Impact Seminar Looks At Future Innovation

From retailers to suppliers to app developers, the beverage alcohol industry explores the changing landscape of marketing.

Marvin R. Shanken (left) hosted the 39th annual Impact Marketing Seminar in New York City. Megyn Kelly (right), host of Fox News Channel’s “The Kelly File,” attended as the luncheon speaker.
Marvin R. Shanken (left) hosted the 39th annual Impact Marketing Seminar in New York City. Megyn Kelly (right), host of Fox News Channel’s “The Kelly File,” attended as the luncheon speaker. (Photo by Jonathan Lockwood Smith)

Hosted by M. Shanken Communications chairman Marvin R. Shanken, the 39th annual Impact Marketing Seminar brought hundreds of the drinks industry’s top executives together for a program that featured a diverse array of presentations from thought leaders both within and outside the business. The event, which took place at New York City’s Pierre Hotel in March, was preceded by a welcoming reception at the Trump SoHo’s Hudson Square Ballroom, hosted by Moët Hennessy USA president and CEO Jim Clerkin.

The Seminar’s morning speakers included Jerry Yang, cofounder and former CEO of Yahoo! Inc.; Peter McDonough, president and chief marketing and innovation officer at Diageo North America; Pam Levine, chief marketing officer of HBO; Michael Clarke, managing director and CEO of Treasury Wine Estates; Erika Hagberg, head of food, beverages and restaurants at Google Inc.; Tim Hassett, president of North America for Beam Suntory Inc.; Dennis Crowley, cofounder and CEO of Foursquare; and Annette Alvarez-Peters, assistant general merchandise manager of wine, spirits and beer at Costco Wholesale Corp.

Following a Champagne reception, attendees proceeded to a luncheon in the Pierre’s Cotillion Room. After the meal, Marvin R. Shanken took the podium to introduce the luncheon speaker, Fox News Channel host and political commentator Megyn Kelly. Having arrived at the Pierre just after interviewing the newly re-elected prime minister of Israel, Benjamin Netanyahu, Kelly entertained the audience by touching on many of today’s biggest hot-button political issues. She then took questions from Shanken and from the audience.

The beverage alcohol industry heavyweights discussed a range of topics affecting the business. With a vast portfolio featuring some of the world’s most prominent super-premium spirits brands—including Johnnie Walker Scotch whisky and Cîroc vodka—Diageo has proven to be well-versed in the language of luxury marketing. McDonough discussed the evolving landscape of luxury, which has transformed dramatically in recent years, due to both cultural and economic shifts. “The old norms shaping luxury have been battered by the changing realities of the environment around us, and a more skeptical consumer mind-set has emerged,” McDonough told the Seminar audience, citing the lingering effects of the recession and a general distrust of authority. “From this economic turmoil, a change in attitude de-emphasizing conspicuous consumption has begun to shape a cultural abandonment of old luxury and bring forth a new perception of luxury.”

According to McDonough, consumers across all income brackets have traded in overt expressions of wealth for more understated forms of luxury, including tailored experiences and personalization. In recent years, Diageo has tapped both trends with regionally focused releases—including a limited-edition Texas-only bottle of Crown Royal and city skyline–inspired Johnnie Walker bottles—as well as unique mobile bar initiatives, such as the Don Julio Airstream speakeasy and the Bulleit Frontier Whiskey Woody Tailgate Trailer.

Likewise, millennials and baby boomers have demonstrated a renewed interest in authenticity and craftsmanship, with such Diageo labels as Ketel One vodka, Tanqueray gin and Oban Scotch whisky refocusing their brand stories to better reflect their heritage, history and provenance. “Consumers love brand stories, and the future of luxury marketing is all about how the story is told,” McDonough explained. “Today’s luxury consumers are influenced by many different messages and means, and we must communicate a compelling and relevant story of luxury in unexpected ways.”

Leading one of the wine industry’s most geographically diverse marketers, Treasury Wine Estates’ (TWE) Clarke was well-placed to address the topic of “The Globalization of Wine Marketing.” He began by noting that some industry observers questioned TWE’s wisdom in hiring a consumer packaged goods veteran as CEO when he took the helm in February 2014 (he’s held senior executive roles with both Kraft and Coca-Cola). But in his speech, Clarke pushed back on the idea that the wine category is unadaptable to more efficient business practices. “We are challenging the implicit—and misplaced—contradiction that seems to exist between preserving the mystique of wine and at the same time delivering outstanding, quality brands of scale sustainably and with less complexity.” He acknowledged, however, the challenge of generating consistent returns “when Mother Nature is your partner.”

