Debra Crew - CEO of Diageo | Podcast | In Good Company | Norges Bank Investment Management

It's great to be here, thanks.

First of all, we see a really long runway for growth in beverage alcohol and particularly in spirits. Total beverage alcohol has been growing consistently for 20-plus years, and alcohol as a percent of discretionary spending is quite modest — it's less than 2%, and that's been very consistent over time. Now, the industry is quite challenged because of the cyclical economic pressures, the prolonged inflation that consumers are having to navigate has compressed that discretionary wallet, and that's really impacting the volumes of the industry. That being said, people forget just how resilient the industry is. We do see this as cyclical — it's going to come back. And this resilience can really be explained because of the underlying structural drivers of demand that give us tailwinds. Now, are young people drinking less than before? What we're seeing is Gen Z expressing that they prefer to moderate. That being said, the actual behavior — what we're seeing 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, and 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. So we're actually seeing that Gen Z behavior — they're not moderating as much as people think. They drink like every other alcoholic and non-alcoholic drink. And they're coming into spirits faster. So while maybe overall they are moderating through some behaviors, they're actually coming into spirits faster, and that's because of drinks like RTDs. They're coming into tequila faster because they're drinking spirits with food. So it's one of those things that we see as much of an opportunity as we see it as a headwind. The other thing going on is lifestyle — so that's what you're kind of getting at with this moderation area. But I'll start by saying first of all, socializing and the social dynamics that unite us, and the local nuances of that socializing, is a big part of how much of your sales would be in restaurants, bars, and how much would be at home.

So that's one of the trends we should talk about, because what we're seeing is actually more occasions — we're seeing an expansion of these socializing occasions. They're quite diversified now. It used to be a lot of restaurants and bars, but now you see more and more socializing occurring at home. They're smaller, more informal settings, but we are seeing more occasions coming home. And that's not just a COVID trend — we've been seeing this trend for a long time. COVID kind of made home the fortress. But that is a big part of what we're also seeing. The rise of what we call third spaces — so you're not in a bar, you're not at home, but maybe you're out at a sports arena or you're at a festival. This is big for Gen Z — they're out and about. When they are consuming alcohol, they're often out in these third spaces. And so what we're seeing in the industry is more formats and sizes — the rise of RTDs and some of this that you're seeing is the industry really capturing those occasions. That's another big tailwind for us.

Yeah, so let's talk about moderation for a second, because it's not just — we've been tracking this trend for quite some time. We call it mindful consumption. So I talked about how value has been consistently growing in beverage alcohol for a long time. Within that, though — and by the way, popularity has not waned, it's actually been quite strong. 70% of households participate; that's been a pretty steady trend as well. But volume per caps actually peaked in 2012, and then they've been slightly but steadily declining since 2012. Now what I mean by slight — it would be like from 2012 till now, it's like a bottle of wine. So it is slight, but it is coming down. And we've seen that moderating trend for a long time.

Yeah, and actually that's exactly what we say — people want to drink better, not more. And we've set our whole growth strategy around that. And by the way, spirits underneath of that — per caps have held in quite good because spirits is gaining from beer and wine. We're gaining in food occasions and some of this that you wouldn't have seen before — that's been a space for wine and beer.

Yeah, you know, we're not seeing that as separate and distinct from those moderating trends that we've been seeing. Look, supposedly 15 million Americans at any given time are now on these or at least trying these type of weight loss drugs, and perhaps they're on for other reasons as well, other health reasons. But we're not seeing that trend line break. So while people are being more mindful about what they're consuming, we're not seeing that as a separate break in the overall trend.

I mean, not really. I would say this is more of a developed market phenomenon, and so that is where we're seeing that. We do see these trends tend to go around the world. And I would say in general, we are seeing kind of premiumization and people thinking more about what they're consuming.

Well, you know, we're not really seeing that either. It's kind of a different occasion. This comes back to our occasions being more these social occasions that we talked about, where you tend to be socializing 86% of the time when you're having a drink — you're having it in the company of others. So those are bigger occasions for us than cannabis. And some of this has been legal now for quite some time in several states in the US, and we're not really seeing, once again, a distinct break in the trends that we've been seeing for quite some time.

