Pictured left to right: Jeff Keane, executive VP marketing, Schieffelin

Pictured left to right:
Jeff Keane, executive VP marketing, Schieffelin &Somerset; Ron Anderson, executive VP commercial strategy, Diageo
North America; Paul Clinton, CEO, Diageo North America; Mark Waller, executive VP, consumer strategy and marketing, Diageo North America;
John Esposito, president, Schieffelin & Somerset; Ivan Menezes, president and COO, Diageo North America.
Earning
yourBusiness
The Industry’s Largest Supplier Knows It’s Better Execution,
Not Size, That Keeps Licensees Coming Back.
By Kristen Wolfe | Photographs by Andrew Kist
he executive teams of Diageo and Schieffelin &
Somerset talk a lot about the focus on improving
efficiency, about new alignment with customers and
consumers, and creative strategies for increasing the value
offered by each of the companies’ brands. What you won’t
hear anyone talk about is size. Diageo is the world’s largest
supplier of beverage alcohol, but no one within the organization seems to dwell on that.
“Our goal is to be a resource that retailers can look to
for innovation, creativity and tremendous brand support,”
says John Esposito, president, Schieffelin & Somerset. “It is
not about size; it is about being best in class, and leading an
industry towards the future.” From an operations standpoint, Ivan Menezes, president and COO, Diageo North
America, also finds size to be irrelevant. “We have to earn
our business every day with every customer by demonstrating we can execute better than anyone else,” he says.
But sometimes size may have its advantages. It enables
you to effect dramatic change, and in the case of Diageo and
Schieffelin & Somerset, it’s allowing them to transform an
industry. The companies created a big buzz over a year ago
when they began a process to select a strategic distributor in
each state and build dedicated sales forces within them that
focus entirely on their brands.
Although much of the industry was anxious about these
changes, Diageo North America’s CEO, Paul Clinton,
believes they will improve wholesaler relations in the longterm. “When we deal with our customers, we want them to
T
deal with us because they want to; because they like our
brands and the way we do business,” he says. “Our goal is
to develop a single-minded approach to the marketplace
with regard to wholesalers. By working more closely with
our strategic distributors, the relationship can grow closer,
communication and social responsibility programs will
improve and all three tiers can achieve growth.”
Understanding how Diageo got to where it is today
requires a study of its past. Diageo was formed in 1997 by the
merger of Grand Metropolitan and Guinness. For many
years, GrandMet operated under old familiar industry names
such as Heublein and Paddington. GrandMet was a highly
diverse company with more than half of its income generated from well-recognized brands in food and retail. In 2000,
Diageo announced a new strategy, which focused the company on its premium drinks business. Since that time, Diageo
has concluded major transactions including the sales of
Pillsbury and Burger King, and the acquisition (jointly with
Pernod Ricard) of the Seagram’s spirits and wine business.
Schieffelin & Somerset was established in 1794 as an
apothecary in New York City. During prohibition,
Schieffelin & Co. as it was then known, was granted permission to import medicinal liquor and began its association
with Moët & Chandon Champagne. Business was so good
that Dr. William Schieffelin decided to create a wine and
spirits importing division immediately following repeal.
In 1980 Moët-Hennessy, a holding company formed by
the leading Champagne and Cognac houses, acquired con-
trol of Schieffelin & Co., exclusive importer of the two
lines. Today, Schieffelin & Somerset Co. is a joint venture
of Diageo and LVMH (Moët Hennessy Louis Vuitton).
Today, North America represents 40-percent of all
Diageo’s business. The company has a 25-percent volume
share of the US spirits market, but that number is even
higher in dollar terms (since a big part of the nation’s business is done in low-end spirits). Yet in spite of the success
of Diageo and Schieffelin & Somerset in the marketplace,
the leadership believes progress has been hindered by inefficiencies within the system; inefficiencies often driven by
suppliers at the distribution level that prohibited their
and planning with the distributors instead of planning separately and telling them what to do. We will work with a
shared vision of how to grow the business.”
Just how will all of this benefit the licensee? “For
retailers, there is less waste, more unity, and a clear understanding of the amount of support they are getting from
each brand,” says Esposito. “Communication with the
retailer will be enhanced through the dedicated sales forces
within our strategic distributors and brokers, and that provides the opportunity to grow this business for the longterm for all three tiers. Because all three tiers will be
aligned with a similar vision.”
