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Low GTR Penetration Isn’t The Consumers’ Fault
Andrew Cowan, MD Diageo Global Travel, Interviewed

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Introduction by: Peter Marshall

In this, the first of a wide-ranging two-part interview, Diageo Global Travel’s Managing Director Andrew Cowan discusses the drinks giant’s performance with Kristiane Sherry, his product strategy for the coming year and why it isn’t the travelling consumer’s fault that penetration rates remain stubbornly low. Part two will be published on trunblocked.com later this week. Both interviews make for compelling reading.

 


Kristiane Sherry, this week’s contributor

It must be a fascinating time to work at Diageo. It’s the drinks giant that needs no introduction. The largest international spirits player by retail value, Diageo’s products are sold in almost 180 countries. According to CEO Debra Crew in a recent presentation, it is 1.4 times the size of its nearest spirits competitor, and bigger than four of its top 10 competitors combined. Diageo is a behemoth. But it’s not immune to market pressures. In its 2024 first half interim results, reported net sales slipped 1.4% to $11.0 billion. Reported operating profit was harder hit, contracting 11.1% to $3.3 billion over the six-month period to 31 December 2023. A poor performance across Latin America and the Caribbean accounted for much of the declines. “The first half of fiscal 24 was challenging for Diageo and our sector, particularly as we lapped strong growth in the prior year and faced an uneven global consumer environment,” Crew said in the accompanying statement.

So when I sit down with Global Travel Managing Director Andrew Cowan, I’m surprised by his genuine buoyancy. Always a cheery character up for a chat, he breezes into the Diageo HQ meeting room asking about my Kanken bag as his daughter is in the market for one. Perhaps it’s the midweek Guinness 0.0s that he tells me he enjoys after work most days. As it turns out he’s got good reason to be upbeat. The Global Travel (or GT) division is well outperforming the rest of the business.

“We’ve done really well,” he tells me, stressing the ambition to outpace the wider company growth. “We’ve enjoyed, probably, an unfair share of the incremental investment that’s been available.” He and the team are winning market share and the business is scaling globally. “Our business at the half was bigger than the entire financial year previous.” Even the sticky Latin America and Caribbean region is seeing high single digit growth, he says. It seems GT is the golden child in the Diageo family right now.

The travel retail industry, he reckons, is still about a year behind the rest of the world in terms of Covid recovery. “I mean, still only 35% of routes out of China have been reopened,” he calculates. “I would say, we’re still rebuilding passengers. When they’re flying, they’re still getting reused to buying again.”

Revenge spend was felt in Fiscal 23 right up until June, he notes. But that’s lapped now. “It’s just not been quite as overt as it was in the domestic markets. And because of the investment, because of the innovation around Johnnie Walker and Tequila, we’ve had the tailwind of new momentum to sort of help us lap that with new consumers, new products, new communications. It’s helped us, I think, navigate that period really well.”

Cowan puts the success down to a triple-pronged product focus. First up is Tequila broadly and Don Julio 1942 specifically. In-airport DJ parties around the world backed by a surprisingly infectious playlist and a bold social media campaign catapulted the brand to the consumer forefront over the key summer season. 

Then there’s the premiumisation of Johnnie Walker, with the launch of its cask-finished Xordinaire release.

Finally there’s what feels like a bold focus on the “premium core”, which Cowan says includes “everything from sort of $30 to $50, $60”. Brands here include Captain Morgan rum, Tanqueray gin, and the vodka portfolio with Smirnoff and Cîroc. “I would say we’ve got momentum, and we expect that momentum to continue for this half as well,” he states. “Then our ambition is to double down on that next year with some more innovation and some incremental investments across a whole portfolio.”

Investment also included a “dramatically increased” headcount across the team. And very front-focused recruitment at that. “We went from having one point of contact with the customer, which is the account manager, to three points of contact with the customer,” Cowan details. Now there’s an account manager, category development manager and customer collaboration manager. “The reason for that is we don’t just want to get our commercial proposition right. We want to get category management to the same standard as the domestic market. The fixture in the duty free outlet, shall I say an Avolta outlet, needs to be treated with every bit of sophistication that Tesco or Sainsbury’s would be treated.”

That’s all well and good – but penetration remains stubbornly low in GTR. Will this move the needle at all? “If you look at the relationship between category penetration, so purchase and pax growth, purchase tends to be a little behind.” He calculates that when more people come into the travel industry, between point-three and point-five of them convert into an immediate purchase. “Then that matures over time and you get the full benefit of that passenger.” With passenger growth forecast at around 8% next year, “you’d expect us to be growing as an industry maybe 5% or 6% with normal sales now”.

Penetration pre-Covid was around 6%, he says, increasing with the recovery in phase one and then falling back. He thinks it’s now around 7%. Alcohol tracks lower than the perfumes and cosmetics category, he notes. “I’m not sure we as an industry, and we as Diageo, have really stirred that down and deeply understood and focused and targeted to shift that metric.”

Cowan is committed to leaning more into digital to better reach consumers before, during and after travel. But ultimately, for him it’s not about the consumer. “It’s down to brands and creativity of brand owners like ourselves to inspire consumers to buy. It’s not their fault if they don’t buy it, our job is to inspire consumers to buy.”

So what will he and the team be persuading consumers to buy in the coming months? Johnnie Walker and Tequila remain key focuses, but don’t overlook the single malt Scotch portfolio. There are four new travel retail exclusives coming from The Singleton, with Talisker and Mortlach also key priorities. Lagavulin too – and he hopes the revival of fellow Islay distillery Port Ellen will eventually gain traction in the channel when the liquid is ready.

“American whiskey is hugely important too,” he adds. He also nods towards Diageo’s Asia distillery builds. “We’ll bring those into global travel when the time is right. In India there’s a lot more we could do.” He’s convinced that travel retail is for accelerating brands, rather than building them from scratch, so don’t expect to see the likes of any Distill Ventures brands breaking into the channel soon.

“We need to operate across the portfolio across brands, across variants and across up and down vertically the price ladder as well, so that we can always, as a portfolio, have something for everyone,” he says. While the downtrading noted in those financial results hasn’t translated into GTR, it’s important to remember there are customers that will only want to spend $30-$50. “Our job is to make that as attractive and as inspiring. And as exclusive as someone buying a more premium product.” There’s a lot of good stuff happening at Diageo – but Cowan is far from complacent.

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