North American Whiskey
Peter McDonough
Chief Marketing and Innovation Officer, Diageo North America
Well, good morning. I'm Peter McDonough, and I serve as the Chief Marketing and
Innovation Officer in North America. I joined Diageo seven years ago, starting first
overseeing their innovation function and then moved on to oversee both brand marketing, as
well as the Innovation Group, and it is a real pleasure for me to join you this morning to talk
about some of the exciting things we have going on in North American whiskey within the
US.
Back in the States, North American whiskey is enjoying robust growth and bartenders in the
trade like to describe the category as being on fire. It's now a vibrant category following an
earlier period of being viewed as an older man's drink and out of favor with younger drinkers
in comparison to white spirits like rum and vodka.
Today, whiskey is on the rise in pop culture and viewed by consumers as on trend and stylish.
Mixology trends are stimulating trial, while Hollywood is fueling the fire. For many US
consumers, it's interesting, whiskey is the generic term referring to the many sub-segments
within North American whiskey. Often simply called whiskey, regardless of whether it is an
American whiskey, a Canadian whisky, a bourbon or a rye whiskey. In fact, these days, it
seems that everyone is proud to express their interest in whiskey, and it's attracting women,
younger LDA and multicultural consumers like never before back in the US market.
And it's a category of significant scale. As you can see here, North American whiskey, or
NAW, is the second-largest spirit category in the US, representing 23% of sales and growing
at nearly twice the rate of the total spirits category. It's also driving 53% of the total
industry's value growth this past year, and there are several consumer trends that are at play
in driving this robust growth.
First, consumers' interest in new flavors and cocktails are recruiting trial from consumers that
in the past did not drink whiskey and are entering into the category through flavored whiskey.
In addition, craft whiskeys meet American consumers' interest in discovery and capture their
interest in authenticity and brands with an interesting story to tell of heritage and quality
craftsmanship. And lastly, premiumization, which is alive and well in whiskey and actively
fueling the value growth of the category.
Diageo is well positioned with NAW with strong and growing brands. We have a 23% share
of the category value, and we're investing for growth in our current brands, in new innovation
and in our supply capabilities. Our Crown Royal brand is the number-two brand in NAW
and selling nearly 4.5m cases annually at super-premium and ultra-premium price points.
It represents more than half of our NAW portfolio value, and it's also one of the top-10
bestselling brands across all of US spirits. And I'm proud of the fact that Crown Royal is
premium priced to the category leader from Brown-Forman and currently growing faster than
the category's top-selling brand. And our recent introduction of Crown Royal Maple
Finished captured the title of the number-one spirits innovation in all of the US last year.
Bulleit Bourbon is another remarkable brand, positioned at super-premium price points and
now one of the fastest-growing bourbons in America and the leading brand within rye
whiskey.
We're also quite proud of George Dickel, which is the country's second bestselling Tennessee
whiskey, and our Dickel Rye is now the number-three-bestselling rye in America. And the
last brand that I'll call out within our broad North American whiskey portfolio is Seagram's
Seven Crown, which competes in the premium price segment and continues to be the
number-one-selling blended American whiskey.
We're excited about Diageo's future growth within the NAW category, and we feel we're well
positioned to capitalize on the trends that are driving the attractive growth within this
category.
I mentioned earlier that premiumization is an important trend in fueling the category growth.
As you can see here, super-premium and ultra-premium brands represent 53% of the category
value but are driving nearly 90% of the category growth this past year. And in my discussion
today, I'll focus my conversation on the brands of Crown Royal, Bulleit and George Dickel,
which are all positioned in the super and ultra-premium price tier within the NAW category.
New flavored whiskeys are also driving category growth. Flavored whiskeys came into play
just a few years ago and currently make up only 11% of the category, but as you can see here,
are driving more than half of the category value growth this past year. Flavors make whiskey
more approachable to consumers and they help to recruit women, younger LDA and
multicultural consumers into the whiskey category.
In fact, a recent study revealed that nearly half of the flavored whiskey drinkers were not
previously whiskey consumers. In addition to new flavors, there's also significant growth
coming from unflavored crafted American whiskeys. Consumers perceive American
whiskey as authentic and a product representing classic American values, and consumers'
interest in the growing and rapidly unflavored whiskeys come about in forms such as bourbon
and rye. And as you can see here, these two segments grew 12% and 51% this past year.
Both of these whiskey segments are favorites with bartenders experimenting with trendy
cocktails, and each of these segments are driven by brands with imagery in American
heritage and entrepreneurial spirit. Diageo is well positioned to capitalize on the growth in
both of these segments, with our Bulleit Frontier Whiskey being one of the fastest-growing
bourbons and our rye offerings under both Bulleit, as well as George Dickel, now
representing the top-selling as well as the third-bestselling brand within rye.
Now, in North America, we have an attractive portfolio of a half a dozen NAW whiskey
brands with annual volumes of 8m cases. Now, this photo does not reflect our full portfolio.
