tv Leaders with Lacqua Bloomberg March 17, 2018 9:30am-10:00am EDT
♪ francine: they are household names, some dating back centuries, but the company that owns them has not reached the legal drinking age. this year, 2018, diageo turns 21. with over 200 brands sold in 180 countries, it is the biggest single producer of spirits in the world. driving the business forward is a man who has been with the company since its inception.
today on "leaders with lacqua," we meet ivan menezes, chief executive of diageo. ivan menezes, thank you for joining us. how has the drink business changed since you joined? ivan: it is such an exciting time, the last two decades. i would say the big shifts is that the consumer is a lot more interested in premium brands, in mixology, cocktails. the business has grown terrifically around the world, the emerging markets are coming through stronger, and the developed world is also in good growth. but the core dynamic at work is that people around the world want great experiences and those who choose to drink want to drink better, and that is a good thing for diageo. francine: what attracted you to the drinks business? do you remember that day you walked in the door? did you find yourself at home? ivan: i do. i am a brands person. i grew up in the consumer business. i have always loved brands. to me when i got the call from guinness plc at the time, two of my favorite brands were in the company at this time, guinness and johnnie walker. it was not a difficult decision. to me, the great thing about being at diageo, johnnie walker is 198 years old. guinness was started in 1759, and our job is to make these great brands greater, and that is what attracted me to the company. francine: do consumers now drink more at home? you talk about the premiumization, but they also want a story that goes with the brands they drink. ivan: it is at home and going out to you see it depending on the country and culture and how socializing takes place.
our brands participate in moments of celebration, relaxation, being out with friends, and are built into the fabric of culture. so right now for example whiskey has a real renaissance around the world. young people are interested in whiskey, how it is made, where it comes from and the stories behind it and. that is what we love, telling those stories and getting that connection with the consumer. francine: how much does scale matter? do you need to be bigger to demand better premiums? but also where your product gets placed in a bar? ivan: it is interesting. it is both. i always say my key job is to keep a big company small. so scale does matter, and we have a wonderful portfolio with market-leading brands across all the major categories, but at the same time you need to be entrepreneurial, very connected to where trends are going and move with speed. to meet the magic of diageo is to get the best of both. francine: what does that mean? is it finding the local brand that you acquire, spending time rebranding and giving people the story about the more famous
global brand so they buy into it? ivan: that and spotting trends. i just came back from johannesburg this week. what is really interesting right now is how the gin craze has got to south africa. we have a brand called tanqueray, which is doing remarkably well just in the last few months. and for a company like ours, when trends develop, you have to ride them very quickly. so i always encourage our teams on the ground to keep thier ears to what is shifting, and building brands quickly in that context. francine: that seems like a nightmare. how do you do that? how do you stay on top of the trend? do you go to bars to see what the people are drinking? i don't know how you spot that. ivan: we have a variety of ways. we clearly state connected, our teams do, to understanding what the conversations in culture are about. we look at trend-leading bars and bartenders and what they are excited about.
social media with adults and what they are talking about. that is what our marketing teams around the world need to be really good at, and it is an exciting part of the job. francine: you own two of five of the most important brands in the world, johnnie walker and smirnov. how do you keep them relevant? ivan: our job, i always say is to make sure the brands like these built over hundreds of years are highly aspirational and relevant to the next generation of consumers coming through. so the twentysomething year old in brazil, johnnie walker needs to be and stay relevant, cool, aspirational, and that consumer needs to be willing to pay a premium for this wonderful whiskey. that is how we define our jobs. so these brands have to stay connected to culture because things change. how young people socialize is
changing, and we have got to make sure our brands fit in with the trends. i call that the day job at diageo. francine: what is that, marketing? does that change? do you replace billboards with bloggers or do you go to celebrities? ivan: it is a combination. for example, in brazil, one of the things we do is have this wonderful truck beautifully decked out with johnnie walker that moves around the country and goes to communities and we host little events and introduce people to the whiskey and tell them the story about all the single malts behind johnnie walker, the factor that johnnie walker black label, the youngest whiskey was distilled before the financial crisis. you tell them the story, and it is amazing how much interest we get. and when you bring a consumer into a brand through a mentoring experience as we would call them, you get them for life. i always say the thing about our business is what you drink or what you serve at home says a
lot about you, and so our brands need to live up to that expectation. francine: ivan menezes, talk to me about the u.s. it is by far your largest market. do you expect it to remain so 5-10 years from now. ivan: north america is about half of the profits and third of sales for diageo, but what is attractive about the u.s. is the demographics are positive. i refer to it as our biggest developing market. you have got the growth of the multicultural population that is very strong, latino, african-american, asian, all of which bode well for premium brands. it is also a young population. you have a growth of americans turning 21 at a faster rate than in europe, and finally the taste
profiles are changing. there is a huge interest in the cocktail culture. mixology is hot. and people are taking more spirits and they want to know how to mix them at home. francine: thank you for now. coming up, trade barriers, terse how to grow the spirits business in emerging markets. more with ivan menezes next. ♪
♪ francine: as well as running the world's biggest spirits company, ivan menezes sits on the advisory board of a business council and the u.k.-india executive forum. his roles demand a deep understanding of the challenges and opportunities of international business and the eternal hunt for growth. in 2017, more than a third of diageo's $15 billion in revenue came from north america. 20% from asia, 13% from africa, so are emerging markets getting a taste for spirits?
