Diageo Americas challenges

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Diageo says it is 'satisfied' with its travel retail portfolio performance in The Americas and Geoff Biggs, Regional Director, Diageo GTME Americas says the company is adjusting to short-term impacts, while maintaining its long-term focus

to try and drive growth across the liquor category.

In a general statement on the performance of the company in North American airports to date, Biggs said: ‘We have experienced some decline across all categories due to the recent significant strengthening of the US dollar. However, despite this pressure, average transaction value (ATV) has actually been driven up as people travel less but treat themselves more – this emphasizes to us the importance of selling the whole category and driving premiumization to maximize ATV.

‘Our premiumization strategy continues to consolidate its momentum and we have seen notable opportunities in our high end deluxe and super deluxe reserve portfolio where we've enticed people into higher category choices, such as Johnnie Walker Blue/King George V and across the entire Johnnie Walker range, as well as with Tanqueray 10, Ketel One and Zacapa.’

Looking at Canada, Biggs says that a more favourable exchange rate is now working in favour of Canadian border operators and Diageo has seen an uplift in sales with those operators. He said: ‘To maximise the opportunity, we've met with them to discuss a version of our category portfolio promotion to run across the peak season of May, June and July ? and this has been very positively received. On the US side of the border there has been a marginal downturn, basically in line with the exchange rate differential.’

Looking towards Latin America, Biggs adds that the airports' performance is 'generally good', apart from Mexico where the devaluation of the peso has impacted on duty free making it less attractive. He says Diageo views this as a short-term issue and expects domestic pricing to increase and open up the appeal of duty free once again.

Meanwhile, he says that Diageo has noticed some decline in the Dominican Republic, 'though we are still building year-on-year performance', and he says that the company is confident that a solid business is still being built and particularly where arrivals shops are concerned.

As for Puerto Rico, Biggs says that this area has struggled with competitive pricing from the domestic market and the added challenge of selling to American passengers, as they are required to pay duties. However, he believes the situation is changing.

Meanwhile, Biggs says that the cruise sector has been responding to the downturn by adjusting its offer, which has consequently created changes in the overall business.

He said: ‘The passenger mix has evolved and the level of disposable income has declined, but passenger numbers do at least appear to have stabilized. The cruise operators remain optimistic for 2009, particularly as fuel supplements have been radically adjusted, and we share their view that longer-term prospects remain very strong.

‘We are developing our strategy of direct relationships with the cruise lines and we are opening up conversations to increase total onboard sales revenue by linking the opportunities between pouring and retail. Our strategy is designed to develop a shared approach not only between Diageo and the cruise lines, but also integrating the support of some of our key distributors (such as Carisam and Fairn & Swanson) and the retail concessionaires, including Dufry and Starboard Cruise Services.

‘Working together, sharing ideas, data and strategies, we're developing unique insight into maximizing the passenger experience and raising total onboard revenue.’

Interestingly, Diageo believes that the cruise channel offers some unique opportunities for Diageo and its partners to drive overall onboard revenue. Biggs says that the company believes that the best way to achieve that aim is to share the approach and develop a real, lasting relationship with the customer by optimizing the on-board experience across both pouring and retail.

More generally, Biggs said that 'a vanguard of retailers' share Diageo's view that the route to maximizing retail revenue is through maximising the customer experience and he says that these retailers are now seeking opportunities to deliver that vision.

He said: ‘There are several concessionaire contracts currently up for tender or recently tendered where we are excited at the opportunity to work with retailers to deliver an exceptional category experience. For example, the joint venture by DFASS and Nuance at Chicago is a prime illustration of not only seizing the opportunities but also working in original and creative new partnerships to deliver optimal results.

‘Newark Airport (currently under tender offer) provides another major opportunity to create in store theatre and renovate stores, whilst developing new store space and delivering a step change in the standard of retailing.

‘In tough economic times consumers are staying loyal to brands they know and trust. Value and confidence are key alongside consistency in the retail experience. The centenary of Johnnie Walker this year will provide welcome additional opportunities for the brand – and the whole reserve portfolio ? with its strong base of adorers who will continue to buy as they make more discerning choices.’

[Diageo GTME Managing Director Phil Humphreys told TREND only recently that the company is looking at creating Manhattan-style bars on cruise ships in an effort to upgrade the whole category and experience. An in-depth interview with Humphreys appears in the March edition of The Business, along with a similarly detailed and separate analysis of the current purchasing behaviour patterns in the international cruise line market-Ed].

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