Retailers are shocked by Diageo's new terms

Published: 05 September, 2008

Multiple retailers have told Harpers they are "shocked and amazed" at Diageo's plans to unify its trade agreements across all of its routes to market in what is being seen as a bid to get more control over pricing and promotions of its brands, writes Shirley Webb.

The world's largest spirits company has followed other grocery FMCGs such as Nestlé to launch new standard trade terms which will mean it will only invest with customers if they agree and follow shared trading terms.

"Going forward, all investment Diageo makes with the trade will be structured and measured in a way that requires all customers to deliver a variety of proven sales drivers," a Diageo statement said.

"Payment will only be made when activity has been implemented and that implementation evaluated."

The terms, which are being rolled out this month, will include a standard list price for all of Diageo's 600 customers across all channels, both on-and off-trade. Investment will be structured around three areas: scale discounts, efficiency discounts and sales drivers, which sit alongside existing promotional investment.

But customers in the on-and offtrade are baffled as to why Diageo had failed to discuss the changes with them. "It looks like they are trying to categorise across spirits which will mean a reduction in price competition and that means we can't add customer value," one leading multiple retailer told
Harpers. "I am shocked and amazed they didn't tell us," said another multiple source.

Trevor Stirling, beverage analyst at Sanford Bernstein, warned: "Harmonising trade terms is the messiest thing a company can do. It looks good at management level but to try and unify trade terms across both on- and off-trades is incredibly hard. Other drink companies are likely to watch Diageo take the pain before deciding if they will follow suit," he said. "It is a crazy thing to do just before Christmas."

David Smith, sales director for Diageo GB told Harpers: "It's not about setting prices. We don't have that power. We are more concerned about promotional activity and how it fits with what we are trying to achieve to drive the category."

This article has been taken from this week's issue of Harpers magazine, which is available by subscription only. To subsribe to Harpers, please click here.