ivan menezes is back with me. ivan, can you see a clear pattern? some of the more developing economies getting the same taste as the western ones? ivan: very much so. if you look at our category, penetration of spirits is still low in places like africa, latin america, and asia, but people's aspirations for great brands is very high, and with the growth of the emerging middle class in the emerging markets we see about 500 million coming into legal drinking age. there is a really exciting opportunity for us. it is not a straight line. this is the nature of emerging markets. i was in south africa this week, i will be in nigeria next week. there are ups and downs, but what you need to do is stay very
consistent in building your brands, categories, and business for the long haul. you will have tough years, and we have come to that, but over time the growth prospects are really exciting because, again, we play in the space that is an affordable indulgence, an affordable luxury. when people want to socialize and celebrate, our brands play a wonderful role in that space. as per capita income rises in the emerging world, the trend for people drinking better continues to be strong. francine: at the same time how do you go against a local spirit or local drink? or do people drink both? ivan: the key in making our brands is having them resonate at the local level. francine: so taste? ivan: not just. the way you build a brand, in brazil, johnnie walker is seen as an iconic brand in brazil, and that is how we build the brand.
we have a campaign of keep walking, brazil, where we really connected with the consumer and view it as my brand. i always tell our marketers around the world that you have to keep your brands connected at a local level. yes, they are big global brands, but the same thing is true in india right now, which is the biggest whiskey market in the world. most of it is local whiskey and we own a lot of that, but the aspiration to move into scott whiskey is very high, even though the price points are high. and we are keeping scotch very relevant. francine: is that a big headache for you, that you have to get the price right so that it is aspirational, but not too expensive that it will go for another brand? ivan: price is an important factor in the brand value equation, and for our premium brands the price they carry to
local alternatives is something we watch closely, but at the end of the day our brands are affordable. if you step up to a bar in hanoi and order johnnie walker blue label, you're not betting the farm. you are not buying a fancy watch, but it is a great occasion. we keep the specialness of our product, but it is also affordable. getting that price value equation right is important. francine: what about the bottles? i remembered you coming in to bloomberg and showing me some smaller sized bottles for certain emerging markets, and i don't know whether that is because of how they drink or it goes back to affordability?
ivan: it is a combination of both. there are occasions where small groups are going out, or in a beer outlet we have a program for example, where people in vietnam or africa largely drinking beer, on special occasions they may take a small bottle of johnnie walker black label and share it amongst friends around the table, so the small formats address affordability, but they also tie very much to the occasions. that is something we managed to our understanding of the market in the consumer. the consumer. >> a special distilling process, 28 generations of knowledge. the best can only get better. here is to another 600 years. francine: talk to me about china. do you sell differently to the chinese consumer than the american consumer? ivan: the big thing about china is most of the value in alcohol consumption happens with meals. the market is enormous and very profitable in china, and it is so ingrained in culture and
ingrained into entertaining and how it is consumed with friends or business colleagues with food. we have a brand that is doing really well. it grew 75% this year. it is highly aspirational, but connected to the food culture. typically in the u.s. most of your spirits consumptions would be pre-dinner, after dinner, cocktails, going out, so the occasion and cultural understanding is important. this is what makes the business so fascinating. we don't have one way to build a brand. we have to get deeply immersed in local culture and tradition and find a way to stay contemporary and aspirational in the context. francine: i don't know if it is comparable, but do people drink more if they drink with food than before dinner and after
dinner and lunch? ivan: the main difference i would say is the ritual of celebration and toasting that happens in the case of china. it is not so much drinking more, but it is a more social occasion. there is more ritual around celebrating each other, toasting each other, and that's where the brand plays a magical role in china. in terms of how it is consumed. ivan: if you look at china and india, and maybe latin america, where do you see the most potential longer-term? ivan: i would say the big ones for us, i see india, china, africa having a lot of growth. latin america is a very important business for us. great in scotch whiskey, and that will continue to grow. overall, the emerging markets for diageo still represent a lot of runway for growth. we are early in the stage of
development of our category, premium spirit brands. as economic and gdp growth happens, we see a lot of opportunity. the demographics are in our favor. the taste profiles are going there. people are taking better and choosing better brands. we are well positioned to benefit from that trend. francine: if households become less rich, do they cut down on alcohol consumption before anything else? ivan: again, typically our brands play in the affordable, special occasion space in many of these markets. and you would see a slowdown on premium brands where consumers may choose a johnnie walker red label instead of a black label, when their pocketbook is under a bit of pressure or they may celebrate four times a year instead of six times a year, so you would see those adjustments take place. what is important is when that happens, it is doubly important to support your brands because when economic growth comes back, you want to the brand to still
