Diageo Daze

Dear Diageo,

You produce great brands and are the sales and profit leader in the alcohol industry. According to press reports, you are about to acquire a large stake in Cuervo, which will be important to your future. Your global strategy of acquisition and growth in developing countries is second to none.

You are indeed the Emperor of the Booze World.

So, how come your senior management skills run from arrogant to stupid? Do you hire them that way or are they a product of a unique management development program?

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Coyote Tequila

At lunch the other day with an old friend, who worked on Seagram new products and packaging design, I was reminded of the Coyote Tequila story and the supremacy of product over imagery. It is also a story of how logic and formulae don’t work in new product development.

When I was running new products, the single-minded goal was to fill holes in the overall portfolio. There was no larger hole than the absence of tequila.

Oh sure, there were 2 wannabe brands in the company’s history. One was Olmeca and the other was Mariachi, both now owned by Pernod Ricard. Not sure how well or poorly they are doing now, but at the time they were in the “brand hospice” division of the company. So the mission was to create a tequila brand that could compete with the dominant Jose Cuervo in a category that at the time showed the promise that has since come to fruition. (This was pre-Patron.)

The project was launched with gusto, intensity and with the best team and intentions. No effort was spared; no resource (in or out of the company) was held back; it was full steam ahead.

First step on the journey was to develop a concept. One that could make the new brand stand out from the others on the market and perhaps do for tequila what Captain Morgan did for rum. After all, it was argued, Bacardi dominates rum much the same way as Cuervo does in tequila and the extra-added attraction of a flavored product could separate the new tequila from the rest. Hmmm, sounded logical to me.

But what’s the name and imagery? Coyote, of course… as in southwest, as in rough and tough, as in sneaks up on you and steals your cattle, as in – you get the picture.

To further borrow a page from the Captain Morgan playbook, a howling pedestal was conceived and produced for bars. Each time a bottle was taken off the pedestal a button was released and activated the sound of a howling Coyote. The trade loved it. It reminded all of us of the highly successful Captain mirrors that bars clamored for. It cost a bloody fortune but who cared, this was Seagram and we’re taking on tequila. We’ll make it up on volume, as the saying goes. (See Nov. 30, 2010 posting Great Tchotchkes (Swag) I Have Known.)

Now for the formulation. What we learned was that most people at the time thought the taste of tequila was awful and that’s why the Margarita was invented. For the rest, the awful taste was a badge of courage that would be forgotten after a few rounds of shots by the machismo.

As a result, someone in R&D came up with the notion that Coyote needed to be harsh, even harsher that Cuervo – a taste that replicated the southwest concept and was truly macho, as in fiery. So this ‘tequila with natural flavors’ was “spiced” with hot peppers. Might have been a billion on the Scoville chili peppers heat scale for all I know. Whatever, it was doomed from the outset. I can’t blame R&D as much as the marketing team and myself for jumping to the wrong conclusion and letting this happen.

On the one hand we had consumers and the trade loving the idea and the brand. That is, until they tasted it. No matter how hard we tried to get the heat down, it still tasted like crap and over time the damage was done.

Lessons learned: What works in one instance doesn’t necessarily work in another. There are no formulas to success in spirits marketing or in any category. Further, no matter how good the packaging, name and proposition is, if it tastes awful – remember the expression “lipstick on a pig.” Unless, of course, an awful taste is the concept.

By the way, Seagram never really got tequila right. In addition to Olmeca, Mariachi and Coyote, there were ill-fated efforts with Herradura and Patron. Margaritaville, the last attempt, ended when the lights went out.

But that’s another story.

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Cuervo for Sale?

I no sooner posted the piece below on South America when my inbox lit up with stories about the possible sale of Jose Cuervo International.

(In case you don’t know, the brand(s) are owned by the Beckmann family and distributed worldwide by Diageo.)

Both Buffalo Trace Newsletter and Wine and Spirits Daily had special additions on Sunday reporting that the Beckmann family was in talks to appoint Barclays to explore a possible $2 billion sale of all or part of the Jose Cuervo brand.

I heard from a wide range of people who know the brand and the players well. Their opinions on the matter were all over the place, but very interesting.

Some wondered about the low price…

“As recently as a few years ago, they bragged about a $5 billion price tag …$2 billion must be for part and not the production or for limited worldwide distribution…seems crazy.”

The more cynical views had to do with the historic combative nature of the relationship between Cuervo and Diageo…

“I once heard a senior Diageo executive say that if Patron were available, they would gladly overpay for it in order not to have to deal with the Beckmanns any longer.”

“Diageo’s recent poor performance on the brand now looks like a strategy to keep the value low in order to buy the Beckmanns out.”

My own view is that it could be (as WSD suggests) based on a preemptive move against the possible sale of Sauza, although count me among those who think Beam Global will remain in tact and flourish in the future. Perhaps it’s a warning shot to Diageo to pick up the pace since their contract comes to an end in a few years.

What I can’t understand is where Proximo (also owned by Beckmann family members) fits in the equation. They are doing well and could easily handle the addition of Cuervo to the portfolio. But, their strength is strictly in the US. So, perhaps the low price tag is for international distribution.

One thing for sure is that the Beckmanns are shrewd and unpredictable so who knows what they have in mind.

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