This photo just happens to be some of my favorite variants within some of our bestselling
brands, but I don't have the whole day to talk to you about everything, so I'm going to focus
on just a few of those.
I'm going to start first with a brand that hopefully you all had a chance to try last night,
Crown Royal. Crown Royal is a strong brand and it is building momentum. With a scale of
more than 4m cases, it's the number-two brand in the NAW category, and it's positioned at a
significant price premium to the number-one and third-bestselling brands within the category.
And Nielsen data reveals that Crown Royal has been outpacing the value growth rate of both
the category leader as well as the number-three player in the category.
And we've built this momentum with a reinvigorated consumer engagement platform that
includes strategic line extensions and an increased focus on multicultural consumers and
recruitment. At the heart of Crown's growth lies the fact that the brand has a well-established
position as a statusful yet approachable, smooth-tasting whiskey. And this positions Crown
to enable it to recruit from consumers across all of the super-premium whiskey segments.
And as we look at future growth opportunities to fuel our growth, we're pleased that our
Crown Royal consumer franchise is more diverse than the NAW category and positions our
brand to recruit from a broader pool of consumers. Our current franchise over-indexes in
women, and this is particularly important as more women are entering the NAW category and
serve as an important source of growth for the category.
We also over-index with multicultural consumers, which are growing significantly faster than
the Americans consumer population. Now, there are three areas that I'd like to focus on this
morning that highlight how we will build the growth momentum for this brand and recruit
new consumers.
The first is our exciting new consumer engagement platform. I'll then talk about new
innovation programs, and I'll conclude with examples of how we're integrating the Crown
Royal brand into popular culture.
For those of you who are unfamiliar with this brand, Crown Royal was originally crafted
back in 1939 to celebrate the inaugural journey of King George VIs visit to Canada. And
upon his arrival with the queen, this brand was presented in honor of the monarchy, hence the
appointment of the reverent name Crown Royal. And from these royal beginnings 75 years
ago, the brand is positioned today as an inspiration and reward to modern-day consumers
who we view to be everyday kings.
Today, it's a brand that has become a contemporary symbol of aspirational status, and at the
start of this year, we launched a new communication platform for the brand called Reign On.
Our Reign On message is designed to reinforce Crown Royal's status as an inspirational
reward for men as they strive to win at the game of life, and it comes to life through a fully
integrated marketing platform featuring TV, outdoor, print, digital and activation programs
within the sports sponsorships for the brand of NBA basketball, western rodeo and NASCAR
auto racing.
We've been investing behind this new Reign On campaign since the beginning of this year,
and it is clearly working to strengthen the brand's image and equity. It reinforces the status
cues that appeal to millennial and multicultural consumers, and it's making our current
loyalists very proud of their brand. Shown here, you can see the Milward Brown tracking
studiers revealing that our brand metrics associated with consumption, being thought of as a
brand that I love, being a brand for people like me and a brand that's leading the way are all
improving versus prior year.
So we're excited about the gains that we're making in strengthening our brand's aspirational
status and very optimistic about our ability to continue to recruit new consumers into our
franchise. So let's take a look now at some examples of how this comes to life.
I'm going to start first with three television spots. The first we call Lion. Then I'll follow that
with a spot we call Dr. J, and for those of you who are not familiar with American basketball,
Dr. J is a legendary and iconic basketball hero. He's now retired, but back in the day, he was
a perennial all-star, and he was the captain of the Philadelphia 76ers, who were a
championship basketball team. He also happens to be a Crown Royal drinker. And the last
spot is a social responsibility message called Guardian Angel. So let's take a look.
[Video presentation]
The next spot is Dr. J.
[Video presentation]
And our final spot is a social responsibility message.
[Video presentation]
The Reign On campaign also has numerous messages that are delivered throughout a home,
as well as print. Here's an example of a print campaign that we created with Sports
Illustrated. We have this in many of the leading men's magazines, but this is a particularly
exciting one, because in this particular issue of Sports Illustrated, we took the first four
advertising pages of the magazine's highest-circulation edition of the year, outside of the
swimsuit edition.
This magazine is referred to as the official NFL preview edition, and it stays on newsstands
for the month leading up to the first game in September. And the four single-page ad units
that you see here were created in collaboration with Sports Illustrated to forecast four new
NFL quarterbacks that the magazine had anointed as the new kings of the National Football
League.
It's a unique and high-profile time with America's leading sports magazine, and it further
reinforced the aspirational nature of this brand. The Reign On campaign also is being
featured in a variety of messages in out of home. This is the first of several that I'll show.
We're putting these in the top 30 markets in the US.
And because we know that millennial consumers are spending more and more time online
and on their mobile phones, we created interactive Reign On programs for high-profile digital
and social media sites, like the examples that are shown here on this page showing Crown's
takeover of the Yahoo! Sports homepage, for example, or Crown's takeover of top regional
newspapers like the LA Times.
And we also engage consumers in their mobile phones with our brand message integrated
into major blogging sites, such as this example, which is the NFL Bleacher Report, which
provides updates and statistics on team and players.
