Joe Camel in a Bottle: Diageo, the Smirnoff Brand, and the Transformation of the Youth Alcohol Market

James F. Mosher Alcohol Policy Consultations National Electronic Seminar sponsored by the Underage Drinking Enforcement Training Center, April 19, 2012

Diageo:

The Innovator of the Distilled Spirits Industry

  Formed in 1997 when Guinness and Grand Metropolitan merged, becoming the largest distilled spirits company in the world.

Determined to expand the U.S. market, which has been dominated by beer.

U.S. Per Capita Consumption

By beverage type (14 years+) 1.6

1.4

1.2

1 0.8

0.6

0.4

0.2

0 Beer Distilled Spirits Wine 1960 1965 1970 1975 1980 1985 1990 1995

Source: Impact Databank

Consumption Trends: Types of Distilled Spirits 1970-2000 (Millions of gallons) 300 250 200 150 100 50 0 1970 1980 1990 1998 Whiskeys & Gin Vodka, Rum, & Tequila Specialties

Source: Impact Databank

Underage Drinking: A Critical Component of the Alcohol Market

 Those who begin drinking before age 15 are four times more likely to become heavy consumers than those who wait until age 21.

 Underage drinkers consume 10%-19% of the alcohol market (almost all of which is consumed in binge drinking episodes), producing $10-$20 billion annually.

CAMY, 2010; Foster, 2003

45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Beverage Choice for 12 th Grade Binge* Drinkers Boys: Beer Boys: Liquor Girls: Beer Girls: Liquor 1991 1993

*5+ drinks in one setting

1995 1997

Source: Monitoring the Future

Alcohol Industry “unwanted” consumption and sales, 1999

Foster, 2003

Diageo: Competing with Beer

Beer has significant marketing advantages over distilled spirits particularly for young drinkers:

  Advertising on network television; Lower tax rates; (In Maryland: $.09/gallon for beer; $1.50/gallon for distilled spirits) 

More retail outlets

(In Montgomery Co. MD, 298 beer outlets compared to 25 spirits outlets).

The Answer

Create a malt-based, low-alcohol beverage with distilled spirits branding that is appealing to young drinkers, particularly young women, and regulated as beer.

Developing Brand Loyalty at an Early Age “Diageo rolled out Smirnoff Ice in the US market...it suddenly put the once-stodgy Smirnoff name on the tips of millions of echo boomers’ tongues” – (Impact, May 15, 2003) Echo Boomers:



Americans born from 1980-1995



8 – 23 years old in 2003

“The beauty of this category is that it brings in new drinkers, people who really don’t like the taste of beer.” Marlene Coulis Director of New Products Anheuser-Busch Co.

Advertising Age April 22, 2002

Who are “New Drinkers”?

Average Age of First Use of Alcoholic Beverages among those under 21: 15.9 years old.

Every day, 2,500 young people under 15 years old started drinking.

SAMHSA 2010

Smirnoff Vodka and Smirnoff Ice Advertising Expenditures (U.S., millions of dollars)

$70 $60 $50 $40 Smirnoff Brands TOTAL Smirnoff Ice $30 Smirnoff Vodka $20 $10 $0 2000 2002 2004 2006

Source: Impact Databank

Smirnoff Ice Advertising 2002

 1,533 television ads placed in media programming that overexposed youth, 26.3% of all Smirnoff Ice TV ads  These ads cost $6.9 million, the sixth most spent on overexposing ads for any brand (behind only the most popular beer brands) Source: CAMY

Smirnoff Ice Laundry

Smirnoff TV Ads Violating Industry Voluntary 30% Underage Audience Composition, 2005

 Smirnoff Ice: 1,318 ads, $1.1 million, 46.4 million youth impressions  Smirnoff Vodkas: 337 ads, $463,000, 43.2 million youth impressions  The brand with the second most violating ads (behind Corona beer) Source: CAMY

Television Advertising Placement: Youth Audience Overexposure 35% 30% 25% 20% 15% 10% 5% 0% 2006 Alcopop ads Distilled spirits Beer Industry average

Source: Center on Alcohol Marketing and Youth

Smirnoff Vodka TV Commercials, 2007

 Rated the worst vodka brand for placement in youth-oriented television programming Center on Alcohol Marketing to Youth

Smirnoff Marketing: Going Viral Smirnoff Vodka I Phone App Smirnoff Ice Drinking Game

Alcopop Brand Preferences: Underage Drinkers vs. Overall Market 5 State Survey, 4075 Respondents, 2004 Youth Market Share 14% 11% 54% Smirnoff Ice Mike's Hard Lemonade Bacardi Silver Other Overall Market Share 38% 9% 15% 38% Wolfson M. et al. “Flavored Malt Beverage Use in a Multi-state Sample of Adolescents”, Wake Forest University, December 2005; Impact Databank

Seven Leading Youth Alcohol Brands: Any use and binge drinking, past 30 days Pilot study, 2011, N=108

