What Strategies Has Diageo Implemented To Turn Around Its Operations In North America?
North America is the largest premium drinks market in the world, and accounts for about one-third of Diageo‘s (NYSE:DEO) net sales and one-half of its operating profit. It is comprised of US Spirits, Diageo Guinness USA (DGUSA), and Diageo Canada. During the first half of its FY 2016 (six months ended December 2015), the company reported a decline in the net sales and volumes for the North American region. This was primarily a result of a fall in US spirits, due to late launches in the half and the implementation of the replenishment model for innovations, which reduced the shipment level, when compared to the first half of FY 2015.
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However, recovery was already seen in the second quarter (three months ended December 2015) of the company’s performance in North America, with the quarterly growth rates improving from a negative 10.4% to a positive 4.7%. For the full financial year, North America delivered net sales growth of 3%, after a strong performance of a 10% increase in the second half of the year in US Spirits.
Diageo undertook a number of steps to enable the delivery of the ‘right occasions, right brands, right price strategy.’ Some of these actions have been highlighted below:
1. Changes In The Executive Team
Diageo needed to put in place an executive team that was aligned and highly connected to the entire organization, and was committed to realizing the potential of the company in the North American region. This involved changes in accountabilities, as well as some changes in talent. The region’s marketing team was transformed to create an effective marketing strategy. It is now led by James Thompson, with external recruitment from leading consumer packed goods (CPG) companies, as well as alternate sources of talent, such as digital marketing agencies. It is now increasingly diverse, to reflect the company’s consumer base. The team is also supported by a consumer planning and research team, and a media team with digital expertise.
2. Increase Connectedness With Consumers
The company has made attempts to connecting with consumers in a targeted way, through digital spending, increased multicultural activation, and in the on-premise. For example, Diageo has partnered with food recipe site Tasty, and has launched more than 20 culturally relevant cocktail recipes during key occasions, such as Memorial Day or the Fourth of July, driving significant reach and engagement with the target audience. In order to seem more relevant with the Hispanic consumer, Diageo’s brand Buchanan launched a new campaign in Spanish, and will partner with urban Latino star J Balvin, who has over 20 million Facebook fans. For on-premise marketing, the company has been involved in the Activation Army program, targeting 6,000 accounts frequented by millennials. Through this, they are focused on securing menu placements, setting up drink features, educating gate keepers, and engaging on social media.
3. Forging New Partnerships
Diageo is amplifying its brand through partnerships, giving it an abundance of first party data and discoverability in search results. For example, the company has entered into a partnership with online alcohol delivery service Drizly. It has also tied up with Thrillist, a leading men’s digital lifestyle brand, in the launch of a new online publication called Supercall, that dwells on the liquor industry. While Diageo is a major sponsor, only 5%-10% will be devoted to its brands. Johnnie Walker also partnered with Uber to offer consumers a free ‘safe ride home,’ to encourage responsible drinking during some festive seasons. Reserve app, which is used for finding and booking restaurants, also received a strategic investment by the company.
4. Driving Down Costs
Diageo is undertaking steps to ensure efficiency and effectiveness in its operations. In the marketing function, the company is deploying new tools to enable optimal investment allocation, and measure effectiveness. Diageo has also reset the creative and production budgets to drive a more efficient ratio of agency fees to media. In supply, a number of initiatives have been implemented to reduce the manufacturing and logistics cost. For example, the company moved Captain Morgan aging from the US Virgin Islands to Relay, Maryland, in order to drive processing and logistics savings. Diageo is also implementing Zero-Based Budgeting (ZBB) for its Financial Year 2017 (ended June 2017), as part of its wider plans to be more ‘cost conscious.’ This means that the company’s marketing teams will have to justify its spending on different brands, rather than the budgets being based on the previous year’s spending.
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