have that connection to consumers that they will step up the consumption or the number of occasions in which they enjoy you when things get better. francine: thank you. up next, some whiskey being created now that won't be ready to drink for more than 40 years, but what will the drinks industry look like then? more with ivan menezes next. ♪
over two decades he has held numerous management positions serving as diageo's coo, president of north america, as well as chairman of asia-pacific and latin america. his employees, over 30,000 of them are valued. diageo has more women in senior roles than any other ftse 100 firm and will soon have gender parity on its board. ivan menezes is with me here on "leaders." when you look at how your employees would describe you, that usually says a lot the how the executive is perceived by the people who worked under him, what they say about you? ivan: oh my gosh. i think approachable, focused on possibility, demanding, and i call it high-low, stay at the big picture strategic level, but love the execution. i enjoy brands, customers, enjoy picking up the phone to a brand manager in ethiopia and asking
them how the brand is doing, so i hope that is what they would say. francine: how much do travel? do you enjoy traveling? is that the only way to be in touch with the local person and how local markets are doing? ivan: totally. i really believe in being out in the markets, and it is important because it gives me the best read of how our business is performing, and the opportunity to contribute to the local teams whether that is meeting with the local government or our customers, and i always go out and say bars and shops don't lie. you get a true understanding of how we are performing in the market, and meeting our people. so i get a lot of energy from being out. i actually don't enjoy being in headquarters. i would much rather be out. francine: do you go incognito? or do they know you are coming? ivan: i do both. i often go out on my own and decide which shops and which bars and restaurants i will go in and take a look, so i love to
get time on my own when i am in a market and just walk the streets and get also a good feel of the culture. i enjoy that. as i said, you learn a lot. francine: you also focus quite a lot on drinking responsibly. does that come from you, from pressure around you that makes you do that, or something that came from within? ivan: no, it is very much in the core values of diageo and something i am really proud of. we are in a category which has been around for centuries, and we take the view that for people who choose to drink, we want them to drink in moderation and believe that is perfectly normal
as part of a balanced lifestyle. however, we also realize that alcohol causes harm to society when it is misused. so everyone at diageo is passionate about making a difference in reducing alcohol harm in society, be it excessive drinking, underage driving, drink driving. these are some of the areas in which we have significant ambition and programs to make a difference. francine: is that government or schools? ivan: we work with governments, we work with schools, we work with ngos, we work with local communities here in very integrated into mexico city, we worked with local police on a drink driving program and have had good success in reducing the level of drink driving, which in many emerging markets is still an issue. so we have teams on the ground and it is a source of, we do it with real pride in real
commitment and our employees really believe passionately in the work we do in this field. francine: talk to me about diversity. commitment and our employees why have you achieved gender parity on the board where no one else really has. a lot of people fail. you succeeded. ivan: it started from our core values. we always put inclusion and diversity at the heart of diageo. i am very proud of our track record here. 40% of the board, 30% of senior women -- senior leaders are women, and i see that improving, but it is not just gender diversity and nationalities, diversity in ethnicity, sexual orientation and diversity in style, and to me -- i have been in business for over 30 years -- the power of having diversity in the team, including thinking styles, i think is huge, and i see the benefit in spades. i am really pleased with where diageo is on this journey and i think we can take it further. francine: why do other companies
fail then? ivan: i think you need the conviction and belief, so i grew up in india and i grew up in a very multicultural society as a minority. i come from a catholic background. to me, the importance of everyone coming to work feeling included, valued, is how you get the full potential of people, and what we put at the fabric of diageo is not so much targets but creating an environment where you can truly be yourself no matter what your background and where you come from, and one of our core values is valuing each other, and that is at the heart of the company. i am really proud of the culture that all of our employees have created, and that is when good things happen. we have seen this enormous progress in much more diverse leadership across the company.
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jonathan: from new york city, i am jonathan ferro with 30 minutes dedicated to fixed income. this is "bloomberg real yield." ♪ jonathan: coming up, is goldilocks growth a fairytale? this week's data does not fit the optimism. the beginning of the end for the good times in credit. recent issues show fragility. and looking ahead to chairman powell's first news conference. penciling in another rate hike. we begin with the big issue. is goldilocks a fairytale is we are able to see big increases in the labor force without seeing a big push and wages. at som