Siegal et al. 2011

Beverage Preference, 9 th -12 th (30 day prevalence, 2005) Grade Girls 40 35 30 25 20 15 10 5 0 Distilled Spirits Beer Alcopops Ark Neb NM WY

Centers for Disease Control, MMWR, July 27, 2007

U.S. Per Capita Consumption

By beverage type (14 years+); Gallons of Ethanol 1.6

1.4

1.2

1 0.8

0.6

0.4

0.2

0 Beer Distilled Spirits Wine

Source: NIAAA

1960 1965 1970 1975 1980 1985 1990 1995

U.S. Per Capita Consumption

By beverage type (14 years+); Gallons of Ethanol 1.4

1.2

1 0.8

0.6

0.4

0.2

0 Beer Wine Distilled Spirits Source: NIAAA

Beverage Choice for 12 th Grade Binge* Drinkers 45 40 35 30 25 20 15 10 5 0 Boys: Liquor Boys: Beer Girls: Liquor Girls: Beer 1999 2001 2003

*5+ drinks in one setting

2005 2007

Source: Monitoring the Future

Consumption Trends: Types of Distilled Spirits 1970-2000 (Millions of gallons) 300 250 200 150 100 50 0 1970 1980 1990 1998 Whiskeys & Gin Vodka, Rum, & Tequila Specialties

Source: Impact Databank

Consumption Trends: Types of Distilled Spirits 1999-2009 (Millions of gallons)

10000 9500 9000 8500 8000 7500 7000 6500 6000 5500 5000

Smirnoff Vodka Sales 1990 - 2006 (U.S., thousands of nine-liter cases)

19 90 19 96 19 99 20 01 20 03 20 05 20 07 20 09

Introduction of Smirnoff Ice

Smirnoff Vodka sales

Source: Impact Databank

Alcopops aka Flavored “Malt” Beverages

“Flavored malt beverages exhibit little or no traditional beer or malt beverage character. … Brewers … remove the color, bitterness, and taste that are generally associated with beer. … This leaves a base product to which brewers add various flavors, which typically contain distilled spirits, to achieve the desired taste profile.” Federal Alcohol and Tobacco Tax and Trade Bureau (TTB) Description of “Flavored Malt Beverages” (Alcopops)

Why Distilled Spirits Are Added to Alcopops

According to the Flavored Malt Beverage Coalition: “Flavoring ingredients that are added to a malt beverage base to produce an FMB need to be stronger … because of the pronounced organoleptic [sensory] qualities of the base itself.” Fact Sheet, February 2003

Alcohol Derived from Added Distilled Alcohol Flavorings

Alcohol Percentage Derived From Added Distilled Alcohol Flavors 0-25% 26-50% 51-75% 76-100% Maximum Alcohol Derived From Added Alcohol Flavors: 99.98% Number of Flavored “Malt” Beverages 4 0 5 105 Total: 114

Volume of Beer Base Present in Flavored Malt Beverages

Volume of Flavored “Malt” Beverage Derived From Fermented Beer Base Number of Flavored “Malt” Beverages

0-25% 26-50% 51-75% 76-100% 95 4 1 14

Production Schemes to Gain Regulatory Advantage

 Smirnoff Ice has a different formulation in the United States than in other countries where it is identified as a spirits-based beverage.

CA Alcopop Classification: State Attorneys’ General Opinions ME CT NE MD

Alaska Hawaii

State Attorney General Opinion for Reclassification State Attorney General Opinion Opposed to Reclassification

Alcopop Classification: Nebraska

2003: 2005:

Nebraska Liquor Control Commission rules alcopops are distilled spirits, but suspends ruling pending federal rule making.

NLCC reverses 2003 ruling, adopts federal rule.

2006:

Nebraska Attorney General issues opinion supporting NLCC ruling.

March 2, 2012:

Nebraska Supreme Court rules alcopops are distilled spirits under Nebraska law

April 2, 2012:

Nebraska Legislature overrules Supreme Court and adopts federal rule.

Guy Smith

“Reputation & Crisis Management” Expert

  

2000-2008: VP for Marketing Public Relations, Diageo 1998-1999: Special Advisor to President Clinton 1975-1992: VP-Corporate Affairs, Philip Morris Company

.

“In our marketing activities, we never target people under the legal purchase age.”

Diageo Corporate Citizenship Report, 2003

Supersized Alcopops: “Binge in a Can”

Diageo’s CEO Paul Walsh

“Diageo chief executive sees salary package hit £3.5m [$5.45 million] as 900 lose jobs”

2009 news headline Salary the following year:

$9.4 million

The Creators of Colt 45 Blast

Evan and Daren Metropoulos

“We want to win. We want to blow these brands out, explode them, and make everyone lots of money.”

Evan Metropolous

Possible Unfair Business Practice Allegations

 Tax fraud  Youth market targeting that encourages illegal behavior  Unfair competition

May 19, 2011 Maryland Raises Alcohol Tax

Voter support for dime-a-drink, Maryland 2010

Contact Information

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www.alcoholpolicyconsultations.com