So like I said, we have grounded all of our strategy and growth strategies within spirits gaining occasions from beer and wine — so expanding our spirits occasions — and premiumization. Our portfolio is oriented more toward premium now, so almost 62% of our portfolio is Premium Plus, and that compares to the industry average of about 35%. Over time, we've actually divested some of our more value brands and we've invested in things like our tequila brands, which are ultra-premium priced. So we've reoriented our portfolio toward premiumization. Then from a marketing standpoint, there's six trends that we've said we want to lead and shape. So not surprisingly, moderation — we've acquired some non-alcoholic spirit brands, Ritual in the US is one of those. Convenience — these RTDs and if you're out in these third spaces, what are you doing? Luxury — we're still seeing luxury as being important. We're going to see by 2028 almost a quarter of the category in these Super Premium Plus priced products. So luxury is a part of it. With food — so you may go, what is this? I'm a Texan, so the best thing with Mexican food is a margarita. It's not beer, wine. So those are the types of things we're going after.

I would have whiskey for sure.

So you know, I love all of the children — but not in the same glass at the same time. I'm a big tequila fan, I'm a Texan, so Don Julio 1942. But I'm also a big peaty Scotch fan — I like our Johnny Walker Black, I like our Lagavulin. In the summer, I like a good gin and tonic, I like a good Tanqueray and tonic. So pretty flexible. Now, I should ask you — what's your favorite drink?

Does it matter if you're traveling or no?

That's your summer, but not very often. Okay, well, we got to work on you.

Well, I mean, look, we're in 180 countries and we're a big importer and exporter, and so clearly we love free trade. However, honestly, over time we have dealt with a lot of duties and tariffs and disruptions. So we take a long view of these things and we look at it and say, we certainly can navigate through any of these things. There's been tariffs and high duties on Scotch for years, for example, going from Scotland into India. They're short-term disruptive, no doubt, and it's probably the uncertainty that's the hardest thing to plan for — when you don't know exactly what those are going to look like. We're clearly staying very close on all of it, but we see that from a long run we can absolutely mitigate those things. We know what to do. It's really more about navigating through the short run and how do we mitigate that.

Well, done us — it's been a great brand for us, win-win. So look, we have 13 billion-dollar brands, we're number one or number two in many of these categories. I really love our portfolio. That being said, we do look for spaces where we don't have maybe as strong a brand, or a brand at all, because we also are across price tiers as well. Sometimes we don't feel like we have a premium enough brand. Like in the non-alc space, our most recent acquisition — Ritual in the US — we had Seedlip, which was a big brand for us in the UK, that was non-alc. But in the US, Ritual had a brand that spanned across as a tequila alternative, a gin alternative, a whiskey alternative, etc. We felt like we didn't have anything that could go there, so we acquired that. Likewise, we dispose of brands — some of our disposals in India, we disposed of our value and popular price point because we just see long-term premiumization there, and that part of the portfolio represented a lot of volume but it wasn't set to drive growth for the future. So acquisition-wise, we look for where we don't have coverage, but honestly, most spaces we can really go after with our brands. We've got a consumer choice framework that helps us — it looks at these socializing trends across 37 markets, we track about 220 million occasions, looking at what they're drinking, who they're with, how they're drinking.

I do, I am into data, I love data. And I love it because it really helps us do precision marketing. When you get the right brand at the right time to the right person, that experience — it elevates the whole experience, and that's what we're trying to do. We're trying to elevate these moments.

It helps us see the best opportunities. We marry that up with the best brands, we make sure that we are marketing within that occasion, and we serve up the best options for people. It just helps us be much more precise about where to go, and especially in these type of moments where it's quite volatile and you do have consumers under pressure. When we get this right, consumers are willing to spend money because they see value and they're getting great quality, exactly what they want.

Well, we just launched The Vault. Did you see this? We launched a customized Johnny Walker blend for you — it's 50,000 pounds for that privilege. So it is at the tippy top, but it is a personalized experience around Johnny Walker. You get to go to Princes Street in Edinburgh, and we will craft this for you. So this is a very special experience in and of itself. We have all the way from that, all the way to a Johnny Walker Red, which depending upon the market that you're in — and in between, you've got Blue, Black, Green, Gold, Double Black. It really spans.

