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Feature
Diageo GTR boss ‘sees opportunity’ for vodka and baijiu
Dayalan Nayager, managing director of global travel at Diageo, on coping with geopolitical upheavals, a reformatted business model and the potential he sees in vodka and baijiu.
Dayalan Nayager, managing director of global travel at Diageo
*This feature was originally published in the October 2017 issue of The Spirits Business
The winds of change have been blowing through Diageo’s global travel retail division this past year. After an in-depth review of its Global Travel and Middle East (GTME) business, the company decided to separate its domestic Middle East and North Africa (MENA) operations. It created a dedicated global travel headquarters in London, moving from Singapore. Dayalan Nayager, former regional director of GTME Europe, was brought in to lead Diageo’s global travel retail team as managing director. It’s been a year-long transition for the group, but the changeover was finalised at the end of June.
“We were based in Singapore, travelling all the time,” Nayager tells me over coffee at the group’s new base in London. “Our big customers – the likes of Heinemann, Dufry, Aer Rianta and Lagadère – are all based in Europe. We wanted to be in closer proximity to our customers, and London is the easiest region globally to run a business from because you can touch every time zone during the day. In Singapore, to run a US business is very, very difficult.”
But that’s just change number one. The second alteration was to the business’s operating model, whereby four regions – Europe, Asia, Middle East and the Americas – which each ran independently, were restructured to commercial businesses with one central team. A third change was also put into effect; the domestic division of Diageo’s MENA business moved its reporting lines to Turkey.
However, as can be expected with every business model, a structural overhaul of any size brings with it risks of redundancies. “We minimised staff impacts as much as possible,” stresses Nayager. “Obviously, there were changes as we had a lot of people based in Singapore that weren’t willing to relocate to London. If you look at staff levels on a purely numbers basis, probably around 70 or 80 heads went to domestic. So if you say, ‘Oh, there’s 80 people less’, it’s not because they lost their jobs – it’s because they transitioned to another side of the business.”
Johnnie Walker Blenders’ Batch Bourbon Cask and Rye Finish
TRAVEL RETAIL: A TOUGH YEAR
With all this to contend with, while simultaneously endeavouring to keep a business ticking over – nay, in growth – how have the past 12 months been for Diageo GTR? “Busy,” laughs Nayager. “Changing an operating model is obviously quite big, and we had a new team, new people starting and setting up the business in London; there’s that challenge. But also in travel retail in general it’s been quite a tough year where there’ve been a lot issues that have affected the industry.”
Over the past 12 months or so there have been a number of incidents sparking geopolitical challenges, currency issues and general unrest – from the controversy surrounding US president Donald Trump’s election to the UK’s decision to leave the European Union.
“Currency volatility has been around for as long as I’ve been in travel retail,” says Nayager. “It’s not something new and I don’t think it’s something that’s going to go away. We’ve seen the dollar stabilise – does it help? Yes, it does, but there will always be somewhere else that’s impacted.” He continues to discuss the devaluation of the Russian ruble, which has been a longstanding issue for more than two years. But for all the country’s troubles, Nayager says Russian passenger numbers are up and the group is seeing improvements in the region, as well as in Eastern Europe, leaving room for optimism. Though as Nayager aforementioned, there’s always another region that will pose a different sort of challenge. Take Venezuela, for example, which has seen mass antigovernment protests this year, throwing the country into economic and political chaos. How does a company like Diageo combat such cases of geopolitical turmoil? “I don’t think you could combat it – I don’t think any brand could combat geopolitical issues,” says Nayager. “What you’ve got to do is mitigate the circumstances as best as you possibly can.”
Numerous airports and holiday destinations have also been targets of terrorism in recent years. But has a fear of terrorism left a lasting impact on people’s willingness to travel, and has this forced changes in strategy to tackle potentially lower sales in travel retail?
“Not really, no,” insists Nayager. “Whenever there is a terror attack, there’s more security in the airport; it’s much tighter. But once people are airside and shopping, it doesn’t change that much. Passenger numbers are still growing; people are still travelling.” Though, sadly, there are some terrorist atrocities that are harder to rebound from than others. While sales stabilised following the 2016 Brussels attack, unfortunately the same cannot be said for the assault in Tunisia in 2015. “In Tunisia, there’s just never been a return,” he regrets. “The rest of the business there has been drastically impacted. But it’s not something you can plan for, it’s not something you can say: ‘Oh, this is what we’re going to be doing.’ You’ve got to just manage it case by case.”
