Diageo's Walsh lectures trade

Published: 23 July, 2008

Diageo managing director Paul Walsh was the tenth high-profile trade figure to be accorded the honour of making the WSET's annual lecture. His speech, delivered on Wednesday 1 June, focused on what the wine and spirits industries could learn from eachother, but, prompted by a number of questions from the floor, Walsh also held forth on such key trade issues as discounting and distribution, the quality of Blossom Hill and, inevitably, Diageo's take on the Allied auction.

Will discounting ever end?

It's a question we ask ourselves all the time. And the answer is 'NO!' The market will continue to polarise between discounting brands on deal, and those brands that are very aspirational. You have to understand where you can claim a premium, and where you can't - don't get caught in the middle. If you're promoting, make sure that you have a supply chain that can cope.

Walsh on Allied

This has got some way to play out. Everybody is talking to everybody else, and a consortium is emerging. The stock market is saying that they [Pernod Ricard] should pay more than their offer. If you're a market-watcher, you'd say that it would take a higher figure to prevail.

We're watching with great interest. We could help a consortium, or we could help Pernod Ricard up their bid. We're sitting on the fence, and it's quite an interesting view, I can tell you.

On the success of Blossom Hill

[Responding to a question from author Nick Faith about whether the brand's success owed more to Diageo's power as the owner of so many 'must-stock' brands, than it does to the inherent quality of the wine]

When they [consumers] buy Blossom Hill, they want to make sure it delivers quality commensurate with the price they pay. There are advantages with scale, but it would be a bold marketeer who thought that he/she had a must-have brand. Any must-have brand can be usurped. Wine has consumers who are looking for something different. I don't think there is such a thing as a must-stock brand.

On consumer panels and research

Flair and intuition is vital [in marketing]. You have to look beyond the hardcore data. 80% of launches fail, but that 80% of products has had the same level of research as the 20% that succeed! Data and flair are needed [in marketing], coupled with intuition.

On small producers

Our philosophy is to secure as much control over the distribution pipeline as possible. I'm concerned about us and not small producers. Having said that, it's quite a profitable business, wine, and most brands with a point of difference can get distribution.

On responsible drinking

Can you ever do enough? The whole industry is uniting around this. The whole notion of binge drinking involves less than 2% of drinkers - 98% of drinkers never cause a problem. We need to educate bar staff and consumers, and by uniting around these issues we can protect our market.

On RTDs

In our pre-tax profits of about 2billion, RTDS make up around 5%, so it's not huge but it's not insignificant. We have been disappointed with their performance. [The category] has come under attack from punitive taxes. But it's a category that consumers want. If you're going to be in that category, you have to be ready to bring a solid line extension to market every six months. As long as you keep it moving, there is margin to be made.

On niche wine brands

There are niche wine brands that are trophies that people hunt for. They can be a real problem for our type of distribution system. We try and keep them separate from mainstream distribution. They need dedicated specialists, but I think they'll always be around.

On packaging

For packaging innovation, I think it is clear that spirits have a great deal to teach the whole drinks industry. Spirits brands effectively use packaging to differentiate themselves; to speak more directly to target consumers; and to communicate the brand's premium quality and approachability. Wine is slowly moving in this direction. For years the basic wine package had been all about tradition. It communicates character, origin and quality. It hasn't addressed convenience or attempted to speak to consumers in anything other than a traditional way. Over the past 10 years that has begun to change.

On shaping products to consumers' needs

The ease in which spirit-makers and winemakers can provide consistent value and quality sometimes seems one of the ways they differ...To vintners, distillers seem to have an easier time of it...Fortunately, our increased knowledge and understanding of vineyard management and winemaking has enabled us as an industry to narrow the gaps between good vintages and great vintages. Quite simply, we are making better wine, more consistently.

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