And now I'd like to turn to innovation. As Syl Saller mentioned last night, during the past
three years, we've launched two innovation programs that have proven to be very effective in
building new recruitment and new consumer franchises as part of our brand.
The first was Crown Royal Black, launched in 2010, and it's a new smooth-blended whiskey
that includes aged bourbon to give it a bolder flavor profile and a slightly higher proof
statement compared to the base brand of Crown. And Crown Royal Black has grown
significantly since the 2010 launch and is now projected to ship over 350,000 cases this year.
Crown Royal Maple Finished was launched just last year. It represents Crown Royal's first
flavored whiskey and it's created by starting with the same high-quality whiskey that goes
into our base brand of Crown Royal, and then we finish the whiskey with wood staves and a
hint of natural maple flavor to craft a deliciously smooth and flavorful whiskey.
Our Black and our Maple variants now make up 15% of our Crown franchise, and both have
proven incremental to the base brand, which grew 6% this past fiscal year. Now, how many
of you had a chance to try either of these two beautiful whiskeys last night? Show of hands.
Do you agree with me that these are just amazing liquids? Yes? I'll take that as a resounding
yes. Moving forward, innovation will continue to be a growth driver for the brand. This
spring, we'll be launching a new innovation called Crown Royal XO. It's a unique blend,
specially finished in cognac casks from the Limousin forests of France, and the thoughtfully
crafted approach creates an extraordinary whiskey, deliciously balanced with hints of vanilla,
spice and rich dried fruit, closing with an impeccably smooth finish.
We're very excited about this innovation, because consumer research indicates that there's a
significant overlap between NA whiskey and cognac drinkers, so we believe Crown Royal
XO will help to recruit a new wave of multicultural consumers into our Crown franchise.
Crown XO will have a suggested retail price point that's twice that of our base brand, so we'll
be launching it and managing it like many of Diageo's high-end reserve brands, engaging
consumers through luxury touch points, including high-end print publications, influencer
programs and statusful activation events.
Also, next summer we'll be introducing a luxurious whiskey to commemorate the 75th
anniversary of the launch of Crown Royal and King George VI's visit to Canada back in
1939. This limited-edition Monarch blend will be created to celebrate the anniversary with
an ultra-premium whiskey, featuring unique rye whiskeys from our historic still, blended with
some of our most exquisite and aged whiskey stock.
This thoughtfully crafted process creates an exceptionally smooth whiskey that's showcased
in this gorgeous commemorative pack, and consumer testing reveals that this is an exciting
proposition for whiskey lovers, and it reinforces Crown's luxury position with a suggested
retail price point that's nearly three times that of our Crown base business.
Now, before moving on to my next brand, I'd like to share a quick video that highlights
examples of how the Crown Royal brand is brought to life in popular culture in America.
Let's take a look at the video.
[Video presentation]
All right, let's turn now to Bulleit Frontier Whiskey, which is personally one of my favorite
brands and a true gem within the Diageo whiskey portfolio. And it's clear that many
American consumers share my love for this brand, as Bulleit now is one of the fastestgrowing bourbon brands of scale in America.
As you can see from this chart, our Bulleit sales have consistently grown at a highly
accelerated pace for the past several years, and we believe that our Bulleit brand could grow
to become a million cases in the foreseeable future. The Bulleit brand came into the Diageo
portfolio back during the Seagram's acquisition, and it's a brand of real substance, inspired by
Tom Bulleit, an inspirational entrepreneur, Vietnam veteran and cancer survivor, and in part,
the inspiration for me participating in Movember.
For those of you who were at the event last night, I hope you had a chance to meet this
remarkable man. He is an amazing entrepreneur, and he will go on to become a true icon of
the American whiskey industry and a true Kentucky gentlemen at heart.
Nearly 20 years ago, Tom quit a successful law practice and risked everything to establish the
Bulleit brand using an original bourbon recipe inspired by his great-great-grandfather's days
on the western frontier. It’s a unique bourbon, marked by an unusually high rye content,
which delivers drier whiskey notes married with a sharp, robust flavor. And it's a classic
whiskey brand that has been built the old-fashioned way, through hand-selling by our founder
and inspirational brand ambassador.
Tom Bulleit travels the country, visiting influential bars and restaurants and whiskey
festivals, sharing his authentic and inspiring story that captures the hearts of bartenders,
journalists and consumer alike. It's a remarkable brand that's highly regarded for its liquid
credentials, and it's adored for its distinct tombstone-style bottle with an intentionally crooked
label.
It's a whiskey pack that embodies the spirit of the American frontier, and we hear stories all
the time about consumers saving their Bulleit bottles for repurposed uses around the house
after they finish the delicious whiskey inside. As we drive Bulleit to greater scale, we'll
continue to be selective about how we stimulate consumer interest, using what we refer to as
a discovery model of marketing.
We'll focus on activation programs that charm the trade and turn gatekeepers into advocates
and evangelists for Bulleit. And we'll use highly targeted and outdoor advertising in select
neighborhoods and magazines to capture the interest of whiskey aficionados.
