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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Booze and Local Taxes

Both Diageo and Brown Forman have been in the news lately with some minor battles with local officials and citizens about taxation.

Let’s start with Brown Forman. Government officials in Moore County Tennessee, made famous by BF and their Lynchburg distillery, want to tax the company for each barrel of whiskey they produce. According to what I read in Wine and Spirits Daily and elsewhere, Lynchburg gets 250,000 visitors a year and still Moore County wants to tax BF $10 per barrel.

As one of my readers put it, “Talk about killing the goose that lays the golden egg…there’s many other ways to fix their budget problem by taxing visitors…They have problems with roads in and out of Lynchburg? Let them put in toll roads.”

The tax would amount to around $4 million, not a great deal in the scheme of things but there are some factors the county officials are overlooking. According to a BF spokesperson, they already pay high property taxes and have a dominant role in the area’s economy including the creation of jobs.

In case you didn’t know, Moore County Tennessee, home of the world famous Jack Daniel’s distillery, is dry.

Some 840 miles to the east in the state of Connecticut, my friends at Diageo are under attack from a group called Connecticut Working Families. This is a coalition of community organizations, labor unions and activists who are protesting “corporate giveaways” to companies like Diageo.

According to their press release:

“Diageo has been a major beneficiary of public subsidies. The company received a $40 million tax break on the promise it would create 300 new jobs in Connecticut. Today, however, according to the latest data from the Department of Economic and Community Development, the company has 29 fewer jobs in Norwalk than when it got the tax break in 2004.

“Diageo, based in the United Kingdom, earned $3.7 billion in global pre-tax profits in 2010. According to Reuters, Diageo CEO Paul Walsh was compensated $4.8 million.”

So let me see if I got this straight. Brown Forman has created jobs in Moore County and attracted 250,000 visitors a year to a small town no one would otherwise drive through, much less visit, and the folks who run the government want to pinch $4 million out of them. Diageo gets a $40 million tax break that was meant for job creation but has cut jobs instead. How does that work?

Maybe Brown Forman should move its Jack Daniel’s production to Connecticut.

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Diageo in the News

If you’ve been a Booze Business follower, you know that I like to keep close tabs on Diageo and follow the good, the bad and the “close but no cigars” assessment of their actions.

This past week or so provided lots of press worth commenting upon.

India

As part of their global strategy, Diageo seems to be concentrating on gaining a presence in emerging markets. To do that, they have developed relationships in various countries, focusing on local spirits, at least initially. They have ventures or are selling such locally made products as Raki in Turkey, Baiju in China and local vodka in Vietnam.

This week brought the news that they are launching a local Indian whisky aimed at the country’s middle-income drinkers. Considering the fact that the spirits market in India is 234 million 9-liter cases (2nd only to china and Russia in volume) and growing at a compounded rate of 20% the last five years – I’d say it’s a good move.

But it won’t be easy, given the tough advertising rules for liquor. According to my friend and publisher Bishan Kumar (I write a monthly column for his magazine in India called Spiritz), the pathway to promotion of liquor is centered on point of sale and event sponsorship.

Diageo will also have to confront other past issues. It had a local product (Gilbey’s Green Label) but sold it in 2002 to concentrate on global brands. Now it wants to go back to concentrating on local brands. I suppose time and management changes allow for course adjustments.

Also, in July the US SEC charged the company with violating the Corrupt Practices Act in part for illicit payments made to Indian officials between 2003 and 2009. I read that Diageo agreed to pay more than $16 million to settle the charges. I guess they figured point of sale and event promotions are more effective brand building tools.

ESPN

In another recent move, Diageo signed a deal to become “presenting sponsor” on two shows and – get this – on both the English and Spanish versions of the broadcasts. It’s a smart move to reach different types of audiences with a consistent message.

On the other hand, their initial choice of brands includes Captain Morgan. That made me smile. Some time ago in doing some research on brand potential among Latino consumers, a focus group moderator asked a group of consumers with a Caribbean background how they felt about the brand. One respondent said something like, “Captain Morgan… wasn’t he the dude that sailed all over the Caribbean burning and pillaging? You want me to buy his rum? For all I know he destroyed my great-great-great grandfather’s village.”

Talk about dumb

Diageo announced last week that they are moving production of the US supply of Red Stripe beer from Jamaica to the US.

One of my readers sent me an email on the subject that just about sums it up. “They’ve got to be kidding! They’re not just moving bottling, but production itself. Do they think that consumers are stupid?”

I wrote back and told him not to get too excited. They thought it would be okay since the new facility will also be in Jamaica… Queens.

Besides, if you’re going to take a chance on moving the production of Captain Morgan from one place to another when the brand faces stiff competition, changing Red Stripe production is a trifling matter.

I have a new slogan for them – At Diageo, Our Accountants Rule.

My favorite event of the week

I don’t know how much Diageo’s deal with P Diddy is worth – some give the number in 8 digits or even 9 digit millions – but he sure has done good things for the brand.

Last week, however, he lost it in a club in Atlanta and had to spend much of his time apologizing for what some have referred to as a “foul-mouthed vodka rant.”

Apparently he saw some guy drinking Grey Goose rather than Ciroc and decided to defend his brand by 1) throwing ice at him 2) calling him the “N” word and 3) maligning the guy’s sexual persuasion.

An online blog called Hollywood Gossip quoted him as tweeting, “I’m sorry for the ignorant way I represented myself … I have backslid and regressed. Forgive me for my ignorance. Pray for me pls.”

Don’t apologize Mr. Diddy, Diageo could care less. Your contract is safe. As for me, I just want you to know that you’re my kind of brand ambassador.

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