Strategy & Competition
Diageo Targets the Home Bartender
As the worst downturn in decades drags on, penny-pinching Americans are drinking less in bars and restaurants and more at home. This presents a challenge for Diageo ( (DEO)), the world's largest purveyor of spirits. When Americans kick back in the family room, they typically imbibe beer and wine, not the rum, vodka, whiskey, and gin that Diageo specializes in. With its sales slowing (though holding up better than most rivals), the British company is tackling one of the toughest challenges in marketing: changing consumer behavior. Diageo says it will continue to plug its Smirnoff, Jose Cuervo, and other spirits, but plans to spend millions in an attempt to make the cocktail cool again. "It's a nice idea, but it's not that easy," says David Morris, who analyzes the food and beverage industry for Mintel, a research firm. "There is some expertise needed to create a good cocktail." Not only will Diageo have to turn Americans on to mixed drinks, but it will have to teach people how to make them, too. Cocktails wax and wane. They were hot in the '80s, partly thanks to the Tom Cruise movie, Cocktail. After Sex and the City helped make the cosmo and other concoctions hot in the '90s, cocktails are again fading as consumers pull back, says Tom Pirko, president of food and beverage consultant Bevmark. Diageo figures recession-weary Americans still crave a taste of nightlife—without nightclub prices. "A cocktail prepared by a barman carries an air of mystery," says Jon Potter, chief marketing officer at Diageo North America. On June 4, Diageo relaunched its Web site, thebar.com, with 750 drink recipes and some 100 how-to videos. The videos teach basic bar skills, such as crushing ice and rimming a glass with salt, and how to set up a home bar. The site features a section called "Barnomics," which suggests economical recipes that use basics such as vodka, gin, and tequila, as well as a "Where to Buy" button that guides visitors to liquor stores.
PUSHING READY-MADESRecognizing that many people don't want to become home mixologists, Diageo is expanding its line of ready-to-serve cocktails. For the summer season it has added Smirnoff Tuscan Lemonade, a mix of vodka, limoncello, and citrus flavoring, as well as Captain Morgan-branded Long Island iced tea and mojito beverages.
The company has successfully tried this strategy before. Sales of Diageo's Smirnoff and Cuervo premade cocktails have risen 33% over the past year, according to industry watcher Information Resources. On June 16, Diageo acquired the remaining shares (it previously owned 20%) of Stirrings, a Nantucket (Mass.) company that sells ready-made martini and cosmopolitan mixes, as well as "cocktail garnishes" such as margarita salt and bitters.
The big push will come in U.S. liquor stores this summer. To market the cocktail mixes as well as its spirit brands, Diageo plans to replicate a strategy now called Simply Cocktails, which it used last year in Ireland when smoking bans in pubs prompted consumers to stay home. Store shelves are divided into three sections: Ready Pour, Easy Shake, and Simple Mix. Stores can stock Diageo premade cocktails in the "pour" section and combinations of spirits and mixers in the other two sections.
Will the cocktail strategy work? Potentially, but Diageo faces stiff competition from weaker booze. A 26-oz. bottle of Captain Morgan Original Spiced Rum costs nearly four times as much as a sixpack of domestic beer—before adding mixer. And twisting off a beer cap is more convenient than mixing even the simplest cocktail. Average Americans are called "Joe Sixpack" for a reason, after all.