Marketing efficiency key for Diageo

LONDON: Diageo, the spirits giant, is funding a significant increase in its media spending by "driving efficiencies" across its marketing operations, a tactic being employed in various ways around the world.

"We have increased investment in consumer-facing media at a much faster rate," Paul Walsh, Diageo's chief executive, told analysts on a conference call.

"And we're funding that investment through driving efficiencies in other areas of spend as we drive scale and standardisation, for example in point-of-sale materials."

The company's marketing budget stood at £911m in the second half of 2012, up from £871m year on year. Within this, expenditure in fast-growth markets rose by £50m and North America saw a lift of £13m.

In contrast, Diageo's outlay in Western Europe shrank by £18m and the developed Asia Pacific region logged a £5m decline, in an indicator of the organisation's changing priorities.

"Now in my view, there is no magic number for the marketing reinvestment rate, but I'm broadly comfortable at this level," Walsh said. "What you can expect, though, is that we will drive the effectiveness of our marketing spend."

Diageo's US arm, for example, is standardising its point-of-sale materials and has reduced its suppliers roster from "hundreds" to three, has centralised expenditure and automated the purchasing process.

The quality of point of sale has been maintained or improved despite a 14% cut in outlay, while media spending rose by 25% in the same period. "This is a theme that you'll be seeing more and more in other regions," said Walsh.

In Western Europe, Diageo has shifted resources from declining categories to expanding ones, such as from scotch to gin in Spain. Germany, Belgium and the Netherlands have also seen budgets rise as they have greater "growth potential".

"Marketing and back-office functions in Western Europe are conducted centrally," Deirdre Mahlan, Diageo's chief financial officer, said. "The centralisation of activities has allowed us to improve the effectiveness of our marketing spend there."

In Asia, the company trimmed its outgoings on scotch in South Korea but boosted it for vodka and beer, and is similarly focused on "recruiting" new customers for its gin and rum ranges in Australia.

In China, the two Johnnie Walker Houses, or "clubhouses" for drinkers, also helped Diageo "streamline its sponsorship platforms", Mahalan said. "In China, we are achieving more critical mass," she added.

Data sourced from Seeking Alpha; additional content by Warc staff, 4 February 2013

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