Whiskey at $120,000 a bottle might not be everyone’s drink of choice, especially amid a global economic downturn. But that doesn’t matter to drinks giant Diageo DGE.LN -0.62% PLC: The company is offering the exclusive tipple only to a group of 200 VIP patrons, carefully selected and invited to join its Chinese whiskey “embassy” in Beijing.
Focusing on aspirational drinkers and wealthy individuals in fast-growth markets is a priority for liquor companies.
Diageo’s so-called embassy, partly an exclusive members club to sell luxury Scotch, offers private access to a whiskey vault, as well as a bar, museum, shop and dining from an in-house chef. Once in the vault, a customer can be advised by a master blender who will personalize a signature bottle of whiskey, along with a bespoke decanter.
Two such embassies are already up and running and Diageo wants to roll out more, first across Asia and then world-wide as the company seeks to cash in on the top end of the liquor market.
Pernod Ricard SA, RI.FR -1.05% meanwhile, is striving to appeal to high-net-worth individuals through its sponsorship of polo, a sport traditionally frequented by multimillionaire enthusiasts. Its Royal Salute whiskey brand is the sponsor of the World Polo Series, with tournaments played across the world. Christian Porta, chairman and chief executive of Chivas Brothers, the company’s whiskey division, said the brand has recorded double-digit sales growth in emerging markets over the past five years.
The whiskey embassies aren’t the only way Diageo is wooing its most valuable customers. Its John Walker & Sons Voyager luxury yacht set sail in September on a six-month voyage to nine Asian ports, with top customers invited aboard, including an opening three-day party on the Shanghai Bund.
“All the guests were invited to a lavish dinner accompanied by the finest whiskeys available,” said Malaysian entrepreneur William Ng, a guest on the ship. “[The] yacht was an event not to be missed and was the talk of town.”
The premium and high-end Champagne and spirits industry—in which bottles cost more than $20 each—has almost tripled in value to $72 billion in the past 10 years, according to data group International Wine & Spirit Research. That is despite the economic downturn, which has prompted customers of lower-price spirits to cut back on consumption and change habits to favor drinking at home rather than in bars, where margins are higher.
The exclusive, high-profile marketing events have helped drive consumption of Diageo’s most premium brands. Johnnie Walker Blue Label might not retail for thousands of dollars, but its cost of about $200 a bottle still makes it one of the most expensive blended Scotches available on the general market. The brand’s sales in China have increased 45% since 2011, when Diageo’s first whiskey embassy opened in Shanghai.
RI.FR -1.05% In Asia, Latin America and the Caribbean, as well as Africa, Diageo posted a double-digit gain in fiscal first-half operating profit. As Diageo mostly sells premium spirits, this is a sure sign that “premiumization”—an upselling strategy that is the Holy Grail of beverage companies—is gathering pace, analysts say.
In economically depressed Western markets, some drinkers are treating themselves, giving premium spirits categories a boost. Pernod Ricard says Havana Club rum posted improved sales for the first six months of the fiscal year, driven by Europe. “If you cannot afford to drink as much as you could, [you] can definitely drink less but better quality,” says Euromonitor International analyst Spiros Malandrakis.
In North America, Diageo’s reserve brands—or luxury division—posted double-digit sales growth for the six months ended in December, said Larry Schwartz, Diageo’s president in the region, with strong trading from upscale vodka brand Cîroc, as well as Bulleit Bourbon. Cîroc sales, excluding acquisitions, disposals and currency effects, rose 14%.
But while consumption is increasing for the high-end market, supply isn’t necessarily keeping pace. Pernod Ricard Chief Executive Pierre Pringuet says restricting access can be more beneficial than meeting demand, as the drinks giants chase value over volume. “It is up to us to make our brands so desirable,” he says. “We couldn’t envisage doubling the volume of Scotch in the medium term. [It is the] same for cognac. There is an element of scarcity.”
Diageo Chief Executive Paul Walsh agrees and says that even an economic crisis can lead to rewards elsewhere. “If there is a silver lining to the cloud of southern Europe, we are not selling as much young Scotch in markets like Spain and Greece as we were. We can hold on to that liquid longer and sell it into Latin America, Asia and Africa, probably as 12-year-old and make a lot more margin.”
Still, Diageo is trying to reach high-end drinkers in greater numbers through the launch of a Web portal in February to push direct global sales of the company’s ultra-premium brands. The Alexander & James site will offer drinks such as Zacapa XO—a blend of 25-year-old rums—at £99 ($150) a bottle, and the John Walker, a rare Scotch blend that retails at more than £2,000.
Alexander & James Managing Director Philippa Dickson describes it as a “white-glove, end-to-end luxury-brand experience, where people will be able to learn about our spirits and receive expert advice on food pairing and mixology ideas for every occasion.”
Source: Wall Street Journal