…And Three Things You Didn’t Know About Drinks Companies
By Philip Duff
This article featured in the October issue of Australian Bartender magazine.
Ernest Saunders Is To Blame For Everything.
Most Europeans over the age of forty have heard of old Ernie, he got sent to jail (along with three others) because he conspired to artificially inflate the share price of Guinness (where he was chief exec) so that it in turn he could buy Distillers PLC (and mutate it into Diageo). But Ernest led a sea change in the whole biz. He got the consultants in. Management consulting is still a new field and its founder, Bruce Henderson (of the Boston Consulting Group – ever used the phrase “cash cow”? That’s Brucie’s.), is still alive.
Bain Consulting, the world’s largest, was hired by Saunders and spread through the company like a weed. It put down roots in every department, placed up to a hundred of its managers throughout the organisation and recommended the turnaround strategy that saw Guinness diversify into spirits and go on an acquisition spree. It trained managers to think like, well, management consultants – focus on the top-10 brands and preferably the top 4.
Forget the rest. Don’t invest in new product development, it doesn’t pay (they’re right, it doesn’t). Efficiency, efficiency, efficiency. Consultancy-led thinking runs the slide rule over every activity, every practise, every market. If there is $100 in the budget, that $100 is far better spent trying to ratchet up an existing brand’s position than on the type of brands much loved by us bartenders: fantastic quality, but sell hardly anything.
Small Is Beautiful
The industry is led by government regulation, consumer demand and the Big Four drinks firms: Diageo, Pernod-Ricard, Bacardi and Fortune Brands/Jim Beam (soon to split). Innovation, creativity and entrepreneurial thinking are nigh-on impossible when you work for such a big firm, the more enlightened ones are even gracious enough to admit it. Instead, much as Microsoft turned Apple in a free outsourced R&D department, the big boys watch their nimble little remora fish, the small, creative, risk-taking firms that create new brands and address new market segments.
And then, like a juggernaut getting up to speed, they can quickly (although clumsily) copy those innovations and push them out through the vast distribution networks they command. Or, they just buy the competitor: anything under $100m is good deal for buying a brand, under $50m a steal. Remember Turi Vodka? Of course you don’t. It was created and launched by Diageo, and sank only slightly faster than a stone, but not before the project had burned through north of $45m.
Everyone Drinks Local…
We all shudder at the thought of drinking anything that doesn’t come from the magical kingdom of ‘far away’. Indeed, it is a private theory of mine that first world drinkers seek to outsource their integrity, passion and romantic connection to farming by drinking craft spirits – many from the second and third worlds.
But in the larger picture of things, we drink overwhelmingly locally. Of the world’s 150 or so best-selling brands (ones that sell more than 1 million cases annually, equivalent to 12 million bottle a year) well over half are only available in or around their country of origin. Most of these – overwhelmingly value-priced soju, whiskey and vodkas – are aimed resolutely at the bargain shopper.