At the heart of Bulleit's discovery marketing model is the brand's focused investment to build
adoration and respect of bartenders, or what we refer to as gatekeepers. Gatekeeper advocacy
is a proven strategy for building brand trial. Consumers love getting a recommendation from
bartenders as they experiment beyond their normal brand of choice, and our focus on
bartenders has been an important strategy in driving the growth of this brand.
As you can see here, on-premise sales for Bulleit grew more than 100% last year, and this
rapid growth in the on premise has a strong correlation in driving purchase of Bulleit in the
off premise, which grew 64%.
Here's an example of our print and outdoor advertising creative, which, consistent with our
discovery model, is rather simple and understated. Glamorous photography to showcase our
product as the hero, and to reinforce Bulleit's image as an authentic brand of real substance.
And as you can see from this chart, our base bourbon brand continues to be the engine for the
total trademark's rapid growth. We had a singular focus on our base bourbon for well over a
decade before launching our first innovation, which was our Bulleit Rye, in 2011. And two
years later we introduced a limited-edition 10-year-old bourbon.
Each of these innovations have captured the interest of bartenders and consumers, and both
have bolstered the growth of the original bourbon base. Now, I worked behind the bar last
night at the little NAW whiskey section, and I served a lot of Bulleit. How many in here had
a chance to try Bulleit? Now, do you not share my advocacy that is an amazing brand, great
liquid. Yes? Thank you. Brilliant.
And as you saw in the earlier chart, Bulleit's expansion into rye has proven to be not only a
source of growth but a new stake in market leadership. After being launched just a couple of
years ago, Bulleit now has become the number-one-selling rye in America.
And while I like to think that clever marketing has clearly been a catalyst for building the
growth of this band, as CMO, I must confess that the marketing task is a lot easier when you
have an amazing liquid and brand credentials to work with. And as you can see here, our
bourbon, our rye and our limited 10 year old have each been highly acclaimed and awarded
by the industry's most rigorous and prestigious competitions.
Our plan for the future is to build on North America's success with this brand by
incorporating Bulleit into Diageo's global reserve structure and expand Bulleit's distribution
to over a dozen international markets in the year ahead. So the question we got more than
anything last night when I was serving Bulleit was, when can I get this here? You will soon
be able to get it here in this market, we're excited to say, because we know that there are
many pockets around the world where there's a growing interest in brown spirits, Americana
and the nostalgia and rustic imagery that's associated with American whiskey. And our
Bulleit brand brilliantly personifies this interest with its tombstone bottle and its frontier
whiskey imagery.
So between the rapid growth that we're seeing in North America and our plans for
international expansion, we are remarkably excited about this brand. Now, before I leave my
discussion of Bulleit, let's take a look at how this brand comes to life in popular American
culture.
[Video presentation]
My final whiskey brand for today's discussion is George Dickel. George Dickel Tennessee
Whiskey is a marketer's dream. It's a whiskey of true character with a history of integrity,
and after nearly 150 years of whiskey-crafting history, we're still making it exactly the same
way as our original founder did, with only a couple of interruptions, most notably
Prohibition.
What's remarkable is that I must confess that it's a brand that hasn't been marketed for several
decades, just beautifully crafted and distributed, with minimal attention and minimal
investment. That is, until we reactivated marketing support in 2011 to capitalize on the
whiskey renaissance that's emerging in America.
The Dickel philosophy is that if something is worth doing, it's worth doing right. It's a
whiskey crafted by a small, dedicated staff that's passionate about the craft of how whiskey is
made. And it's crafted using a proprietary chilled charcoal filtering process to deliver an
amazingly fine, smooth sipping whiskey. And nearly everything about this whiskey happens
on site in our distillery, located down in the rural woods of Tullahoma, Tennessee, where
many members of our staff have worked most of their life.
Our marketing platform for George Dickel is all about thoughtful craftsmanship. Here you
see images of our advertising and merchandising, and in the lower center of the slide, a
picture of our main office at the distillery. It also serves as a general store and post office for
Cascade Hollow in the tiny little rural town of Tullahoma, Tennessee. Handmade the Hard
Way is our marketing slogan proudly brought to life through grassroots activation and
experiential programs.
An example of one of these experiential programs was created earlier this year when we
challenged consumers to handcraft their own bar, and in creating this program, we worked
with an Emmy Award-winning director, and Sundance Films collaborated with the brand, to
create a series of short videos called Raising the Bar and shared these films virally across the
social media world.
The videos were a huge hit with whiskey aficionados, who love our handmade the hard way
story of craftsmanship, and our little Dickel brand is now capturing the attention and love of
whiskey drinkers across America.
In 2012, we expanded the Dickel range to include a rye to capitalize on the growing interest
in rye-based cocktails, and our Dickel Rye is finished in a style that made George Dickel
famous. It's a super-premium rye, which is chilled before passing through our proprietary
charcoal filtration process using the native trees surrounding Cascade Hollow.
