Close Menu
Top 10

Diageo: Explorers lawsuit has not affected sales

Doug Bagley, managing director of Diageo’s travel retail arm, talks to Becky Paskin about the high profile trademark battle over the Explorers Club name and his premium, exclusive focus.

Doug Bagley talks about Diageo’s travel retail focus, but is guarded over the firms financial data

As spirits companies go, Diageo is a relatively open book and usually willing to communicate most financial information publicly and honestly, which is why it came as a disappointment that getting any in-depth data about its travel retail business was like drawing blood from a stone.

Speaking across a seven-hour time difference on the phone from Diageo Global Travel’s head office in Singapore, Doug Bagley, managing director of Diageo GTME, plays the drinks group’s cards close to his chest and simply reveals: “We are very happy with our overall performance and are growing ahead of the category.”

But considering Diageo’s market-leading position within spirits in the category and the level of competition naturally inherent to the travel retail environment, I’m willing to forgive Bagley’s secrecy.

To give some idea of the size of Diageo’s travel retail footprint, there are 290 staff employed across four key regional offices in Singapore, London, Beirut and Miami, as well as around 400 brand ambassadors across the world. At any one time Diageo has hundreds of activations running in the majority of the top 50 airports globally.

The sector represents a huge – albeit undisclosed – investment on Diageo’s part, but when one considers the number of international passengers travelling annually, which grew by 5% in 2013 compared to 2012 (IATA), the group’s focus on the category is potentially vastly lucrative.

Affluence drives growth

Bagley points out that the increase in passenger numbers going forward will be driven by affluent consumers from emerging markets in Asia and the Middle East, which grew by 7% and 11% respectively in 2013. “We’ve now got over 1.2 billion people travelling and we’ve really seen an increased number of affluent travellers,” he says. “The attractiveness of the category is very high and is strategically critical for Diageo, firstly because it’s a large category for us, secondly it’s profitable and thirdly we get access to those affluent consumers.”

As with most consumer goods visible in travel retail, three key rules for success apply as far as Bagley is concerned: premiumisation, exclusive products, and “an unparalleled luxury experience”. He reckons, “get these three right and you have a huge opportunity to drive growth”.

One Diageo-owned brand that’s undoubtedly benefitted from these three cardinal rules is Johnnie Walker, the world’s number one Scotch whisky and the leading spirits brand in travel retail, which draws the lion’s share of the group’s attention. “With 50% of the total spirits category being Scotch, Johnnie Walker is an absolutely critical entry point for our portfolio,” Bagley enthuses. “It gives us a fantastic opportunity to be able to use that brand as our spearhead into travel retail.”

Bagley says the high profile trademark battle against a real life Explorers Club over a Johnnie Walker collection of the same name has not affected sales

Secretive over figures

While Bagley won’t disclose specific volume figures, recent data released by the IWSR shows Johnnie Walker sales in travel retail plunged by 4.5% in 2013 to 2.2m cases. While IWSR claims the fall was “almost entirely attributable to massive declines in important Asia-Pacific markets,” Bagley insists austerity measures in China have only affected the brand’s ultra-premium end, with declines offset by increasing passenger numbers. “Johnnie Walker is in its strongest market position for two years,” he claims, citing unique exclusives and activations as the cornerstones of its success.

Diageo cemented its dedication to travel retail in 2012 with the launch of Johnnie Walker Explorers’ Club, a three-strong travel retail-exclusive range of blended Scotch whiskies that became its largest activation in the sector. At the time, Roland Abella, former managing director of Diageo GTME, said the scale of the investment reflected a “big change” in Diageo’s attitude to travel retail and an acknowledgement of its “fundamental growth opportunities.”

The range hit a stumbling block earlier this summer as the real-life, New York-based Explorers’ Club, which has promoted the scientific exploration of land, sea, air and space since its inception in 1904, sued Diageo over its use of the name. The future of the range was in jeopardy, but Diageo’s investment in the collection was too strong and the pair struck a global sponsorship and licensing agreement in September.

No sales impact from Explorers lawsuit

“There’s been no impact on the brand in terms of sales; we continue doing business as usual, and we’ve now got a fantastic partner to work with to take the brand to new heights,” Bagley remarks.

More recently, Diageo further strengthened its Scotch presence in travel retail with the extension of the Johnnie Walker Houses in Shanghai, Beijing and Seoul, into the airport environment. Smaller but permanent concepts were opened in September in Mumbai and Taiwan airports in a bid to target rising numbers of wealthy Indian and Asian travellers.