When described in these
terms, Diageo and Schieffelin &
Somerset’s new way of doing
business makes sense. After all,
most other industries work this
way, and it is clearly a more
organized way of utilizing
resources. And while these
changes seem dramatic, the
companies are quick to emphasize that they are a means to a
much more profitable, efficient
end. "One thing that is important for us is to ensure that our
customers understand that our
goal is to make as little disruption as possible, and they start
to see the benefits as soon as
— Paul Clinton, CEO, Diageo
possible," Clinton stresses. “It is
about making things happen
that are good for the business,”
says Esposito, adding that evolution is a natural and healthy
brands from reaching full potential. “We had all these
process. “As this industry starts to understand that when
Diageo companies operating independently, all using difall three tiers work together to achieve a common goal, it
ferent wholesalers. There was very little synergy among
is better for each tier. That will really start to benefit our
them,” explains Ron Anderson, executive VP commercial
brands and the retailers’ bottom line.”
strategy for Diageo, who is the key architect of the comOne of the main motivations behind consolidating
pany’s wholesaler consolidation initiative.
their brands was to create a dedicated sales division within
Anderson began the process by surveying 23 leading
each wholesaler that will know the brands intimately and
wholesalers from around the country so that he could
drive growth. “Having dedicated teams gives us a group of
learn from them how to improve efficiency and effectivepeople that understand and appreciate our brands inside
ness. He set out to find where value was created and where
and out,” says Menezes. “The difference that retailers will
value was destroyed and he discovered that suppliers were
see from this arrangement will be better focused and tairesponsible for much of the confusion and wasted
lored programs. There were so many costs built into the
resources. “Wholesalers and retailers could not capture
old system that are far better used toward innovation and
efficiencies because of the way that suppliers conducted
building new brands.”
their business,” he explains. “Even in a simple customer
With these teams, Diageo and Schieffelin & Somerset
service situation, different suppliers have different policies
feel more comfortable sharing information that it used to
and the distributors have to deal with this.”
keep close to the vest. “Aligning our brands with one dis“If you look at the value chain, our business system
tributor allows us to be totally open, and to share our conwas relatively inefficient from the supplier base to the end
sumer insights and plans for each brand, which is then
consumer,” observes Menezes. “As we are studying our
shared with retailers,” explains Esposito. Traditionally,
supply structure we will be doing collaborative forecasting
the role of marketing was left to the distributor, Esposito
“Our consolidation process
is nearly complete, but
the real work is about to
begin as we work more
closely with our strategic
distributors and get closer
to the consumer.”
explains. “In the past, we would be doing things for the
consumer that the retailer would not be aware of, therefore he wouldn’t know how to take advantage of it.”
Studying the Marketplace
There are advantages to size when it comes to gaining
more consumer knowledge. For the last five years, Diageo
and Schieffelin & Somerset have been conducting marketby-market research to find out what consumers want, and
how they can meet their needs with various brands. “We
are uniquely positioned to take advantage of this information and we have the infrastructure to do something with
it,” says Mark Waller, executive VP consumer strategy
and marketing. “Another advantage is that our research
exposes us to a greater number of consumer opportunities
that we are able to execute against, locally and nationally
as a whole.”
In place of narrow, more traditional research, Diageo
and Schieffelin & Somerset cast a wide net. They have
completed numerous consumer behavior studies that aim
to benefit the entire supply chain. “We want to grow the
whole pie, not just our share of the pie,” says Clinton.
“We need to find new ways to build business.” Recently,
the companies conducted a study on the retail environment for the Texas Package Store Association. In an effort
to help the retailer be more effective, the study revealed
numerous ways to create a better shopping experience,
particularly for female customers. “Our studies showed
that the consumer was treating the liquor store shopping
experience as a convenience store shopping experience; in
and out with a particular purchase in mind. We found
ways to hold that consumer longer to shop the entire
store.” Waller believes offering this kind of intelligence
and support “builds trust with the retailer and has a measurable impact on everyone’s business.”
While this research can provide valuable information
about what consumers want, it also enables Diageo and
Schieffelin & Somerset to understand what kinds of social
responsibility messaging is most effective. Research has
helped Diageo and Schieffelin & Somerset develop what is
to date the most stringent social responsibility marketing
and advertising code in the industry. Says Clinton,
“There is no question that we have a huge responsibility
to promote responsible use of our products, because it is
the right thing to do. As an industry, we have a lot of
wind at our back because of recent media reports that
point to the positive aspects of beverage alcohol consumption; on the other hand we know that this is a product that has a unique place in America and has to therefore
be dealt with in a very disciplined way.”
