How Does Diageo plc (ADR) (DEO) Innovate?

On May 9, Diageo plc (ADR) (NYSE:DEO)’s Global Director of Brand Innovation Group, Syl Saller, hosted a webcast (found here) to explain the company’s innovation strategy. After bragging that 50% of Diageo’s growth has come from innovation over the last five years, she went on to summarize Diageo’s approach to innovation: maximizing global and local benefits, breadth in the portfolio and distribution, great design, skilled liquid crafts people, and talented people operating in an entrepreneurial manner. Let’s take a more in-depth look at Diageo plc (ADR) (NYSE:DEO)’s innovation.

Variations on a theme

A great example of Diageo innovating is the way they have overhauled their most famous brand and biggest source of revenue, Johnnie Walker scotch whiskey. Over the last few years Diageo plc (ADR) (NYSE:DEO) has introduced multiple new variations, including Double Black, Platinum, Gold Reserve, and the Johnnie Walker Explorer’s Club. This exotic whiskey even has its own varieties focused on flavor notes from different parts of the world, and is available exclusively in duty free stores around the world. Why is this innovation important for Diageo? Simply because most of these newer versions come with premium prices: while none are as expensive as their existing $200 Johnnie Walker Blue Label, they all cost upwards of $50 per bottle, even straight from the company, and some as high as $150 per bottle. Diageo plc (ADR) (NYSE:DEO) is also using the Explorer’s Club exclusivity at duty free stores as a way to make the brand feel more premium than standard whiskeys.

Distilling new ideas

At the same time, Diageo can use its extensive distribution systems to create new brands and test them in markets that can be wildly different from each other before expanding those brands to other parts of the world. For example, Diageo plc (ADR) (NYSE:DEO) launched The Singleton in Taiwan in 2006. Since then, the malt whiskey has done so well that Diageo has expanded where it can be purchased and it is now the fifth bestselling malt whiskey in the world. Diageo launched last year a drink called Orijin in Cameroon, which is a beer-like drink made from local traditional herbs and fruits. This drink is popular in Cameroon because the ingredients are sourced locally and have flavors that appeal to the local populace. While Orijin has not been distributed outside Cameroon (yet), the option is there. Then there’s Naked Turtle, a new brand of rum that Diageo is testing in certain areas that is partnered with the Turtle Conservancy to appeal to ecologically-minded consumers.

Judge a book by its cover

Diageo plc (ADR) (NYSE:DEO) showcases its spirits in the best packaging they can find. They know that a first impression is very important, and that some people treat their drinks as a sign of prestige, just like cars or clothes. With that in mind, Diageo has hired design firms including Ogilvy & Mather, Raison Pure, and Lewis Moberly to help their products stand out on the shelf, at the bar, and in customer’s hands. As Ms. Saller said on the webcast, Diageo sells “objects of desire.”