The end result is a bright, spicy, flavorful rye with a smooth, fine finish. And, as I mentioned
before, our Dickel Rye is now the number-three-selling rye in America and recipient of
multiple industry awards.
Not surprising, with its rich history of craftsmanship from a distillery in the rural woods of
Tennessee, the press and media were eager to celebrate the launch of our Dickel Rye last
year, and it's a great example of how thoughtful innovation creates a favorable halo for the
broader brand.
I won't be elaborating on the many awards that are highlighted on this chart, but similar to my
discussion on Bulleit, George Dickel is a remarkable brand that's highly respected and
recognized by judges and industry pundits as an authentic brand of substance and a delicious
whiskey of super-premium quality, and I hope that many of you had a chance to try this
wonderful brand last night.
Now, before wrapping up my discussion on Dickel, I want to quickly share two new
programs that promise to accelerate our growth and reinforce the brand's image and
craftsmanship. The first is our Buy the Barrel program. It's a program where you can
literally purchase a barrel of aged whiskey that's been resting in our rick house down in the
distillery of Tullahoma.
The whiskey barrel you select is then bottled by hand with your own personalized label.
Now, we just started this program in September, and already, we've sold more than 200
barrels. This is a great program that delivers on consumers' interest in personalized
craftsmanship and exclusivity, and it creates a wonderful halo of craftsmanship for our brand.
My last program on George Dickel is an exciting new innovation program that's going to be
launched this coming spring. It's the launch of Dickel White Corn Whiskey, which is a
super-premium unaged whiskey that's crafted in the spirit of the Prohibition era. Using a
long-established recipe from the Dickel archives and that old man Dickel himself would
declare to be mellow as moonlight, it's a great example of innovation that reinforces the
brand's heritage and craftsmanship, and I'm quite sure that whiskey lovers will grasp onto this
very quickly when we launch it this spring.
I'll wrap up my conversation on Dickel similarly with a video of how this brand comes to life
in popular American culture.
[Video presentation]
What a wonderful brand. In concluding my discussion on North American whiskey, I'd like
to share a couple quick thought of what our innovation team is working on as we look to the
future. First, I'll begin with the area of flavored whiskey. Recent consumer research informs
us that one in five flavored whiskey triers are new to the whiskey category, and we believe
that consumer interest in flavored whiskey will continue to grow and play an important role
in fueling the growth of this category. And as I stand here today, I can tell you that we have
many exciting concepts and programs in development within our distilleries and within the
innovation lab. And in the interest of time, I won't elaborate on them now.
But you can be certain that we'll leverage our capabilities and expertise in distillation and
flavor technology to be selective and thoughtful about how we expand our range of flavored
whiskeys. We also have innovation programs in various stages of development that are
designed to expand our reserve portfolio by introducing new-to-world ultra-premium
trademarks within the NA whiskey category.
One example of how that could look is shown here with our Blade & Bow concept. This is a
new-to-world brand that we're evaluating for next spring, and it's a whiskey innovation that
romances Diageo's historic Stitzel Weller distillery, located down in Kentucky. Now
mothballed, when the Stitzel Weller distillery was operational, it served as the home to
several iconic American whiskeys. And the Blade & Bow brand integrates images from this
distillery and its storied past to create a new-to-world ultra-premium bourbon, deliciously
crafted with finely aged and precious bourbon stock from our Kentucky rick house.
Diageo is fortunate to have an amazing stock of precious aged whiskeys. These whiskey
stocks enable our innovation team to create new-to-world brands that feature thoughtfully
crafted whiskeys using exquisitely aged and rare whiskey stocks from our barrelhouses.
Another example of how we can bring these aged whiskey stocks to life is shown here with
our Orphan Barrel concept.
Orphan Barrel is a program we intend to introduce early in the new year, and it serves as an
umbrella or a parent trademark over a portfolio of several limited-edition aged and ultrapremium craft whiskeys. The two brands shown here, a 20-year-old Barterhouse and a 27year-old Old Blowhard whiskey are just two examples of several new limited-edition brands
that are currently in development by our innovation team.
In the interest of time, I'll refrain from elaborating further on the many projects that are
underway by our innovation group, but rest assured, we have a lot of exciting innovation
underway within this category.
So in summary, I hope you'll agree that Diageo has an exciting opportunity for growth within
the North American whiskey category. We have a strong and growing portfolio of brands to
invest behind. We have world-class innovation capabilities to leverage and a strong route to
market to ensure brilliant execution of our programs, and we feel confident that we have the
consumer insights and marketing skills to capitalize on the trends such as premiumization,
flavors and craft.
Thank you for your time this morning. It's been a real privilege for me to share this exciting
program in North America. So, with that, I think we'll open it up for questions. Yes.
Q&A Session
Olivier Delahousse – Analyst / Natixis
Hi. I'm Olivier from Natixis. Two questions, please. The first one is on Bulleit. Can you
provide us with a perspective, maybe, of how big that brand can be maybe five years down
the road, taking into account the inventories? I'm guessing the kind of growth you've showed
is not necessarily sustainable also from a supply side?
