Diageo: Kindred SpiritsBy Larry Dignan Print
Brand promotion is key to the global beverage maker's sales growth, but it must rely on distributors to find out what's actually selling.
If Diageo North America chief information officer Barbara Carlini buys a bottle of Johnnie Walker Red whiskey at a liquor store, she knows she won't see the sale in her data warehouse for 30 days.
That's too long. Two or three years from now, she expects she'll be able to see—on a daily basis, if needed—whether a promotion for Captain Morgan spiced rum is boosting sales by 10% in the Northeast with young men ages 21 to 24, but striking out in California with women ages 24 to 28.
Blame a labyrinth of state regulations for making such instant information unlikely for now. Instead, the short-term goal is to find workarounds and begin building the data warehouse that ultimately will signal Carlini whether Diageo should pump up promotional spending behind a brand such as J&B Scotch, which saw its sales slip by 1% in 2004.
Putting its money into the right promotions is crucial; in the spirits business, marketing matters more than just about anything.
North America accounts for $4.9 billion of the U.K. company's $16.5 billion in annual sales, and half its annual $2.6 billion profit. Diageo spent $1.9 billion on marketing in the 2004 fiscal year ended June 30. Its eight priority brands—Smirnoff vodka, Johnnie Walker Scotch, Guinness ale, Baileys Irish Cream, J&B Scotch, Captain Morgan rum, Jose Cuervo tequila and Tanqueray gin—got 68% of the budget.
Why does a customer pick Tanqueray over Allied Domecq's Beefeater gin? Often the choice rests on a tasting offered at a bar or an eye-catching display at a liquor store. "Spirits marketing is like marketing perfume," says Todd Martin, CEO of Daucourt Martin Imports and former president of Allied Domecq North America. "It's all about the imagery and emotional appeal."
Diageo says it's too early to say how it will use information to tailor its pitches. But Chris Brown, director of data warehousing for Diageo North America, says age, income and other data about its customers, tied to records of the volume of sales of different products and financial analysis, will make promotions more effective.
Getting information in and out of a data warehouse fast is critical to the company's marketing—and its bottom line. "We should have insight to where we are doing a promotion and why," says Carlini, who joined Diageo in 2001 from Nabisco.
Improving Diageo's data warehouse is part of a seven-year information systems makeover at the company, Carlini explains. In July 2003, Diageo consolidated four enterprise planning applications—including a supply chain management system it inherited when it bought the Seagram's liquor business—into one from SAP. The goal is to boost efficiency by adopting standard business processes in North America and Europe.
The unified system tracks orders delivered on time, the quality of finished goods and inventory availability. Diageo says the new system also improves customer service by giving buyers a heads-up if a particular product is unavailable.
As a part of the implementation, Diageo contracts out the maintenance and development of the SAP system to Accenture, while IBM maintains the hardware.
The company also installed an e-procurement system from Ariba and expense-tracking software from Concur Technologies, which pump information into an Oracle data warehouse with Cognos business intelligence running on top of it. That's where the money decisions will get made.
"SAP is nice, but the data warehouse is our future," says Carlini. "That's what can drive sales."
But getting same-day information won't be easy. Forget that Diageo has now standardized on SAP, Oracle, etc. Requirements governing alcoholic beverage sales in the U.S. vary from state to state—where beer and wine can be sold, how it can be delivered across state lines, whether it can be purchased online, and so on. By comparison, in Europe, Diageo sells directly to retailers, and sales information can come back overnight.
Another constraint in the U.S.: Beverage companies can make direct sales only to distributors. As a result, companies like Diageo collect data on when cases go out to distributors, but can't track its products' arrival or departure from store shelves unless distributors or a third party reports back.
"It's my biggest frustration with this business," Carlini says.
Diageo typically receives retail data once a month from third-party trackers. Using SAP, the company can see when an order for 10 barrels of Guinness was filled and shipped to a distributor. As much as a month later, Diageo will see when the product moved to a retailer in what is called a "depletion." Perhaps the biggest workaround to speed data acquisition will be coercing distributors to provide data directly and getting third parties to deliver information weekly instead of monthly.
Diageo imports 70% of its data from intermediaries such as the Beverage Data Network, which shows monthly spirits and wine inventory and depletions for "open" states with private retail stores, such as New Jersey; the National Alcohol Beverage Control Association, which provides data in locations such as Utah, where alcohol is sold through state-owned stores; the Distilled Spirits Council of the United States, which delivers data on competitors' sales; and Information Resources, which provides consumer sales data collected from liquor stores.
