INNOVATION PIPPED AT THE POST BY ACQUISITION AS THE MORE EFFECTIVE TOOL FOR GROWTH IN THE SPIRITS INDUSTRY
In May, The Master of The Worshipful Company of Distillers Richard Watling welcomed guests from the spirits industry, City and Livery Companies to the sixth annual Distillers’ City Debate at Bank of America Merrill Lynch. The motion – “This house believes that innovation is a more effective tool for growth than acquisition in the spirits industry” – was introduced by chairman Ian Buxton and supported strongly by an initial vote of 77 to 39.
Proposing the motion, Diageo global head of innovation Michael Ward spoke about keeping brands relevant and vibrant in a changing consumer landscape and creating the next great brands that define the industry. He added: “When we look at Diageo, 16% of what Diageo sells didn’t exist five years ago…if we tried to replace these products, we would have to buy a brand the size of Johnnie Walker.” Tom Sandham, co-founder of the Thinking Drinkers, seconded this proposition. In his view, “innovation inspires the trade and consumer to engage with what we do…it’s the seed, but more than that, it’s the plant, it’s the fuel, it’s the water, it’s the manure, it’s the horticulturist – it’s Alan Titchmarsh.”
Opposing, Compass Group chairman Paul Walsh explained the difficulty, even with fabulous ideas, of getting the attention of a salesforce that’s used to delivering big brands and big distribution. “I would contend it is far better to let somebody have that idea, grow it, and then buy it when it’s 50,000-100,000 cases, and you avoid that painful upbringing.” Also, “so often in the case of innovation, you can certainly evaluate the payback on the successful innovations, but do we truly capture the cost of those that have failed?”. In support, Simon Hales, MD of European Equity Research for Barclays Investment Bank, added: “M&A drives multiple avenues of spirits industry growth. It provides access to new products, markets, customers and talent to the benefit of consumers, producers and shareholders. It is a root; innovation is just a single branch.”
The opposition proved most persuasive, swinging the final vote to 64 for innovation, 68 for acquisition. Lively discussions continued afterwards at the Distillers’ Bar over spirits representing both sides of the debate. An excellent summary of the arguments compiled by Amy Hopkins can be found in the June issue of The Spirits Business and at https://www.thespiritsbusiness.com/2017/05/distillers-city-debate-2017-the-arguments/.