And secondly, when we look at North American whiskey, including Canadian whiskey, you
have a leadership position of 23%, if I remember correctly. But if you strip out the Crown
Royal, I'm guessing you're going to be probably still probably much smaller, maybe 1% or
2%. And what signs can we have that Department of Justice or antitrust authorities would
indeed look at that category as a single category when assessing, maybe, consolidation?
Thank you.
Peter McDonough
Okay, so I'll start first and then turn it over to Larry to fill in. On Bulleit, you've seen the
excitement and ambition for this brand. We feel very confident that we have the supply
capabilities in hand to grow this to a million cases in the foreseeable future. And we believe
that, given the momentum that we've got within the North American market and our ambition
to roll out internationally that that is not just a wishful CMO speaking. We really do believe
in the power of this brand.
The second part of your question, related to North American whiskey, it's a bit unfair to back
out a large brand and say, well, what are you without that large brand? As you can see from
this exercise, we are the number-two player within Tennessee whiskey. We have the fastestgrowing ryes within the category, and yes, we have a very strong position with Crown Royal.
But we believe that that positions us well across all of what we call North American whiskey,
whether it be bourbon, whether it be Tennessee whiskey, whether it be American blends or
Canadian whiskey.
Olivier Delahousse
Sorry. The purpose is not to say that Crown Royal is not a great brand. It's just I'm guessing
the consumers, from a consumer perspective, the marketing, SKUs for Crown Royal, the
whole Canadian stuff, is quite different from the more US brands. And the question is also
how would the Department of Justice really see that as a single category, or maybe accept the
fact that you have US whiskey on one side and Canadian whiskey on the other, which would
provide more leeway as to consolidation.
Larry Schwartz – President, North America, Diageo PLC
Yes. Just on the Crown Royal and the Canadian whiskey, and I want to touch on Bulleit, and
then I'm going to turn it over to Ivan on the antitrust issue that you're raising. The good news
about Crown Royal is a lot of people don't know it's a Canadian whiskey in the States. So in
Texas, where we sell about 650,000 cases, most people think it's a bourbon, so we're very
fortunate.
They just think it's a great whiskey, and it's transcended Canadian whiskey, so we're in great
shape. And we're at a premium price to our nearest competitor by about 10%, which is
excellent.
On the Bulleit bourbon, we're going to sell over 600,000 cases this year, so a million cases is
going to happen sooner rather than later. The good news is, the stocks we have are amazing,
there's plenty of it, and we just are in the process now of building a site, an additional site, so
we don't see any liquid constraint. And the goal is to get to 2m cases globally, so we have
enough liquid to do that, and we'll continue raising the price of Bulleit as we go.
So, Ivan, on the -Ivan Menezes
Your question was can we own another bourbon? Yes.
Larry Schwartz
I'm glad you said that.
Peter McDonough
Yes. Any other questions? Yes, Tom.
From the floor
On your brand extensions, you show that the core George Dickel offer was a suggested retail
price of $17.50.
Peter McDonough
Right.
From the floor
And I think it looks like it's got a lot more value to the consumer than that price point
suggests. That price may have come up a lot over the past couple of years, I'm just not sure
of it, but it looks like you'd have considerable pricing ability.
Peter McDonough
An opportunity. Tom, I couldn't agree with you more. I believe in the power of this brand.
If you'll recall, it was really just in 2011 that we went back in and reactivated this brand.
With that, we have been steadily taking price since we've begun the marketing support of it.
But you're right, that brand should be -- Dickel No. 8, which is the foundation, should be
closer to $19, and then we go up to the Dickel 12, which is more like $24. The rye is line
priced with that. And the new unaged variant is going to be priced at $22. So we are
gravitating to higher price points, and with a little more time and a little more marketing,
we'll continue taking those up.
Larry Schwartz
We've taken it up three price points, and we do think Dickel is precious. Those barrels that
Peter talked about, to buy one of those barrels, you spend $10,000. One barrel equals 244
bottles. When we first started it, we built a little line there to do this. We thought we'd sell
about 30 barrels. We're going to sell 300 barrels at $10,000 a pop, which is pretty good.
Peter McDonough
Yes, in the back.
Tony Bucalo – Analyst, Santander
Tony Bucalo from Santander. Just two quick questions. One, do you have 100% national
distribution for these brands, because I didn't see any sort of ACV numbers for these brands,
and I don't remember ever seeing George Dickel anywhere, ever, in my life?
Peter McDonough
Ever, anywhere in your life, and where do you live?
Tony Bucalo
I live here, but I'm from New York.
Peter McDonough
All right, I get that. But with a little more demand, we'll bring it here to the UK.
