Interview with Diageo CEO Ivan Menezes | KPMG | TH

Interview with Diageo CEO Ivan Menezes

Interview with Diageo CEO Ivan Menezes

How do you drive growth when you already own a mature portfolio of world-famous brands? Ivan Menezes, CEO of alcoholic beverage giant Diageo, tells ConsumerCurrents it’s all about innovation.

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Ivan Menezes
“We need to be agile so we can read the signals“

One of the great things about the Negroni, is that there are so many ways to make a perfect one,” says Ivan Menezes, Chief Executive Officer of Diageo, leaning over the table in his offi Legend has it that the Italian aristocrat, Count Camillo Negroni invented the cocktail in a Florence café in 1919 when he asked a waiter to stiffen his favorite tipple with gin.

Yet almost a century later, the perfect recipe for the Count’s creation is contested at cocktail conventions. So, as Menezes is running a global leader in alcoholic beverages – many examples of the group’s most famous brands are stacked on a shelf behind him – it seems appropriate to ask if he knows how to make the perfect Negroni. Menezes thinks about this for a moment and laughs, saying: “I’ll tell you one thing, the gin is the most important part – Tanqueray or Tanqueray 10.”

Menezes started his career with Nestlé but also worked at a senior level at Whirlpool before joining Diageo’s management in 1997. His experience within the group is diverse and impressive. He proved his worth in marketing, working with external entrepreneurs to develop breakthrough innovations and running North American operations before being appointed as Chief Operating Officer in 2012. In July 2013, he succeeded Paul S. Walsh as the CEO of the US$17bn revenue group that owns many of the most well-known alcoholic brands: Johnnie Walker whiskey, Smirnoff vodka, Captain Morgan rum, Baileys Irish Cream, Tanqueray gin and Irish dry stout Guinness are merely the six most famous.

To outsiders, alcoholic drinks looks like a mature, stable business. There is some truth in that, as Menezes acknowledges when disruptive innovation is discussed: “We are lucky in this business that it takes 10 years to build a truly global brand.” Yet even though an Uber-style threat to the core business is unlikely, Diageo has identified innovation as one of its six key performance drivers. Last summer, it took a minority stake in Seedlip, a British start-up that distills non-alcoholic drinks designed to appeal to Millennials.

Innovation is something in which Menezes takes a deep personal interest. Describing the burgeoning cocktail culture in some developed markets, he recalls, with smiling enthusiasm, a visit to a recent convention where, “in one part of the bar they were serving cocktails in egg shells”. As he discusses later in the interview, less outlandish forms of reinvention are already reshaping Diageo’s business.

As CEO of Diageo, what is your greatest challenge?

The biggest challenge I give myself is how do you keep a large company feeling small? I write a blog – and I do it myself – for our 32,000 employees across the world. We encourage everyone in Diageo to act as if they own the business, many of them share ideas on Yammer – it makes sense for a sales person in Nigeria to help someone launching the same product in Ghana. This is a company where people are very passionate about what they do. We get 97% response to our employee survey, and we believe that you don’t need to change who you are to succeed here. We always say, “You bring yourself through the door.” That’s part of the magic of Diageo.

“Over the past three years, my goal has been to put consumers at the heart of our business”

What do you see as the greatest external challenge facing your business?

Volatility – be it technological, economic or socio-political – there are widening income disparities and the macro-economic forces are accelerating. Yet our business is geographically broad and, if you look at our brand portfolio and the price points we cover, we feel we are well diversified. The priority is to make sure we are agile, and adaptable enough to read the signals early and respond to volatility faster and more effectively than our competitors.

That’s why, over the past three years, my goal has been to put consumers at the heart of our business. Consumer trends are moving faster than ever before and the companies that thrive will be those who interpret and quickly deliver against those insights.

As part of a drive to improve productivity and everyday efficiency, we have committed to saving around US$800m over the next three years, and two-thirds of those efficiencies will be invested back in the business to drive growth. It’s also important that we develop our global innovation capability, are strong in R&D and have a strategic lens about the big trends and where they are heading.

What kind of innovations are you most proud of?

