Allied Domecq Spirits, USA was formed late last year with the merger of two of Allied Domecq’s operating companies, Hiram Walker and Domecq Importers. The new spirits company will soon relocate to a site in Fairfield County, CT. A sister company, Allied Domecq Wine, USA (formerly known as The Wine Alliance), whose President is Jon Moramarco, remains headquartered in Healdsburg, CA.
Martin Jones, the 46-year-old President of Allied Domecq Spirits, USA, spoke recently with Editor-at-Large Nicolas Furlotte about the restructuring and a wide range of industry issues. An excerpt from that conversation follows; a more in-depth version, with much more on individual brand initiatives and related activities, can be accessed at our web site: www.beveragenet.net.
BEVERAGE DYNAMICS: Let’s start with the big picture. What is your vision and the overall strategic direction for the company within the context of your new organizational structure — the merger of Hiram Walker and Domecq Importers?
MARTIN JONES: It’s really about becoming closer to the consumer and becoming a world-class marketing company. That is consistent with what we’re doing globally throughout Allied Domecq. And the way we’re going about that is really bringing the business closer to the marketplace and increasing the focus on the core business — the key brands that really drive shareholder equity. What we’ve been able to do is create a single management team that is fully coordinated behind a very focused portfolio. The structure is much closer to the business; it’s de-layered from the standpoint of all the various levels within the organization and it’s really about being a consumer-driven business.
What we’re doing here is not just merging Hiram Walker into Domecq Importers, we’re creating a new entity, a new organization called Allied Domecq Spirits U.S. We will take the best of Hiram Walker and the best of Domecq Importers but we will also introduce new talent, new practices, new disciplines into the new organization that don’t exist in either one. We’ve established four divisions across the country (north, south, east and west) and we have divided each of those four divisions into two portfolios: We’ve created the Equity Division, which contains our world-premier brands; and the Alliance Division, which is composed of a lot of regionally-oriented products that require a fair degree of tactical support and represent significant opportunities in some of the emerging ethnic markets. It’s quite a different approach than the way we’ve gone about business in the past.
BEVERAGE DYNAMICS:You have a large portfolio and there’s always a question of balance and emphasis between brands you own and those you represent. Everybody wants their fair share of attention and support. How do you handle that?
MARTIN JONES: Clearly there are brands that represent the corporation’s future and significant opportunity for growth; and that isn’t necessarily just growth in volume, it’s growth in value. It is those brands that we have chosen to put into the Equity Division. Those are also world brands that span the globe in terms of their development and are not necessarily regionally-oriented. Those brands include Kahlúa, Sauza, Beefeater, Canadian Club, Courvoisier and a number of agency brands with specialty niches; for instance Drambuie and Midori. Very high premium, high-image brands that are specialized in certain niches. Maker’s Mark is also in there, which is another specialty niche which is becoming more mainstream, but which represents a huge future opportunity for the corporation.
The Alliance operation is doing business in a different way. What we’re attempting to do is take this very profitable piece of business — it represents about 30% of our total profit — and manage it in a more efficient way. We’re delegating more responsibility to our wholesalers, building a stronger alliance with them and allowing them to manage certain aspects of the local marketing. We are in some areas going to supplement our local support with sales brokerage.
BEVERAGE DYNAMICS: So the decision-making will be at the regional level?
MARTIN JONES: We’ve put in place four regional vice presidents who will oversee the Alliance portfolio divisionally. We’ve also put in place on the Equity side of the business four division managers who will oversee that portfolio. In pushing responsibility down to the field, we’ve also created regional profitability centers so that these people can actually measure and monitor the effects of their activities and properly manage the deployment of their resources. We are building our information resources so that they are more regionally driven, more local market-driven.
BEVERAGE DYNAMICS: Are you making distributor changes as part of this restructuring?
MARTIN JONES: We’ve got a very strong network of wholesalers in place right now. Our goal from a distribution strategy is to really build a closer, more seamless relationship with our wholesalers. We’re firm believers in the three-tier system and want to see it work even better for us. We’re undertaking various initiatives to bring our organizations closer together and share more information and share more of the management function of our business. Right now things are in pretty good shape and nothing will arise as a result of this merger.
BEVERAGE DYNAMICS: What should we be looking for over the next 12 to 18 months?
MARTIN JONES: If you look at it in real terms, in terms of performance and how it’s measured by shareholders, we’re clearly looking at outperforming the industry. If you look at it from the standpoint of how we’re going to get there and the strategies we’re going to employ to accomplish that, the next 12 to 18 months really are going to be about building stronger relationships with the consumers on our core brands. We’ve already begun that process in the last year or so and have evolved certain brands like Courvoisier, with respect to the whole restaging of that brand — the new packaging, the new advertising, the increased support we’ve put behind it.
We’ve got similar initiatives underway for Canadian Club. We’re evolving the communications platform on Kahlúa and continuing to expand our involvement in the convenience, ready-to-drink category as a means of broadening Kahlúa’s appeal. So there’s a lot already underway in terms of building those stronger relationships with the consumer and that will continue.
The other thing that it really comes down to when you’re building relationships with the consumer on premium brands is about increasing the perceived value that the consumer has for those brands, and we’re clearly focused on increasing that because that’s how the earnings are going to grow if the consumer is prepared to pay more for your product.
BEVERAGE DYNAMICS: What happens to that perceived value when there are a lot of price promotions?
MARTIN JONES: Like anything, if carried to excess it can be detrimental. I think a certain amount of price promotion is necessary in order to restimulate retail interest and activity. But if a brand is discounted, on an ongoing basis, there’s something wrong with that brand.