We have great margins across Scotch. And part of it is — look, it's how you make Scotch. So remember, for Johnny Walker Black, if you want to be selling that 10 years from now, you better have barreled it two years ago. So it's a 12-year-old Scotch, and we have quite a competitive moat around that because we're very good at blending and distilling, we're very good at maturing, we're very good at bottling, we're very good at getting this out around the world. So our margins across Scotch are very good, whether we're selling it — because remember, Johnny Walker Red is not in a barrel for 12 years, it's in a barrel for much less time. So therefore, all of these prices correspond to what we've put into the product.

Yeah, and these are very different businesses. But you take something like tequila, which is both a white and a dark spirit. In tequila, you're spending seven years with the blue agave plant, and then you age it. Reposado is one of our fastest-growing Don Julios right now, and that's actually aged at least six months. So that process, if you think about from the seed all the way through — even within white spirits, you've got a range of things going on around aging, particularly on tequila. Although Reposado does start to get into more the dark spirits territory. It's one of the reasons we're excited about tequila — it goes from white to dark, it goes across occasions, daytime, nighttime. With dark spirits, you tend to consume those in certain occasions — whiskies, rums. And likewise for white spirits, those are daytime occasions a lot, although you have good nightclub cocktails too. It is quite interesting — this expansion of occasions and where we're seeing drinks, and how versatile spirits is, is one of the things.

We're very loyal — you mean what kind of loyalty we see from consumers? Consumers drink in repertoire for sure. And particularly, I was listing some of the trends we go after — there's a whole trend around exploration and experiences. We see people wanting to try new things. And quite often, it's the reason on-trade in the industry is so important. Often people go with what bartenders recommend or what they see on a menu. Often people will go in and not really know what they're going to purchase until they get sort of inspired by something. And that's, like I said, the versatility of spirits is one of the things that gives us a great long runway for growth.

Oh, I don't know if I'm going to answer that because you're going to buy it soon, right?

We do. This comes back to wanting to be quite precise in your marketing. So we have the consumer choice framework to see, like as we're expanding tequila around the world, we see certain markets that are more or less ready for that. But we also have a market growth framework where we look at markets the same way — taking a look at the market, the tax, the regulatory, the profitability that we can get out of the market. And we make those type of strategic allocations upfront as well. There's certain bets you're placing for 10 years from now. We just opened up UVU 12, which is our Chinese whiskey distillery — these are 10-year bets. Compared to, we know that in the next couple of years we're seeing a lot more opportunity in some of the developed markets because we're seeing faster recovery potentially coming out of some of those markets.

We always say 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. We have more than one bar in the office. But we've got four values that I think help describe our culture. We're passionate about consumers and customers. We value each other — we're very collaborative culture. Proud of what we do — I think we're very proud not only of our brands but also things that we do in the community, around sustainability, etc. And then there is one value that — so actually when I came in as COO and then was announced 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 assess our culture and values in various markets and across functions around the world, in an effort to reignite and strengthen the culture. 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 consumers to move fast today, it's 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,' and subsequently rolled out behind some behaviors that would help us. We called them behavioral dial-ups: how would we be better from a cultural standpoint? It was about being externally focused, collaborating — but we put the word 'efficiently' behind it. So continuing to collaborate but having the right, only the right people in the room, instead of having to get agreement from a cast of thousands before you would do something. Acting decisively was part of it as well, and experimenting and learning.

We have. It's difficult — corporate culture is hard to change. But what was great about it though, I will say, is this didn't come from me pushing this out or the executive team. This actually came from across our organization — this is what they wanted to change. It's taking some of the best of 'Be the Best' but also injecting learning and continuous improvement. We've changed some of our global processes — like innovation, where we had kind of the classic five-stage innovation. Particularly for things that are less risky, we've gotten that down to two stages. We've really cut down on the number of people that have to weigh in. It's helping us get innovation out faster.