“In Mumbai we have 350 million middle class travellers which is a critical opportunity for us,” Bagley explains. “Mumbai is also a very important international gateway for us with a very high degree of Indian passengers travelling through to a number of key locations throughout the world.”

Taiwan meanwhile, being one of the largest Scotch markets in the world, is described as a “very strong Johnnie Walker market”, making it a prime location for a travel retail house. “The real market for the houses is very much the affluent consumer because the key part of our strategy is the exclusives,” Bagley explains. “Consumers really want the premium expressions they cant buy in the domestic market, so in the houses they will find exclusive products.” He points out the Johnnie Walker House Art Collection, exclusive to Mumbai and Taiwan airports, as well as the Commemorative Series. “What comes with the houses are exclusives and are very much premium, starting at US$390 and moving up.” Customers are given the royal treatment, with sampling opportunities and the chance to discover more about the heritage of the brand from trained brand ambassadors.

Future opportunities for the whisky houses, Bagley hints, lie in locations outside Asia “where we are able to bring together a great retail partnership in a space where we can bring that shopping experience alive.”

Travel retail plays a crucial role in the launch of “luxury” brands such as David Beckham’s Haig Club, says Bagley

Star whisky

Also within its Scotch portfolio, Diageo has high hopes for its Haig Club single grain whisky, which is being rolled out to travel retail markets globally this October. For its launch in Singapore Changi, co-owner and former footballer David Beckham greeted travellers at an impressive installation. From a strategic perspective, and celebrity status aside, the Haig Club activations in travel retail give Diageo the opportunity to capture attention and encourage consumers to trial and discover more about the burgeoning category. “The launch of Haig Club is an example of why travel retail plays such an important role for how we launch new luxury brands,” Bagley explains.

“Consumers get the best opportunity to be able to understand and learn about the brand, but in particular they are able to touch, taste and smell which they can’t do in much of the off-trade or on-premise venues. That’s the opportunity travel retail presents and that’s why it will play a really important role for Haig Club globally.”

While Scotch whisky plays a starring role in Diageo’s travel retail portfolio – expect to see more exclusives from the malts portfolio in the coming months – the group has a “strategic focus” on its Reserve brands, liqueurs and vodka. Bagley believes: “Luxury is the future for spirits in travel retail, so real growth opportunities exist for us across our super-deluxe and above brands in both brown and white spirits.”

Premiumisation of Smirnoff

Diageo’s strategy to premiumise its portfolio with travel retail exclusive expressions this year reached Smirnoff with the launch of Smirnoff White in the summer. Created using freeze-filtration, the brand’s first exclusive travel retail edition was designed to encourage consumers to “trade up” to a more premium expression. Bagley says that at a 20% premium to Smirnoff Red, Smirnoff White has already witnessed double-digit growth and has created a halo effect for the entire brand, just four months after launch. “We are trying to stand firm on our strategy, which is very much about bringing exclusive innovations to travel retail. It’s a great opportunity for what is already the world’s number one vodka.”

Smirnoff still has some way to go in the travel retail arena to catch up to the likes of Pernod Ricard’s Absolut, which has grasped the concept of exclusive expressions with fervour for some time, making it the best-selling vodka in travel retail with 900,000 case sales in 2013 (IWSR). Despite being a third larger than Smirnoff’s 620,000 cases, Bagley is confident of a vibrant future for Smirnoff in the vodka category.

Although political tensions in Eastern Europe and the Middle East in recent months have seen traveller numbers dip, Bagley can’t hide his enthusiasm for long-term opportunities in the regions. Even with the loss of high-end spending from Chinese consumers, the group is looking to super-premium exclusive expressions like Johnnie Walker Blue, Cîroc and Smirnoff White to make up revenues in the category.

Bagley adds that the biggest challenge facing Diageo GTME at the moment is managing its global footprint in the face of economic or political uncertainty, but its strategy remains the same. “We are clearly focused on driving premiumisation. Why? Because that’s what the traveller wants. They want to trade up, have access to exclusive products, are willing to pay for them and above all they want that shopping experience. We don’t just see that purely in our category, we see it right across the board in travel retail as a whole.”

It looks like you're in Asia, would you like to be redirected to the Drinks Business Asia edition?

Yes, take me to the Asia edition No

The Spirits Business
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.