Comment - Spirits - (Burrough's) Reserve the Right to Innovate
The most unexpected new product in the white spirits world so far this year has to be Burrough's Reserve, a sipping gin from Pernod Ricard's team at Beefeater. Chris Mercer looks at the launch of the new product, and what it says for the broader area of innovation in spirits.
Burrough's Reserve oak-rested gin is exactly the sort of innovation that can keep spirits firms energised, and Pernod Ricard's directors deserve credit for backing what must have looked a slightly madcap plan on the flip chart.
A few gin purists might be shaken and stirred, and the jury is out on whether consumers are likely to drink Burrough's Reserve neat, as recommended by Pernod.
At a recent launch tasting held by Pernod's Chivas Brothers unit in London, a lot of the chatter among the assembled hacks and drinking gentry revolved around how Burrough's Reserve will fare in the spirits jungle. At around EUR70 (US$90) for a bottle, is it too highly priced? Will consumers 'get it'?
For what it's worth, I found Burrough's Reserve interesting to drink neat, and I think it is gin. But, I still think the product's best chance of commercial success is via cocktails: Hand it to bartenders and let them make fun. I also understand the point about stretching out the gin category in terms of premiumisation. It's another avenue for gin lovers to explore.
But, this isn't really what I want to talk about. I think credit is due to the team at Pernod's Beefeater distillery for running with this idea, almost regardless of whether it takes the gin sector by storm.
At the London tasting, outgoing Chivas Bros CEO Christian Porta offered a wry smile when I asked what he had made of the blueprint for Burrough's Reserve when it arrived on his desk. But, he and others had the gumption to trust in the considerable experience of Beefeater master distiller Desmond Payne.
Burrough's Reserve serves as a reminder that this sort of open-minded attitude to research and development is the lifeblood of drinks companies. Sure, the brand is going to be a footnote in Pernod's financial statements, at least initially, but what's important is the intent to try something different.
I'm not arguing that commercial success is not important. I'm actually saying quite the opposite. A drinks company's primary objective is to make and sell a product that it can make enough profit from to generate returns for investors and employees. At the same time, it must also reinvest to sustain growth in those returns over the medium- and long-term.
Some of the reinvestment will naturally go into NPD. However, it is here that things get a bit sticky. To what extent should a company, especially a publicly-listed one, indulge in experimentation?
During my time as a drinks journalist, I have had several conversations with research scientists along these lines: "Privatisation of research laboratories and pressure for short-term returns has intensified to such an extent that true research and development work - experimentation for experimentation's sake - has been sacrificed and the food and drink industry is all the poorer for it."
One of the scientists expressing this view worked on the early development of cream liqueurs several decades ago; work that subsequently led to the introduction of Baileys. It was a slightly off-the-wall concept for a totally new category, and it could easily have failed.
All big spirits companies will say that innovation is a key growth driver in their business. Both Pernod and Diageo have made it into the top 50 of Forbes Magazine's 'most innovative companies'. Last year, Pernod ranked 15th and Diageo 33rd, in a list that only charts companies with a market capitalisation of over US$10bn.
But, what sort of innovation are we talking about? It's something that is very hard to quantify. For example, should flavour extensions or new bottle designs really count as innovation? Some people believe that they shouldn't.
In contrast, Diageo's Syl Saller, then global innovation director, told analysts during a recent conference call: "Oftentimes, people assume that line extensions are the easy part of innovation that we do, and I have to say that they’re not because, when you set hurdle rates like it has to build brand equity, it has to get scale, we need to be able to support it, it has to make sense to the consumer and not generate confusion, it’s actually quite hard to meet all those criteria."
She said: "The benchmark we set for our brands [in terms of extensions] is, is it going to pay rent to the parent?"
At the same time, Saller, who is now Diageo's chief marketing officer, said the company has shown it is comfortable with slow-burning products; it took several years, she argued, for consumers to grab the concept of a grape-based vodka (Ciroc) and that the firm doesn't always get its approach right first time. Guinness surger, for example, failed as a take-home product, but has worked better in pubs.
It's also undoubtedly a tough job to balance the demands of short-term commercial returns with the more speculative research and development work. Both are key to companies staying on their toes for perhaps another generation or more.
In terms of R&D, a certain degree of failure has to be part of the deal. It's also hard to know how much investment is enough. Diageo spent less than 1% of its net sales on "researching and developing" in its last fiscal full-year, according to its global head of R&D, Luca Lupini, although he said the sum is greater if one counts “end-to-end” product development work on those ideas that were taken forward.
He told analysts in May that the firm believes this investment level is broadly in-line with the standard across the alcoholic drinks industry.
This is an oft-overlooked area that needs more research and debate.
What's important to realise, though, is that products like Burrough's Reserve keep the spirits sector vibrant. I think Burrough's will succeed in filling an important niche, but I'm mainly using the product to highlight a bigger issue. For large distillers, in particular, ideas like this reconnect the firm with its entrepreneurial roots.
So, keep them coming, I say.
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