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As owner of some of the world's most successful alcohol brands, Diageo clearly recognises the importance of innovation. Olly Wehring spoke with Syl Saller, global innovations director at Diageo, about its brand innovation strategy and the role innovation can play in battling the recession.

just-drinks: How does the innovation process work at Diageo?

Saller: As a process, it's fairly typical. We use a stage-gate process like many companies. We do our 'ideation' internally, as opposed to hiring new product agencies. The history of drinks innovation is a lot about throwing a bunch of stuff at the wall and seeing what sticks. There's no roadmap for doing that with alcoholic drinks, so we've had to invent it. One thing we've learnt is to have sessions which involve pretty senior people, as opposed to pouring over consumer trend data. We believe in using judgement, feel and nous to come up with the idea. Stimulus includes competition, our current business problems and customers.

What makes our approach unusual is that we have the balance right between global and local. A lot of companies struggle with that. Everything reports to me, but the seven innovation teams are region-based. The innovation strategy comes from the regional business strategy. This gets us really tied into the regions, but reporting in globally gives the overall strategy coherence.

j-d: In the past, Diageo has had a reputation as an oil-tanker company, due to its size. Does this analogy apply to innovation?

Saller: It varies. I don't think we're particularly slow, and I think we're getting a lot faster. We have some long-term R&D programmes that have been going on for three or four years. On the other hand, when we saw sweet tea really start to take off in the US, we were able to go from wondering what we should do about that to launching Jeremiah Weed in four months. In the UK, when we saw retailers piling into the pre-mix category, such as Pimm's & Lemonade, we were able to come out with another four SKUs in three months.

j-d: To what degree do you feel regulations hamper innovation within the drinks industry?

Saller: We are as protective as the Scotch Whisky Association of the rules governing Scotch, for example. They benefit us and we don't want to do anything that takes away the craft in the Scotch whisky industry. We have been able to do things like a white whisky - J&B -6c - within the code.

I don't feel hamstrung at all, by either our marketing code or by regulations. I think those rules are there for good reason.

Syl Saller, Diageo's global innovations director.

In the larger context, that is what makes innovation a tough gig compared to other product categories. Our world is fairly small. We have brands that you don't want to mess with, in terms of disrupting heritage. So, we're much more careful than most categories in terms of where we innovate.

j-d: How much resistance do you get from people like brand managers when an idea proposes an extension of their brand?

Saller: The first level of resistance people would get is from me. My job is to grow our brands, so if I don't think it's going to be good for the brands, then it's not going to get by me. The calls have got to be made at a senior level. If we can get growth out of our core brand drivers, if we don't need to innovate, don't.

We are cautious; sometimes it requires healthy debate. We had a lot of debate about Baileys Flavours, for example. But I do not want to have the debate in a room like this. It's just intellectual...

j-d: ... chin-stroking?

Saller: Thank you. All the other words I had were inappropriate. So we look at an idea and see if it's worth testing, and if the global brand director can support this testing. Nobody wanted to say yes to Baileys Flavours. There was a lot of fear that it would become like vodka flavours - it won't. But we didn't discuss it for months; we put it into Global Travel and tested it. The uptake was so good that we tested it more rigorously in North America.

If there's a level of debate, we'll learn in real life as opposed to debating concept scores, and then take the decision.

j-d: Has innovation slowed down because of the downturn?

Saller: We've accelerated our innovation programmes since the start of the downturn. The recession requires companies to do extraordinary things - we're all looking for any growth lever possible.

We have switched our focus more on to our premium, core part of the range, such as Smirnoff and Captain Morgan. Our luxury pipeline was pretty full. We've pulled back from development here and put more of our emphasis on our premium brands.

Then we did a little bit of work on our value brands, such as Popov, in the US. It's not the segment we want to grow, but if consumers are going to trade down, we'll be ready for them. Tactically, we're going to do a bit in this category.

We're also focused on the trend towards at-home consumption. The tests we had running with pre-mix and with cocktails, and the fact that those tests were doing well, meant we were able to come out of that and then accelerate our launch plans. We were testing pre-mix in GB and then we were able to decide to go Europe-wide, which we shall do within the next six months. We're well-placed to take advantage of the trend towards at-home.

Finally, we are not taking our eye off the long-term ball. We will come out of this, and I don't want to be the innovation director looking at an empty pipeline when we do. We're keeping particular emphasis on innovation that might have technical differentiation, those that we don't think other people can do. You'll see those coming out from us in our fiscal 2011.

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