Making the best even better

Despite Diageo's dominant position in the industry, MD Benet Slay tells Rosie Davenport there's room for progress

Tucked away behind the bustle of Oxford Street, the Toucan pub is the unofficial after-work hang-out for Diageo employees. A stone's throw from the second of its two London offices, it's a shrine to Guinness, decked out in the best of the brand's promotional gear - something of a Diageo speciality.

Given its proximity to Diageo's hub, where so much time is spent extolling the virtues of world-class brands and how to deliver them perfectly to consumers, you would hope to be served a decent drink.

But the glass of flat soda, complete with a decaying slice of lime I endure while killing time before meeting the GB managing director of the world's largest drinks company is the perfect prologue to our interview, a snap-shot of how much further the on-trade has to come. No one seems to have grasped the extent of the issue better than Diageo, and, with experience of co-ordinating the company's on-trade division before moving into the off-trade and finally taking the top job, Benet Slay is very much driving its vision for quality.

"We have really focused on service and have trained 55,000 pubs since 2001, as well as helping pubcos develop their own training programmes. In the past five years, there has been a better chance of getting a perfectly served gin and tonic."

Slay says there will be more training under its ESP 360° programme, which is being revamped to make it easier for licensees to pass on what they have learned, addressing the perennial problem of teaching best practice to a transient workforce.

Boosting the black stuff

As owner of the most dominant brands across the £3.5bn on-trade spirits market, including Smirnoff, Gordon's and Bell's, Slay is clear about Diageo's responsibility to grow the sector with category-supporting initiatives, which also represent the only way for it to swell sales in very difficult trading conditions.

A Cambridge University economics graduate, Slay has one of the toughest jobs of any of Diageo's global divisions and, while Diageo reported a 2% rise in sales to £9.9bn for the 12 months to 30 June, sales in Europe - where GB and Ireland dominate - were down 2%, bolstered by double-digit growth in other international regions.

In the last four months alone, the 1% growth in the UK on-trade spirits arena has eroded away, making sales static compared to where they were a year ago (AC Nielsen MAT to September 2007).

And the picture's worse in the beer category where sales have fallen drastically.

"The beer market isn't where we want it to be. It's been challenging," he admits, "and I think it is going to be a tough market for some time to come." But he stresses that Guinness has emerged from the dire summer in better shape than many of its rivals, as the unsettled weather stopped the annual migration of its drinkers towards lager.

"We have traded very well, partly driven by the weather. Because Guinness is a seasonal brand we normally drop quite a lot in the summer. But according to AC Nielsen we were up 1% in a market that was down 2% (MAT values to September 2007). It's a reflection of the Guinness brand, the fact that the beer market has become a lot weaker and that we haven't seen a massive shift into the refreshment end of the beer market."

Slay believes the combined momentum of the strong summer sales and the fanfare of the recent World Cup put the brand in a good position going into the winter months. The new £10m advertising campaign and the launch of Guinness Red - a smoother, sweeter Guinness with lighter malted barley - will also provide an extra boost. However, given that the brand has 98% on-trade distribution, Slay concedes that keeping the beer in growth is about rate of sale and wringing out more value from it year round.

"On St Patrick's Day we have 30,000 pubs executing a programme every year and it's brilliant, but it's only one week in the year. One of the things we've got to work out is how we unlock more value throughout the rest of the year."

But Slay seems confident he'll find a way to do that, optimistically adding that "the best Guinness years are still to come".

He's just as hopeful about the on-trade's fortunes. "There has been a shift towards food, families, females and older people - groups that I call pub rejectors, people who for one reason or another didn't like going to pubs, and there are about eight million of them."

In a market that is flat or declining, finding new ways to realise more profit per pub is

critical, especially now as the smoke ban begins to bite, he adds.

"The pressure is very real and the only way that is going to be dealt with is by increasing profit, and that has to be about finding new ways to get drinkers to part with their money in a way that is satisfying for them as a consumer and more profitable for the outlet."

Consumer expectations

Innovation is one way that Slay hopes Diageo can re-invigorate consumers' interest in pubs - even if it hasn't always worked. "We have thrown a lot of spaghetti against the wall in the last two years and not much of it has stuck. We haven't had as much success as we would have liked. Innovation is hard; you've got to be prepared to experiment and commit resource behind it. Most innovation fails, which begs the question why innovate? The answer is that's what consumers want.

"It's particularly easy (for drinks suppliers) because a lot of people have a relatively small repertoire of what they drink. So to me innovation doesn't have to mean a new-to-world brand, something new and whizzy that we've invented that you've never seen before. It's also about getting people to reframe their expectations and experiences.

"A good example of that is draught Pimm's, which is quite a big seller in central London, but it would be innovation anywhere north of Watford. The main goal is to bring people new things. I think you see that with guest ales and speciality beers."

Slay accepts that in the past Diageo has been in too much of a hurry to push new products out into the market, such as Quinn's, it's failed fruit ferment. Now he says Diageo is taking more time to test products before rolling them out, trialling them in regional incubators around the country to see if they work.

Taking possible winners to the next level can sometimes be restricted, he says, because operators can be slow to embrace new innovations and reluctant to give them a try.

"Ultimately innovation is about risk and that risk has to be shared (with the trade). If the risk isn't shared, the problem is that the innovation doesn't get through."

Slay might have 20 years' experience at top grocery businesses including PepsiCo and Unilever under his belt, but he is equally passionate about pubs and has no doubt that the on-trade is capable of regaining from supermarkets the dominant lead in selling alcohol.

"People form their drinking experiences in the on-trade, so the opportunity for it to be in the lead position is very real."

Benet Slay on...

Supermarket pricing

"We don't want to see deep discounting of alcohol. As an industry we have made a significant number of efforts over the last

few years, not least of which is the creation of the Drink Aware Trust which is still in the process of developing its strategy. We have had a lot of success and we have demonstrated to Government that industry can work together to create the right kind of changes to address the long-term issues of alcohol harm. If you look at pricing, we have made significant progress in the on-trade with the elimination of happy hours and the kind of things that were generating accelerated drinking, which were directly causing alcohol harm, or associated problems, like social disorder. The issue of pricing in the off-trade is that it isn't directly linked to consumption - that's why there has been more progress in the on-trade because there