Delineating his strategy for maximizing the potential of TWE’s portfolio, Clarke observed that out of the company’s 80 brands, it has identified about 15 that are “scalable globally,” including Penfolds, Etude, Wolf Blass and Stags’ Leap. He explained that one way to help scale brands on the global stage is to use flexible sourcing, as TWE has begun doing on Etude, a California brand that will soon introduce a New Zealand–sourced offering and position itself as a global Pinot Noir franchise. “Building scale via sourcing breadth is one of the most critical platforms necessary for the globalization of wine brands,” he added.

Another avenue is to create a halo of innovative products around a strong premium franchise like Stags’ Leap, which recently introduced The Investor, an upscale red blend that is scalable from a sourcing standpoint and could usher the brand into new occasions and audiences, Clarke said. TWE has also identified the $10-to-$20 “mass-tige” segment as an area of opportunity across its business. The company is separating its luxury and mass-tige business from its commercial segment—which still accounts for two-thirds of group volume—to better compete in both arenas.

Meanwhile, the long-term future for the global wine market appears bright. “The emerging and increasingly affluent middle class in countries like China and Russia is looking to Western influences and indicators of sophistication with respect to alcohol consumption and therefore becoming more engaged in the wine category,” Clarke said. “Moreover, consumer demand for wine in most regions is strongest at the premium price points—above $10 a bottle—and value growth is outpacing volume growth.”

When Suntory acquired Beam Inc. for $16 billion in 2014, the newly forged Beam Suntory Inc. instantly emerged as the third-largest premium spirits company in the world, as well as a veritable whisk(e)y powerhouse. Bolstered by its core Bourbon business, the company continues to show enormous international upside, with Hassett detailing the group’s ambitious growth plans. “We have a very audacious agenda. Today, the new Beam Suntory is a $5 billion business, and we have an aggressive aspiration of doubling that business by 2020,” he said, adding that the company’s growth strategy would likely include acquisitions, as well as increased premiumization and globalization initiatives.

Beam Suntory’s expansion will be driven by its vast whisk(e)y portfolio. Key growth brands include the group’s flagship Jim Beam Bourbon franchise—which has received a boost from its entry into flavors, including its recent launch of Jim Beam Kentucky Fire and a partnership with actress Mila Kunis—as well as Canadian Club, which Hassett notes is Beam Suntory’s most widely distributed whisk(e)y brand. Meanwhile, 2 Gingers, the upstart Irish whiskey brand Beam acquired in 2012, is advancing quickly off its small base.

Scotch also represents a major opportunity for the company, and Beam Suntory has put notable emphasis on its Laphroaig brand of late. Likewise, the company’s Japanese whisky range—which includes its Hibiki, Yamazaki and Hakushu brands—is primed for growth, following critical acclaim and rising global demand, particularly from North American markets.

“We’re the only premium spirits company that participates in a meaningful way across all five of the biggest whisk(e)y segments,” Hassett said. “It’s our intent to not only thoughtfully grow all our whisk(e)y brands, but also to lead Japanese whisky development. We’ll be hearing a lot more about Japanese whisky in the next few years.”

As one of the U.S. market’s dominant beverage alcohol retailers, Costco holds enormous sway in connecting consumers with drinks brands from across the industry, and Alvarez-Peters addressed the chain’s alcohol strategy. Costco is now the second-largest retailer worldwide, with total sales of $110 billion and 671 locations, and the company did $3.4 billion in beverage alcohol sales in its last fiscal year, ended in August 2014. Alvarez-Peters noted that while Costco has grown exponentially since she joined the company in 1983, its merchandise philosophy has stayed largely the same. “We have a very limited selection, and 80 percent of sales are done with 20 percent of the items,” she said. “Our goal is to offer substantial savings on all items and constantly rotate in new products.” The smaller selection helps the company show a large variety of merchandise throughout the year while saving on inventory costs, she explained.

Costco carries a total of 250 beer, wine and spirits SKUs, with the majority of items in rotation, creating a “treasure hunt” atmosphere rather than appealing to brand loyalty. “We’ve found that our members are prepared to give up brand loyalty for a deal on another quality item. We buy items, not categories, and each item stands on its own,” Alvarez-Peters said, adding that margins are capped at 14 percent and a key objective is to trade consumers up. Costco’s Kirkland Signature private label brand represents less than 20 percent of the group’s beverage alcohol business, she added.

While noting that competition in the retail segment continues to increase, Alvarez-Peters expects Costco to remain true to its philosophy—and its beverage alcohol strategy to remain constant—looking ahead five to 10 years. “There’s always the temptation to add SKUs,” she said. “We continually remind ourselves that we’re not in the full-line retail business. And with that, we need to take an ‘intelligent loss of sales’ approach instead of expanding our assortment in order to compete.”