’s country club brand. Whiskey had just fallen out of date as being viewed as maybe something that your grandfather drank.
And so it didn’t have this discernment piece that we had to overcome. We just had to work at making it more relevant and making it more cool for contemporary millennial consumers. Hollywood has done a nice job of that. It’s always been something that’s been romanced. People want to tell you that they’re whiskey drinkers, because there’s a badge with that, and we’ve made it more powerful in terms of marketing to address that, and that’s the role that flavors has done, bringing more and more consumers in that way. So it’s a combination of the trends of flavors. It’s a combination of making our messaging more relevant to millennial consumers than the category had in the past.
And it’s also, importantly, driven by mixology trends. So the cocktail culture in the States really took off, starting first with vodka, and then what happens is bartenders are just a really creative lot. They wanted to move to work with new spirits, so they went back to some really interesting, original whiskey cocktails from back in the day, and they made them much more popular. So mixology trends play a really, really big part of this, as well.
Okay, in terms of distribution, even though we don’t have a lot of distribution on Dickel, we still sell about 150,000 cases. The plan really is not to go to mass market and have chains and try to discount it. We want to keep taking our price up, we want it to be a discovery model. We want to hand sell it. And we’re okay. We don’t want to do anything — no push tactics. Everything above the line and everything a hand sale, and training our dedicated sales force, which we’re fortunate to have, to be able to talk about Dickel in a way that it’s handmade the hard way.
And that’s how we built Bulleit. Having Tom Bulleit as the apostle for Bulleit has been huge. He goes around, account by account, bar by bar, and talks about Bulleit, and that’s the same method we’re going to use for Dickel.
Tomorrow, we can probably get 40% distribution if we want. We don’t want to do that. We want to continually raise the price, hand sell it and go into select accounts where we know we’re going to get a turn.Tony Bucalo
So you’re not even close to national distribution for either brand?
Either brand. Bulleit’s in a lot more distribution than George Dickel. So we have a long way to go in terms of distribution on Bulleit. We probably only have about 20%, 25% on-premise distribution on Bulleit, so we have a long way to go. Tony Bucalo
Could you get into a Van Winkle situation where you just can’t get it anymore if you —
That’s a great brand, Pappy Van Winkle. We won’t get into that kind of situation. The situation we’re going to create that’s going to mimic Pappy Van Winkle is the Orphan Barrel program that Peter touched on. That’s going to be — we’re going to be the number-one craft distiller in North American whiskey in the US. I know that sounds really hard to understand, since we’re such a big company. We will be the number-one distiller. Why? Because we have the whiskeys. We have 27-year-old whiskey, 21-year-old whiskey, so we have a bunch of different whiskeys.
The good news is, we’re going to charge for it. We’re going to charge $100 for it, $150 a bottle, $75 a bottle. That’s the way we’re going to try to create the mystique that Pappy Van Winkle has. Bulleit, we’re not going to go mass market, but it will be a million cases. We can’t stop it.From the floor
Hi. What is the price-volume elasticity in this category? How is it different from the overall Diageo Group?
North American whiskey, a big piece of our price is — North American whiskey and Scotch and two of our vodka brands give us most of the price that we get, right? So Ketel we keep taking up. We have to be careful, because our competitor is not going up. We keep taking Ciroc up. And Crown Royal has been going up for the last several years.
Since Peter and his team have built that equity, we’ve really taken some significant price on Crown. And on Bulleit, we want to continue to raise it, so it will go up every year, as will Dickel, and Crown is going up again this year.
And it’s been — to reinforce that, if you look at the segmentation of the overall category, whiskey is a purchase decision that’s made on the status and on a sense of independence, and so you can charge more for that as you capture the hearts and emotion of consumers with your brand, as evidenced by the fact that 46% of the category volume now sits within a super-premium price point. And, as I showed earlier, between super-premium and ultra-premium, it’s driving more than 90% of the category growth.
So there is a real opportunity to continue taking price in here when we make the right marketing investments in our brand. From the floor
I guess my question, what happens to volume growth when you take price up?
For some reason, when you have great work like we have on Reign On, it’s amazing, you can take price and grow volume, and that’s what we’ve been able to do. I think last year, I think Crown Royal sales were up 17%, which was just amazing. We’re cycling that and we’re still doing well and taking more price. Bulleit, when people want it, you can take your price, and Bulleit Rye is also at a high price. So between Bulleit and Crown Royal and Dickel, we continue to take price every year.