We’re not just talking about products here, we are looking to innovate throughout the whole system. In Africa, for example, we have built what we call the Cube, a low cost, transportable manufacturing unit made out of five containers which makes it easier, cheaper and quicker for us to enter – and test – new markets, particularly those where infrastructure and transport are a challenge.

We also have a pipeline of ideas when it comes to product. For example, we looked at barriers to whiskey drinking – how do you persuade a new generation of consumers that they ought to try whiskey? So we came up with Haig Club, an introduction to Scotch and for consumers of lighter whiskies. It has the substance and quality of Scotch with a fresh new look and is blended to match with food in China, one of the initial launch markets, where David Beckham, the face of Haig Club, has extraordinary name recognition.

In November 2014, we introduced Crown Royal Apple, which combines our brand’s Canadian whiskey with Regal Gala apple flavors. This has attracted new customers to whiskey – particularly women – and way exceeded our expectations in its launch year.

I’d say our core direction on innovation is less straight-line extension; more innovation that recruits new consumers to our franchise; and is more disruptive. So we are redirecting our resources to build more sustainable innovation, and less from what we would just call recruiting existing consumers with line extensions. A good example of that would be Orijin, a bitter-sweet fusion of specially selected African herbs and fruits which has been such a success in Nigeria we’re now selling it in Ghana and Kenya and have launched a sister product.

How is the global concern about health and wellbeing affecting alcoholic beverages?

We think that, consumed moderately and responsibly by adults, alcohol can play a positive role at social occasions and celebrations. We have to give consumers the information they need to make responsible choices about drinking – or not drinking – and are running 345 responsible-drinking programs across the world.

The trends, in terms of consumption and binge drinking, are moving in a positive direction. There’s a generational change in attitude too – 18-21-year-olds have a much more responsible approach to alcohol. In the developed world, I believe it is rare for young people to go out without a designated driver, and it’s not cool to be seen to be drunk.

What we’re seeing is that people are trading up – they may be drinking less but they’re drinking better. Millennials want authenticity, so they’re interested in the skill and craft of after-blending. Yet they also want to treat themselves. That’s why gin has become so popular – it has a quirky, complex taste and feels local and crafted.

How else do Millennials affect your business?

Consumers increasingly expect businesses to create value beyond their economic contribution – but that is particularly true of Millennials. Consumers want to buy from a company that has sustainability at its core. At Diageo, we have three priorities: creating a positive role for alcohol in society; building thriving communities; and reducing our environmental impacts. The targets we have set ourselves are stretch targets and we are making progress – for example, between 2012 and 2015, we reduced the amount of water required to produce a liter of product from 7.2 to 5.1. And this is a continuous process – we aim to have 100 of our key suppliers and third-party operators disclose their water management practices.

After disposing of your non-core assets, Diageo is much more focused on spirits. What role does beer play in your strategy? Beer accounts for around 20% of our business and has great strategic value. We define ourselves as a premium drinks business and Guinness is a core part of that. We see a lot of growth for beer in Africa, and as its economies grow, we are seeing more consumption of premium beer there. We are market leaders in Kenya but we also see amazing opportunities in Ethiopia, Ghana, Nigeria and Tanzania. And our strength in beer will help us as we build our spirits strategy. Looking ahead for the next 10 years, Africa is a very important market for Diageo.

There have been a lot of mergers and acquisitions in the drinks sector in the past few years. What is driving that trend? Because it takes a long time to build a truly global brand in this business, you have to be patient, have a good strategy and be prepared for a lot of money, a lot of advocacy and a lot of shoe leather – the founder of Bulleit Bourbon, which we acquired in 2001, started out selling his product bar to bar. So that means companies in this industry will always be looking for opportunities.

We have seen some big consolidations, with companies acquiring voraciously to build their business, but I’d say we have a presence pretty much everywhere we want to be. There are opportunities on the spirits side, which is more fragmented, with many family businesses.

You’ve talked about transforming Diageo. What is your ultimate goal?

Our business is a simple business so let’s not overcomplicate it. Our aim is to keep raising our level of execution so we become the best performing, most trusted and respected company in the consumer products world.

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