Tony Bucalo
But the second question is, in terms of brown spirits, it's pretty obvious why Johnnie Walker
took off with the marketing and just Keep Walking and all this. What happened with brown
spirits that they sort of fell -- American brown spirits fell back into favour. What trends do
you think turned that around, because white spirits really sort of were carrying the day 10
years ago and now it's brown spirits. What specifically happened, do you think, that got that
back on trend?
Peter McDonough
I think there were a couple of things that happened. One, the transformation that we've made
in the States related to the Scotch category is we've been moving the brand to be viewed less
as your father's country club set to become a brand that's much more relevant for millennial
consumers and, importantly, recruiting multicultural consumers in that. So our work in
Scotch actually works outside of the broader category. Scotch is not growing nearly as
quickly as our Scotch portfolio is in the US, and that's all about great marketing.
The second part of your question is related to whiskey and what's happening within whiskey.
Whiskey wasn't viewed as this statusful, discerning, old man's country club brand. Whiskey
had just fallen out of date as being viewed as maybe something that your grandfather drank.
And so it didn't have this discernment piece that we had to overcome. We just had to work at
making it more relevant and making it more cool for contemporary millennial consumers.
Hollywood has done a nice job of that. It's always been something that's been romanced.
People want to tell you that they're whiskey drinkers, because there's a badge with that, and
we've made it more powerful in terms of marketing to address that, and that's the role that
flavors has done, bringing more and more consumers in that way. So it's a combination of
the trends of flavors. It's a combination of making our messaging more relevant to millennial
consumers than the category had in the past.
And it's also, importantly, driven by mixology trends. So the cocktail culture in the States
really took off, starting first with vodka, and then what happens is bartenders are just a really
creative lot. They wanted to move to work with new spirits, so they went back to some really
interesting, original whiskey cocktails from back in the day, and they made them much more
popular. So mixology trends play a really, really big part of this, as well.
Larry Schwartz
Okay, in terms of distribution, even though we don't have a lot of distribution on Dickel, we
still sell about 150,000 cases. The plan really is not to go to mass market and have chains
and try to discount it. We want to keep taking our price up, we want it to be a discovery
model. We want to hand sell it. And we're okay. We don't want to do anything -- no push
tactics. Everything above the line and everything a hand sale, and training our dedicated
sales force, which we're fortunate to have, to be able to talk about Dickel in a way that it's
handmade the hard way.
And that's how we built Bulleit. Having Tom Bulleit as the apostle for Bulleit has been huge.
He goes around, account by account, bar by bar, and talks about Bulleit, and that's the same
method we're going to use for Dickel.
Tomorrow, we can probably get 40% distribution if we want. We don't want to do that. We
want to continually raise the price, hand sell it and go into select accounts where we know
we're going to get a turn.
Tony Bucalo
So you're not even close to national distribution for either brand?
Larry Schwartz
Either brand. Bulleit's in a lot more distribution than George Dickel. So we have a long way
to go in terms of distribution on Bulleit. We probably only have about 20%, 25% on-premise
distribution on Bulleit, so we have a long way to go.
Tony Bucalo
Could you get into a Van Winkle situation where you just can't get it anymore if you -Larry Schwartz
That's a great brand, Pappy Van Winkle. We won't get into that kind of situation. The
situation we're going to create that's going to mimic Pappy Van Winkle is the Orphan Barrel
program that Peter touched on. That's going to be -- we're going to be the number-one craft
distiller in North American whiskey in the US. I know that sounds really hard to understand,
since we're such a big company. We will be the number-one distiller. Why? Because we
have the whiskeys. We have 27-year-old whiskey, 21-year-old whiskey, so we have a bunch
of different whiskeys.
The good news is, we're going to charge for it. We're going to charge $100 for it, $150 a
bottle, $75 a bottle. That's the way we're going to try to create the mystique that Pappy Van
Winkle has. Bulleit, we're not going to go mass market, but it will be a million cases. We
can't stop it.
Tony Bucalo
Thank you.
Larry Schwartz
Even if we tried.
Peter McDonough
Yes, in the back.
From the floor
Hi. What is the price-volume elasticity in this category? How is it different from the overall
Diageo Group?
Larry Schwartz
North American whiskey, a big piece of our price is -- North American whiskey and Scotch
and two of our vodka brands give us most of the price that we get, right? So Ketel we keep
taking up. We have to be careful, because our competitor is not going up. We keep taking
Ciroc up. And Crown Royal has been going up for the last several years.
Since Peter and his team have built that equity, we've really taken some significant price on
Crown. And on Bulleit, we want to continue to raise it, so it will go up every year, as will
Dickel, and Crown is going up again this year.
Peter McDonough
And it's been -- to reinforce that, if you look at the segmentation of the overall category,
whiskey is a purchase decision that's made on the status and on a sense of independence, and
so you can charge more for that as you capture the hearts and emotion of consumers with
your brand, as evidenced by the fact that 46% of the category volume now sits within a superpremium price point. And, as I showed earlier, between super-premium and ultra-premium,
it's driving more than 90% of the category growth.
So there is a real opportunity to continue taking price in here when we make the right
marketing investments in our brand.