PLENTY OF OPTIMISM
However, in the face of these “hurdles”, as Nayager refers to them, there is plenty of optimism to be found. Latin America has proven a prosperous region for Diageo GTR, according to Nayager, who says he’s seen “very, very good growth”, particularly for brands including Buchanan’s, Crown Royal and Johnnie Walker.
For Europe – which he classifies as every European business headquartered in Europe, rather than geographically – sales have also performed “quite well”. North America is enjoying “very good growth”, but this positive trend was offset by travel retail in Asia and the Middle East, which saw net sales fall by 13% due to “lower spend by travellers and currency volatility”.
“Asia has seen a change in passenger profiles,” explains Nayager. “If you look at the Korean business in terms of the anti-missile systems in South Korea, with China’s drop in passengers going there, that’s had a massive impact in that region. Overall, would I say it’s non-performing where it’s struggled? No, but it’s not at its full potential.”
Johnnie Walker House, Heathrow: each airport’s ‘house’ is unique
KEY FOCUS
The same cannot be said for Diageo stalwart Johnnie Walker blended Scotch whisky, however. The brand represents “probably 60%” of Diageo’s travel retail business and has been going from “strength to strength” this past year. A key focus for the brand has been the opening of Johnnie Walker Houses in airports from Amsterdam to Beijing and Singapore. Each is tailored for the individual market; the Schiphol activation features copper walls as a nod to the stills, peat on the walls and furniture made from barrels.
“When you’re in a Johnnie Walker House, it’s not just about buying a bottle of Scotch, it’s about the experience,” Nayager explains. “When you’re in the house, the feel is of a distillery. So when you buy a bottle of Johnnie Walker, you’re also buying an experience that lives long past the purchase, past the airport.” Can we expect even more Johnnie Walker Houses to open? “Depending on strategic locations and if it is the right place for the right activation, we will look at it. And it might not always be in the form of a Schiphol House – it could be something else. But it is something that is working for us.”
Baileys Almande
He also alludes to potential new product launches in travel retail, though keeps his cards close to his chest. Diageo has, in the past year, introduced new products – and in a range of categories. Johnnie Walker Blenders’ Batch Bourbon Cask and Rye Finish, the rebranding of Johnnie Walker Platinum with the new age-stated 18-year-old, and new Baileys Almande – a vegan-certified version of the popular cream liqueur. “Innovation is important. It’s a strategy for us to always be innovating and always keeping the categories fresh,” he says. “Watch this space.”
One brand Nayager is keen to focus on more in the coming year is Smirnoff Vodka – not because it’s struggling, but because he sees “opportunities”. But there’s a category that crops up during our discussion for which Nayager’s excitement is almost tangible: baijiu. Diageo’s Shui Jing Fang is growing in “high double-digits” in China, but that’s also where its limitations – if they can be called that – lie. “It’s performing extremely well, but it’s focused in China. We see opportunities with baijiu. There are opportunities to invest more in Shui Jing Fang and take it to South Korea, and other markets where the Chinese are travelling.”
What of Diageo’s most recent mega purchase – George Clooney and Rande Gerber’s Casamigos Tequila brand, which it bought for US$1 billion this year? How will it sit alongside Diageo’s other super-premium Tequila, Don Julio? “As a new acquisition, we’re obviously going to need to look at the strategy of how we roll it out domestically and in global travel,” explains Nayager. “It’s an exciting addition to the Diageo stable and something we see massive growth potential behind. There’s definitely room for both brands to be in our travel retail portfolio; they will definitely play well together.”
CRUISE OPPORTUNITIES
Opportunity abounds in the inflight, ferry and cruise ship channels of travel retail. Nayager admits these markets are “not significant” for Diageo GTR as things stand, but he does see potential for growth – particularly on cruise ships. “We are seeing cruise liners expanding,” he says. “From cruises being strong in Miami, you’re getting a big cruise business in Europe, and coming up in Australia and Singapore. The opportunity is there.”
As the world’s leading drinks company, it’s easy to forget that under its current, reformed guise, Diageo GTR is, essentially, just over one year old. With the separation of its GTME business now complete, it will be interesting to watch how the GTR business weathers predicted geopolitical storms – a key one being Brexit. So what’s Nayager’s strategy for 2017/18?
“We’ve been consistent in our approach and in the way we manage and run the channel. But are we tweaking the structures to make sure we’re best equipped to deliver against the changing consumer needs? Definitely. The model is changing, you know; we’ve seen some shifts in behaviours from airports, retailers, suppliers – I think we’re on the brink of change. It’s an exciting time.”