HIGHLIGHTS: Debra Crew - CEO of Diageo

0:01Hi, everybody. Tune in to this short version of the podcast, which we do every Friday. For the long version, tune in on Wednesdays. Hi everyone, I'm Nikolaj Tangen, the CEO of the Norwegian So-and-Wealth Fund, and today I'm here with Deborah Crew, the CEO of Diageo. Now, Diageo, one of the most successful brand builders in the world, they have a portfolio which includes things like Smirnoff, Guinness, Baileys, Johnny Walker, lots of great tequila brands, and Tanqueray in the gin sector. We own 2.2 % of the company, equivalent to$1.3 billion. Pleasure to have you here. It's great to be here, thanks.

0:36Deborah, what's happening in the spirits industry just now? First of all, we see a really long runway for growth in beverage alcohol, and particularly in spirits. And, you know, total beverage alcohol has been growing consistently for 20-plus years. And alcohol as a percent of discretionary spending and percent of consumer kind of discretionary wallets is quite modest. It's less than 2%. And that's been very consistent over time. No doubt right now, the industry is quite challenged. And it's challenged because of the cyclical kind of economic pressures. The inflationary, the prolonged inflation that consumers are having to navigate has compressed that kind of discretionary wallet.

1:25And that's really impacting the volumes of the industry. That being said, people forget just how resilient the industry is. And so, you know, we do see this. It's cyclical. It's going to come back. And this resilience can really be explained because of the kind of underlying structural drivers of demand that really give us tailwinds. If we look at some of the things which are happening just now, are young people drinking less than before? So what we're seeing is, so Gen Z are expressing that they prefer to moderate. That being said, the actual behavior, what we're seeing in behavior is more of what we would call zebra striping, which is, you know, I go into a bar, I order a Guinness first, I'm still out with my friends.

2:18And so the next thing I'm going to order is a Guinness zero zero. That's how I'm moderating. But at the same time, I'm staying very much within Guinness. I'm staying in the moment. I still feel like I'm part of it. And so we're actually seeing that Gen Z behavior, you know, they're not moderating as much as what, you know, people think. So they drink like every other alcoholic, non-alcoholic drink. Yeah. Clearly, my friends are not Gen Z then. Well, and they're also, they're coming into spirits faster. So the other thing that we're really experiencing is that while maybe overall they are, you know, moderating through some behaviors, they are they're actually coming into spirits faster.

3:01And that's because of drinks like RTDs. They're coming into tequila faster because they're drinking spirits with food. So there's, you know, it's one of those that we see it as much of an opportunity as we see it as a headwind. What is your favorite drink? So, you know, I love all of the children. I, you know, so I'm a tequila. Yeah, but not in the same glass at the same time. Yeah, no, no, no, no. I'm a big tequila fan. I'm a Texan. So, you know, so Don Julio 1942. But I'm also a big, I like a Petey Scotch. So I like our Johnny Mocker Black. I like our Lagavulin. You know, in the summer, I like a good gin and tonic.

3:44I like a good Tangerine tonic. Pretty flexible. Pretty flexible. Now. I should ask you what your favorite drink is. Well, I'm actually a bit more of a wine drinker. But if I were to hit one of your products, it would probably be the gin and tonic. Does it matter if you're like traveling or? No, it's mainly, that would be summer. Summer. But not very often. That's your summer, but not very often. Okay. Well, we got to work on you. Totally. Totally. Anytime. time. When you buy brands, I mean, you bought, for instance, tequila brand from George Clooney. I think you paid a billion dollars. So yes, well done him.

4:23When do you buy? Well done us. It's been a great brand for us. Win-win. But when do you buy a brand and when do you build it and how, you know, what are the considerations here? Yeah, I mean, you know, look, we do have, you know, know, we've got$13 billion brands. We're number one or number two in many of our, of these categories. So, um, I really love our portfolio, you know, that being said, um, you know, we do look for spaces where we don't have, uh, maybe a strong of a brand or a brand, cause we also are across price tiers as well. Um, you know, so that can be important as well, where sometimes we don't feel like, you know, we have a premium enough brand or, um, like in the non-alc space, our most recent acquisition in Ritual in the U.S.

5:09We had Seedlip that we took. It was a big brand for us in the U.K. that was non-out. But in the U.S., this Ritual, Seedlip is kind of more in the gin space, I would say. And Ritual had a brand that kind of spanned across as a tequila alternative, a gin alternative, a whiskey alternative, et cetera. And so that has been the number one. we felt like we didn't have anything that could go there. So we went out and acquired that. Switching gear here a bit. Corporate culture. What's the corporate culture like in the idea? Yeah. So if I can start to work, what are the kind of things I would observe? Yeah.

5:49Well, we always say, you know, we've got 30 ,000 brand builders, whether you're in supply, marketing, finance, HR, everyone is quite focused on our brands and building our brands. People love the history. We have a lot of passion around our brands. And so if you look at our... You kind of got a bar on each floor here, right? Nelly? We do. We have... And a shop in the basement. It's not on each floor, but we do have more than one bar in the office. So yeah, so we, I mean, people love it. And it's, but we've got four values that are very much, I think, help describe our culture. We're passionate about consumers and customers, value each other.

6:27We're a very collaborative culture. Proud of what we do. I think we're We're very proud not only of our brands, but also things that we do in the community, you know, around sustainability, you know, etc. And then there is one value that so actually when I came in as a COO and then was announced that I would be CEO, I actually went out to a bunch of our senior leaders, not the executive team, but a couple layers down and asked them to help me sort of assess our culture and values in various markets and across functions around the world. in an effort to kind of reignite and sort of strengthen the culture.

7:04And there was one value that as they looked at, we had a value called be the best, which sounds great on the surface. And there's many great things about it, but it was creating a bit of a culture of perfection. If it wasn't the best, bad news didn't travel as fast. When you think about wanting to, consumers move fast today, it's kind of a volatile world, needing speed and agility in the culture, we felt like be the best was undermining us. So we actually changed that to be better. Tell me something that didn't work, a launch that didn't work, which was just like a total fiasco. We just had, because we just had a meeting on this and we celebrated it much like if you've heard of, you know, Dia de los Muertos, the day of the dead, you celebrate those things that you've killed.

7:53And so, you know, we've got a ready to drink margarita that we had a brand on it, a straw that it was just kind of, it just didn't work. And so it was, you know, there was a poem read out about it, what went wrong. And then we all thanked it for what it had done for us. And we were moving on, you know, and we had, you know, there was kind of a scroll of these that we have, But it's, you know, it was quite a great way. This was at our senior leader meeting that we could sort of celebrate that we're out there experimenting and learning and moving on. And by the way, we've got a great, we're launching Casamigos ready to drink in a can.

8:32We've learned a lot from the prior launch and, you know, it enables you to just move on. Do you think there's a difference between American leadership style and European leadership style? I mean, yes and no. I mean, you know, there are some universal truths, I think, about what people are looking for in a leader. You know, I think, you know, people want, you know, what I'm seeing is more generational differences than I'm seeing sort of geographic differences. I think I'm seeing from younger folks, they want more time with you and they really want to, you know, like I felt like coming up. I kind of wanted my boss to leave me alone, you know.

9:12So and now you see much more of, you know, it's always sort of our younger folks that will ask the first questions in a meeting. You know, they you know, they want to get they want to get to know you much more and in a much more intimate way. I think it's social media. You know, they're used to just consuming and knowing a lot about a person. And so, you know, that's probably a bigger difference that I'm seeing versus geographic. awesome