From the floor
I guess my question, what happens to volume growth when you take price up?
Larry Schwartz
For some reason, when you have great work like we have on Reign On, it's amazing, you can
take price and grow volume, and that's what we've been able to do. I think last year, I think
Crown Royal sales were up 17%, which was just amazing. We're cycling that and we're still
doing well and taking more price. Bulleit, when people want it, you can take your price, and
Bulleit Rye is also at a high price. So between Bulleit and Crown Royal and Dickel, we
continue to take price every year.
Peter Stirling
Hi, Larry, Peter. Trevor Stirling from Bernstein. Quick question, how important is Catalyst
in the growth of these brands, and which brands sit inside Catalyst?
Larry Schwartz
I give them a lot of credit. When you put a goal out there and you have no idea how you're
going to get it, when you say you're going to double the business from 250m to 500m, it's
amazing how people model the behaviors Ivan is looking for in being agile, restless, act like
an owner. Well, we're tracking it, so we know where we are right now. We know where we
have to get to at the end of this year to get to that 500m.
And the person who's running that is an owner, to the point where he has a lot of enemies in
the company and he's forcing people to do things to get out of their comfort zone. And as a
result, I think Catalyst and the training they're doing in the distributor with the dedicated sales
force to focus on Catalyst brands has been an amazing lever for us to pull and an accelerator.
Trevor Stirling
And, Larry, could you tell us which of your NAW brands sit inside Catalyst and which ones
are -Larry Schwartz
Well, I'll let -Peter McDonough
Bulleit and George Dickel.
Larry Schwartz
And George Dickel, and Yukon Jack, which is a Canadian whisky, which is a liqueur, so
three of those brands sit in there. And the one that's amazing is malts. Malts sit in there. The
attention that we're getting on malts now is amazing. We actually have sold our whole-year
allocation in this half. It's amazing what's happening with the focus on malts.
Trevor Stirling
Thanks very much.
Larry Schwartz
So we're going to get to that 500m. I'm not sure when.
Peter McDonough
Into the far back, yes.
From the floor
Just in the case of Crown Royal, I think you said it was 400m cases, if you can confirm that
number.
Peter McDonough
4.5m, yes.
From the floor
4.5m, sorry. So just to understand, when you compare the Crown Royal platform with the
Brown-Forman platform and the Beam platform, number one, where are you in terms of
percentage of volumes that is flavor? Do you have a lot more in terms of flavor versus what
Brown-Forman and Beam have done. That's number one. And number two, when you look
at the demographics, is there any relevant difference in terms demographics of those three
platforms, whether one skews more younger or female or in terms of ethnicity, or it's not a
relevant difference in those three platforms? Thanks.
Peter McDonough
So the first part of your question was related to flavor. As I mentioned earlier, it's 11% of the
total whiskey category, driving 53% of the growth. Brown-Forman has had a very successful
program with their launch of Jack Daniels Honey. I can't speak to the percentage that that
becomes of their franchise, but it's done a nice job of positioning that brand to recruit new
consumers, much the same way as Crown Royal Maple has done a terrific job of allowing us
to recruit women and multicultural consumers into our franchise.
As I said earlier, in the presentation, if I take a look at the percentage that that falls within the
Crown Royal franchise, that and Black combined are about 15%. Crown Maple would be
somewhere between 6% and 7%.
As you think about the demographics, to my point that I just made, flavored whiskeys do
recruit multicultural consumers. They have a preference for some sweeter flavor profiles,
and they do recruit women into the category much more aggressively than the unflavored
segments do, and that's changing. It's only been four or five years now where that's been in
play.
From the floor
There's no difference on the demographics? I mean, when I -- with all due respect, when I
see a Dr. J commercial, I think is this a very old brand? There's no relevant difference in
terms of the demographics of the three platforms, you would say? I'm not talking about the
category. I'm talking about the three platforms.
Peter McDonough
I'm not sure I understand your question. Maybe I didn't hear it properly.
From the floor
What I'm saying, some of these brands, when I think of Brown-Forman as a platform, when I
think about Crown Royal as a platform or Beam, right, within North American whiskeys, do
those three brands have in any relevant way differences in terms of their demographic mix?
Is Crown Royal from your perception an older brand?
Larry Schwartz
I think they're all connected. I think a lot of Beam customers trade up to Jack, a lot of Jack
customers trade up to Crown Royal. So I think there's a lot of similarities between the
brands. I mean, Jack Honey has been doing very well for them. It's off the base brand, just
like Crown Royal Maple has done very good for us. We probably did about 75% or 85% of
Jack's Honey with Crown Maple in the first year, which was excellent, and it's helping the
base brand.
So I think they're all interconnected. I think when people have more money in their pocket,
they trade up to Crown Royal.
Peter McDonough
And more broadly to your question, if you look at the demographic profile of the North
American whiskey category, it actually under-indexes against women and against
multicultural consumers, which is why we're so excited about the innovation we're bringing
forth to recruit them into the category.
Okay, well thank you very much.