Analysis

Johnnie Walker, Smirnoff, M&A plans and seltzer success – Diageo in North America - Focus

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Last week, the head of Diageo's operations in North America, Deirdre Mahlan, hosted a conference call with analysts to update them on the company's performance in the region. Here, just-drinks picks out the top topics from the call.

Diageo has highlighted rising consumer interest in the seltzer category

Diageo has highlighted rising consumer interest in the seltzer category

  • M&A plans

Mahlan described Diageo's M&A pipeline in the US as "a continuous exploration".

"We're disciplined about how we think about acquisitions," she said. "But, we need to be looking at where are the biggest opportunities that makes financial sense for us."

The North America president highlighted the company's incubator fund, as well as the need to keep up with changing consumer demands. "We'll look at everything from what we do in our Distill Ventures portfolio ... we have also made acquisitions through our ventures programme.

"What we do is look at what the consumer trends are and then make decisions about whether or not we believe our current brand portfolio is best-positioned to capture them, whether we'll innovate and grow organically ... or whether we think there's an opportunity to acquire brands in the market to best capture that growth."

She also flagged the number of new Diageo brands that are in the process of launching in the US market. "We'll continue to evaluate opportunities on where we might be able to acquire additional brands in the future."

The group is preparing a fresh marketing campaign for Johnnie Walker in the region. Mahlan said the company will roll out a new activation for the brand around its well-established 'Keep Walking' initiative.

"This year, we will build on that momentum, investing behind proven growth drivers," Mahlan added. "As part of the 'Keep Walking' platform, we are launching a new campaign called '12 years' with the insight that sometimes, to appreciate how far you've come, you have to look back."

Diageo will also relaunch the Red Label expression in the on-premise with "a focus on bartender engagement, drink menus and sampling", Mahlan said. The company has also released a 5cl format for Blue Label, ahead of the festive season.

  • Seltzer story

As consumers look for better-for-you options, Diageo is enjoying success in the region with its Smirnoff Spiked Sparkling Seltzer brand, which sits under the Diageo Beer Co USA division. Seltzer consumers are "looking for lower sugar, lower calories, kind of a less sweet taste" and the category is part of a "longer-term consumer trend", Mahlan explained.

"We are obviously evaluating the performance of the category for our own brand and for others and across the industry. We'll make our investment decision based upon our view of what that growth is going to be and the returns on the business."

Earlier this month, Diageo launched a festive campaign in the US for Smirnoff Spiked Sparkling Seltzer.

  • Smirnoff looks to 2019

In full-year results for fiscal-2018 (to the end of June), Diageo reported a 2% sales dip for Smirnoff in North America. In last week's conference call, Mahlan set out new plans for the brand in 2019.

The aim of the brand's latest marketing activity is to "reach even more consumers", according to Mahlan.

"We are also dialling up our quality credentials: Smirnoff is gluten-free and made with non-GMO grain, which reinforces the message that Smirnoff is the best for everyone," she added. "Alongside this, we have also launched a new bottle, beautifully-crafted, it dials up our heritage - leading to both better quality perception and shelf standout."

Diageo Performance Trends 2014-2018 - results data


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