Well, we were able to take out almost a year from some of our processes. That tells you something, because some of these take longer — when you're doing a big breakthrough innovation, it's one thing. But we had that same process for almost everything, and so that's allowed us to take that out. We're also failing faster and learning, because this comes back to — not everything will work, and if we can fail fast and sort of learn from it and adapt. And actually, we celebrate some of those now.

We just had a meeting on this, and we celebrated it much like if you've heard of Día de los Muertos, the Day of the Dead — you celebrate those things that you've killed. We've got a ready-to-drink margarita that we had a brand on — a straw — that just didn't work. 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. There was kind of a scroll of these that we have. It was quite a great way — this was at our senior leader meeting — that we could 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. We've learned a lot from the prior launch and it enables you to just move on.

Yeah, I mean look, there are things that when we launch, I think will do better or worse, and so you do get surprised sometimes. Something that you think is going to do really well and then it doesn't get the uptake, and vice versa. I think one of the most important things is to get things right kind of end-to-end. Sometimes it is about getting the system behind it, about getting great brand work out to explain what it is. I've been surprised by just how well things like Reposado are doing — not that Reposado tequila isn't great, but it's been amazing how this has all of a sudden taken over the world even more so than Añejo, which actually is aged a little bit longer and has, in my opinion, a little bit smoother tasting note. But Reposado seems to be the one that's really hitting it for consumers. So sometimes you just can't judge what is going to be really amazing. We're launching right now a Captain Morgan Sweet Chili Lime — quite an aggressive, different taste. But we developed it with Gen Z, so in many ways I'm thinking, I don't even know how to think about that, I'm possibly too old to judge. Smirnoff Tamarindo is another good one — this has actually taken over the world. The Mexico team launched it a long time ago. I remember when it was coming into the US, the US was kind of going, 'We'll do it as a limited time offer, we'll see.' And then over time, that ended up being a real favorite — it's one of the best flavors on Smirnoff. So you do get surprised for sure.

I mean, look, this is a unique industry, and so it is very important that you have deep industry knowledge. In many ways, it's also a very local industry — so it's very important. It used to be when we would go around the world expanding our brands, it was kind of expats on the move. Over time, we're seeing that great brands get built with local activation and resonating within culture. So having local knowledge is important. We always want to make sure that we've injected enough local experience as well, even if they've had to come from outside the industry. So we kind of have a combination of deep spirits experience, local knowledge, and then also bringing in new capability. I do think as you come in from other companies, there are things that other companies are doing that you can inject into the culture here.

Look, from working at places like Pepsi — and our new CFO is from Coke — one of the things that's really popular right now are smaller sizes. Smaller sizes in the industry used to be thought of as kind of only — think about things like the airline bottles, these 50mls, or a 375, half the size of a normal bottle of spirits. Those are driving the growth in the US right now, and they're being driven on premium brands. Because the industry used to think about this as a value size, we didn't put our premium brands in this. Now we've got 1942 Don Julio in these little 50mls — these are so popular, they have to put them behind the cash register. And these are not inexpensive, but they've captured this moment of a pressured wallet, and sometimes you only have a certain amount of cash. But it's also — you may pay 15, even up to almost $20 for this, and people look at it and go, hey, it's got some cachet, it's cute, you can pour it into a glass so everybody knows what you're drinking. So some of these type of things — of course Pepsi and Coke have been doing these various sizes for a long time. It's those types of things that sometimes having the injection of other ideas — you need to understand the norms and what's underneath of it, but we have found if you do it well — you don't want to cheapen these brands in any way — but if you still merchandise them well, if they're in a nice glass bottle, it's actually meeting consumer needs right now.

I always think it's hard to describe your own leadership style. But look, one of the things that I learned — my first kind of job out of college, I was in the Army. Very different environment, but I think it has frankly informed a lot about how I think about leadership. When I took my first job in the Army, you walk in, you're a brand-new lieutenant, everybody knows more about everything than what you do. And all of a sudden you figure out really quickly that it's really not about you at all — it's actually about making the team better. So it's about how do you get people at their best, how do you get the team really working. In the business world, when you come in, you tend to get promoted because you do something really well, and then all of a sudden you're supervising people now that are doing that same thing. So you get functional expertise first. I do always think about leadership first and making sure — what am I doing to get the best out of the team and to maximize the team. I am quite focused on that, and it's just always been part of how I think it should be done. That's why when you ask me about what do we look for as we're hiring people — I try to think about that team dynamic. It's not just one individual, it is about the team.

