Dive Brief:
- Innovation is the key to expanding Diageo's best-selling alcohol brands, and "liquid scientists" at the company’s innovation lab in Bishop’s Stortford, Hertfordshire, England, are creating new brands such as David Beckham's Haig Club whiskey; as well as altering products in its existing portfolio, such as with Baileys Chocolat Luxe, according to The Telegraph.
- The company's innovation portfolio rose to £1.5 billion in global sales in 2015, up from £700 million in 2010. Scientists are encouraged to play with ingredients to develop products. This summer, the lab hosted 11 bartenders, and in the final round of a competition, competitors used various ingredients to create new bitters.
- Diageo's earnings have suffered due to the widespread embrace by consumers of craft beers and artisanal spirits; however, catering to this new category of drinkers is something Diageo's innovation lab is prepared to tackle. Trends such as culinary mixes, and collaborations with food, such as launch of Bailey's ice cream, will play roles in future innovations. Tie-ins to a reduction of sugar consumption will play a role as well.
Dive Insight:
In January, Diageo announced its operating profits fell 3%, where a 2% decline in North American sales contributed to the decline. Among the highlights were disappointing performances from Smirnoff and Ciroc, as well as the success of Crown Royal Regal Apple, which contributed 85% of the company's U.S. growth in 2015.
Diageo faces stiff competition in North America, which is a crucial market for the company, from players such as Brown-Forman and its strong whiskey portfolio. SABMiller’s (major beer company) merger with Anheuser-Busch InBev is pending; as part of the merger deal, AB InBev has to divest all of SABMiller's U.S. assets. In May, Reuters reported AB InBev’s incentives for U.S. distributors is being investigated by antitrust regulators, and could possibly interfere with the merger.
Also in May, AB InBev reported a significant dip in profits for the first quarter, falling to $844 million from $2.3 billion last year.