“We work very hard with people like The Century
Council in order to make sure that the industry stands for
what is proper, what is right,” stresses Esposito. “It is
important that we communicate about proper consumption and about a marketing code that is the strictest in the
industry, in order to help the industry remain healthy
going forward.”
The Perfect Marriage
Enabling both companies to have such a clear picture of
consumer behavior is their relationship with one another.
“We have a complementary relationship with Schieffelin
& Somerset,” says Clinton. “It works because it operates
as a luxury brands distribution and marketing arm. There
is no overlap with Diageo products and it allows the sales
people to have a range of brands while augmenting the
premium aspect of all of our brands.” Together, Diageo
and Schieffelin & Somerset are able to offer an array of
brands. “We are able to have a total beverage alcohol perspective and understand that the same consumer that
“As this industry starts to understand
that when all three tiers work together
to achieve a common goal, it is better
for each tier. That will really start to
benefit our brands and the retailers’
bottom line.”
— John Esposito, president, Schieffelin & Somerset
drinks Champagne is also drinking Scotch and Gin and
vor, but perhaps flavor profiles in Champagne – sweetwine,” says Jeff Keane, executive VP marketing,
ness levels, etc. People are always looking for variety.”
Schieffelin & Somerset.
Much of a brand’s success is a reflection of sociKeane believes that the relationship is producety’s mood and desires. Why is rum growing as fast
tive because of the distinctiveness of both compaas it is? Waller feels it is a drink that promotes a comnies, and the ability to learn from one another.
munal, convivial feeling. Recently, Diageo has seen
“Historically, the core competencies of Schieffelin
sales of Captain Morgan sky rocket. Similarly,
& Somerset have been on-premise and when it
Baileys is experiencing tremendous growth. “There is
comes to off-premise – particularly chains – that is
something relaxing and intimate about Baileys,” says
one of Diageo’s strengths. They have provided their
Waller. “It is meeting a consumer moment in time.
expertise in these channels.”
This is a time that people are looking for things that
In turn, Diageo has learned from Schieffelin &
are slightly more approachable.”
Somerset how to capitalize on the opportunities in
the on-premise. “The idea of ‘gatekeepers’ of brands
is important,” says Waller, noting that Schieffelin
Smirnoff Twist
Diageo and Schieffelin & Somerset have prohas perfected this strategy. “I suspect a bartender
is the leader in
gressed quite far in announcing strategic distribuor retailer is highly aware of consumer trends, and
flavored vodkas
tors in 26 states. According to Clinton: “Our
we need to spend more time listening to them.”
with upwards of
consolidation process is nearly completed. The
Together, Diageo and Schieffelin &
35% of the
real work is about to begin as we transition to
Somerset represent some of the hottest, most
market last year .
our new wholesalers, build resources and get
historically successful brands available. But
closer to the consumer. The benefits should start
although Moët & Chandon is over 257 years
becoming apparent later this year.” Menezes believes the
old, and Johnnie Walker more than 125 years, consumer
“quantum shift” will take place in July, and retailers will
tastes change and brands need to evolve just as companies
start feeling the real benefits.
do. The key to staying on top of the next trend is being
Diageo and Schieffelin & Somerset have no illusions
plugged into the market. “I think differentiated packaging
about the difficulty of doing business in the current ecois driving consumers right now. There also seems to be a
nomic climate, or, for that matter, the stiff competition
move towards smaller sizes in non-alcoholic beverages,”
says Waller. “We need to understand these things in order
that challenges each brand in the marketplace. “In this
environment, we aren’t going to expand our business just
to drive innovation in our industry.”
because we are Diageo,” emphasizes Anderson. “We are
Right now, flavors seem to be driving product growth.
going to grow because we can demonstrate there is a difThis trend is not restricted to beverage alcohol, as Waller
ference in our brands. Retailers aren’t going to have supis quick to note. “It’s flavor in general that is hot right
pliers telling them what to do. We believe that our brands
now. Smirnoff is a great example. In the last four years,
are positioned better toward the consumer, but we need to
the brand has taken off because of our knowledge of the
convince retailers and we need to earn their business in
flavor marketplace.” Keane agrees, remarking that taste
every store.” ■
profiles are evolving. “It may not be as dramatic as a fla-
Reaping the Rewards