I mean, yes and no. There are some universal truths I think about what people are looking for in a leader. What I'm seeing is more generational differences than geographic differences. I'm seeing from younger folks, they want more time with you and they really want to get to know you much more and in a much more intimate way. Coming up, I kind of wanted my boss to leave me alone. Now you see much more of the younger folks asking the first questions in a meeting — they want to get to know you. I think it's social media — they're used to consuming and knowing a lot about a person. So that's probably a bigger difference that I'm seeing versus geographic.

Oh yeah, I always look at feedback as — look, they're just trying to help you. You go into an investor meeting and they're like, I would have said it this way versus that. Or, that was really good, I think next time if you — people are always nice about how they say it to the boss. You might want to say this or that. But a lot of times as a leader, you have to ask for it. Some people don't feel as comfortable just putting it out there. I do always try to ask for it, and I try to — even last week before our senior leader meeting, I always try to test some of the messages to go, is this what people are thinking about, just to make sure you land your message right.

Probably the most recent one was even to kind of come back in. I'd been CEO at Reynolds American and British American Tobacco, BAT. I had left being an executive and I was doing non-executive board work, I was doing PE work. And then I got on the Diageo board, and through various conversations — now in hindsight, I recognize Ivan and Javier were both trying to prod me into perhaps coming back as an executive. It was a big decision. I had to unwind a lot of things — you set up board work and you're involved in various PE-type roles. And so backing out from that and then coming back into an executive role, and really taking a step back, because I had been a CEO. So coming in as President of North America and really backing up. But I felt it was important because this is a different industry and you've got to learn the industry.

Absolutely. I've had a lot of different mentors through my life that I've used at various times. The mentor that I'm using a lot right now is Susan Cameron, who I followed at Reynolds — she was an incredibly successful CEO and helped me make that CEO transition. And then, unfortunately, because I didn't get a transition with Ivan really, it was great to have her to lean on a bit as I was navigating through that CEO transition. I think in a mentor, it's been helpful to have somebody who really knows me and knows you well enough to know how you need to hear it and receive it. Someone who will give you messages that maybe others won't give you is really important. And I love people with experience. Javier, our ex-chairman, knows the industry really well, so he is one that I'm going to go to lunch with and continue to pick his brain on things.

When do I wake up? Depends on what time — I travel a lot, so sometimes the hours are ridiculous. I like to work out first thing in the morning, so I tend to get up early to be able to do that, unless I'm taking a really early plane, and then I don't work out.

I try to do it at least four times a week. I think it's a great way to manage stress, and I tend to — it's good thinking time, actually. I run, so it's quite solitary and you're kind of in your own head.

I like to read, and I read for fun. I don't read terribly sophisticated books — this is fiction, this is fun. It really is more of an escape almost. And then, look, I do like to travel and see things. It's hard when you're traveling for work — sometimes you go into a market and you're like, I could have been anywhere, I was just in a hotel. So I do try to see things along the way. When I was in China, I went to go see the panda reserve. I like to take a moment to really enjoy the world and what's out there.

You know, I recognize I'm really fortunate in that my mom and dad raised me to think I could do anything — all possibilities were open. And I know a lot of people don't have that, so I feel quite privileged. That being said, I know growing up, I always gravitated towards things I was just sort of naturally good at. And then when I went into the Army, all of a sudden I was asked to do a lot of things I didn't know how to do, and quite frankly, I was terrible at it at first. I wasn't very athletic, I certainly didn't know how to shoot anything. But on the other side of that, ultimately I learned, I got pretty decent at it. And so that gives you an incredible amount of confidence and resilience. So I always tell people: try new things, try things that kind of scare you a little bit, because you're going to surprise yourself more often than not and get beyond that. And I think that can be an incredible source of confidence and grit, which I think is really important in this world.

Absolutely, I need to get you to try something beyond wine. Thank you so much.