BEVERAGE DYNAMICS: Will there be as much price promotion and post-off activity as there has been in the past?
MARTIN JONES: Probably less. Because in the last 18 months we’ve concentrated more of our resources behind pull activities and a lesser amount behind push activities, knowing that it is the pull activities that are going to create an increase in perceived value.
BEVERAGE DYNAMICS: You’ve been advertising Kahlúa Combos on TV and Presidente has been on radio for years. Has broadcast advertising lived up to your expectations? Is it all it’s cracked up to be and are you pleased with the results?
MARTIN JONES: Well, I think the operable phrase is, “cracked-up to be.” The expectations and hype the media has given this subject are far greater than the expectations the industry had for it. We’re realists and pragmatists and understand that there is going to be some objection to overcome in order to gain unlimited access to this medium. And we’re very determined to accomplish that. But we realize that it’s going to take time.
Getting back to the real question, has it been effective? We’ve used it extensively in marketing the Kahlúa ready-to-drink products in the last year-and-a-half. It has been very effective in building awareness for those products at a very rapid rate. We’ve also got experience going back five to six years with the Mexican brandies, and we believe it was very effective in solidifying the franchise we had there. But it’s a real targeted medium right now. You have to be very specific about who it is that you’re reaching and what broadcast medium and program you’re using to reach them, otherwise you’ll just be wasting your money.
BEVERAGE DYNAMICS: Are you doing much in the way of advertising on the internet and do you see that as a viable advertising medium for your brands?
MARTIN JONES: We’re just learning how to use the internet, like everybody. A lot of what we’re doing is breaking new ground and understanding what it can do for us. The brand that’s probably had more experience in internet marketing is Sauza and we’ve got quite a sophisticated site on Sauza, yet we’re still learning. So to ask if the returns are there, it’s hard to measure at this stage. I happen to believe that all kinds of alternative media not just the internet, are going to be critical to this industry in the future because it’s an industry that won’t be able to afford in the near term the mass-reach vehicles, so it has to be a pioneer in selecting and perfecting some of the specialized media.
BEVERAGE DYNAMICS: How important is the trade in helping to inform and educate the consumer?
MARTIN JONES: The consumer has such incredible respect for knowledge coming from the trade — whether it’s the owner or someone working in the store or the bar. I can’t say enough how important their endorsement is for a product or a brand. If you can create belief and credibility with that tier, you can get a phenomenal response from the consumer. You have to begin with the trade. You have to develop the knowledge with the retailers and the bartenders. So we’re spending a lot of time on that.
BEVERAGE DYNAMICS: What do you view as some of the most important consumer dynamics and trends affecting the business?
MARTIN JONES: What the industry really has to do is address the consumer’s search for legitimacy and relevance. The consumer wants substance in whatever he or she is considering as a purchase. I think the industry has begun to recognize that it has to almost reinvent itself in the consumer’s mind and create a much more relevant position through its brands in the consumer’s menu of luxury goods and adult beverages.
DISCUS is developing a communications platform that will increase the relevance of our products to the general public, and that’s the kind of thing that we’re going to need to give the consumer cause to consider our products. It’s not unlike what milk has done or pork has done or what some of the other marketing boards have done fairly effectively. I think there is a role for some form of industry generic communication and we are developing such and we are prepared to get behind that and create a meaningful presence. Our goal is to have something underway early in the new year.
The other exciting area is the rapidly segmenting population that we have in this country. Marketers are becoming more conscious of the diversity of their marketplace. That it’s not just one big melting pot or one big homogenous marketplace but really a mosaic of many different marketplaces that segment themselves regionally as well as culturally. Understanding how to reach those populations and influence their behavior is one of the great challenges that faces marketers today.
FOCUSING ON CORE BRANDS
ALLIED DOMECQ’S EQUITY DIVISION INCLUDES KEY BRANDS WITH GLOBAL PRESENCE OR POTENTIAL INCLUDING KAHLUA, SAUZA, CANADIAN CLUB, BEEFEATER, COURVOISIER, MAKER’S MARK, DRAMBUIE AND MIDORI.
- New advertising and communications campaign to be launched this spring to create a more contemporary brand image with a little more attitude.
- Primary consumer target: LDA to 30.
- Continue to expand Kahlúa through line extensions as warranted.
- Expect U.S. sales for this fast-growing brand to exceed 1 million cases in 1999 (already more than 2 million cases worldwide).
- Some recent growth due to broadening distribution; now focusing on “the marketing side and ensuring that the consumer is developing the right image for this brand.”
- Big effort to educate and inform “discovery-oriented” consumers about the category and higher-end tequilas in the Sauza brand family.
Major changes in the entire marketing mix within the next 12 months designed to elevate the brand to a much higher level and contemporize it.
- Successful “restaging” of the brand over the past 18 months.
- New packaging recently introduced for VS and VSOP.
- New advertising campaign launched and spending ramped up after several years without significant advertising.
- Introduced a new marque, Millennium, last summer.
- Viewed as “the most exciting specialty brand in the business.”
- The challenge: “Not to allow it to become too mainstream.”
- The goal: “We’re not looking to turn this into a million case brand overnight. It will continue to be grown in a very diligent manner.”
- A comprehensive new program is being launched encompassing new packaging, advertising, sales promotion, merchandising and new products including:
- Canadian Club 100-proof, which has had a great deal of success in certain special markets such as duty-free.
- Canadian Club 10-year-old.
- Canadian Club Sherry Cask, a handmade, small-quantity product that will represent a very premium price point.