The remaining 30% of Diageo's data—number of barrels of Guinness or bottles of liquor sold, volume, profitability and promotions—comes from the company's own SAP systems.
Despite its challenges, Diageo is making progress with its data management. Using the SAP system, Diageo now couples the third-party reports with its own statistics on costs of operations, to produce rundowns on profitability by product line or the yields on promotions.
To focus more clearly on such nitty-gritty business thinking, Diageo North America restructured its information system organization to work more closely with its business executives. A steering committee now approves or shoots down any project that will cost more than $100,000. The committee includes Carlini; Diageo North America chief financial officer Deirdre Mahlan; and executives in charge of sales and marketing, supply chain management and national account sales.
Three-Part I.T. Structure
Diageo in January will also separate the 140 people in its information-technology staff into three groups: an engagement group, which will write business cases for projects and make sure they stay on track; strategy and business architecture, which will determine which systems to use; and delivery, which will oversee the development and support of all new systems.
In this structure, the engagement group will speak on behalf of business units and work with the delivery group to meet goals. "The goal is to have a staff that has firsthand knowledge of marketing and our brands, and allow them to look for opportunities," Carlini says.
The efficacy of these teams will be crucial to getting sales data to business executives in Florida following the Captain Morgan-sponsored Fantasy Fest, an annual event in Key West, Fla. For instance, an engagement employee would explain to a Captain Morgan marketing manager how data on rum consumption is obtained, and help that manager make a reasonable forecast for the 2005 Fantasy Fest.
Diageo's sales and marketing executives now receive scorecards with monthly data on sales, volume and profitability of different brands. Using the SAP system and the third-party data, Brown notes the company can figure out how well a product is selling at Irish pubs, fine restaurants or retail stores. However, he adds, demographic data isn't yet included, so Diageo can't tell whether 28-year-old lawyers are inclined to buy a pint of Guinness at a New York pub.
To get closer to the kind of precise, fast information Carlini wants, Diageo executives are working to consolidate distributors in an initiative called Next Generation Growth, which could open doors to direct acquisition of data. But as it heads down that path, the company must first determine exactly what information on sales and deliveries it needs each day rather than each month, says Michael Thomas, group manager of data acquisition for Diageo. Then, the company will have to work out the data collection agreements."We'll have to leverage our relationship with our distributor network, especially on the beer side," Thomas says.
For example, Diageo has to decide whether real-time data makes a difference in sales for a product like Johnnie Walker, which stays on the shelves for weeks, more than for a case of Guinness, which should disappear in a week.
Joe Thompson, president of the Independent Beverage Group, a Hilton Head, S.C., consulting and research firm, says Diageo has its work cut out for itself. "The best way to get the data is to get it directly from distributors," says Thompson. "But you need a lot of clout and volume to get cooperation."
He adds that Diageo might have the means to entice its spirits distributors to provide data directly because it is the North American market share leader (with 23%, according to Diageo).
Anheuser-Busch has used its position as the nation's king of beers to suck data from distributors directly into its BudNet. According to the company, Anheuser-Busch data from invoices flows to the network every time a shipment enters a store. Wholesalers also provide the company with a running tally of sales. For instance, sales made on Wednesday would be reported to Anheuser-Busch by Thursday at 4 p.m., but many report earlier, says Jim Temme, information management director at Anheuser-Busch. The brewer can then combine that information with data on the gender, age and other characteristics of shoppers in a given area, which comes from third parties on a weekly basis.
In addition, sales reps for Anheuser-Busch distributors collect data on the location of promotions in each store and how rivals' products are stocked, using personal digital assistants. That allows Anheuser-Busch to instruct those reps before they leave the store how to move displays and tailor promotions to influence market share.
Of course, it's easier to get cooperation when Anheuser-Busch controls 49.8% of the beer market. Can Diageo match that kind of influence?
Says Thompson: "I don't think anyone else can do it."
Diageo Base Case
U.S. Headquarters: 6 Landmark Square, Stamford, CT 06901
Phone: (203) 359-7100
Business: Manufactures and markets alcoholic beverages including brands such as Captain Morgan rum, Crown Royal whiskey, Jose Cuervo tequila, Baileys Irish Cream, Seagram's 7 and Smirnoff vodka.
Chief Information Officer: Barbara Carlini
Financials: Sales of $16.5 billion for 2004 fiscal year ended June 30; net income of $2.58 billion.
Challenges: Getting the most out of its data warehouse despite a labyrinth of state regulations and information sources. Continued restructuring of technology staff.
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