Alcopop tax forces Diageo rethink
Diageo Australia, the local offshoot of the global spirits and beer giant that owns beverage brands like Johnnie Walker and Smirnoff, has reported that sales of RTD products, or alcopops, fell by 1 per cent in the first half of 2012-13, after the drinks category had flat-lined for years.
Diageo's local managing director, Tim Salt, said the company would need to innovate to create more interest in the category, offering drinkers new ranges from its popular Bundaberg Rum label, while directing more marketing dollars towards other beverages such as gin and rum.
"We are doing some new RTDs and we are really trying to change the way people perceive RTDs," he said.
A new Bundaberg Rum and soft drink pre-mix product is being tested in the Queensland market. It uses brewed soft drink from a regional supplier.
"It's a test but I think what it does is tap into authenticity."
Mr Salt said Diageo would not resort to price discounting to attract drinkers back to the RTD market, despite many flocking to ciders. The latter is taxed at a much lower level by the federal government, giving it a strong price advantage to pre-mixed spirits.
"The challenge for us is to make sure we have offerings that the consumer wants to buy - short-term price discounting might give you a short-term kicker but that's not the game we are going to play," he said.
"We have to work out how do we get consumers back into our RTDs and get that category growing through authentic products, great tasting products and products that, at whatever price, consumers recognise the value."
A few years ago, Diageo launched a range of pre-mixed spirits packaged in casks, combining quality ingredients like cloudy apple or blood orange with its branded vodka, Smirnoff.
However, that category has also suffered, hit by intense price competition from "me-too" brands trying to grab market share at any price.
There was some good news for Diageo in the first half, as its overall group sales in Australia rose 2 per cent as a renewed push in spirits and premium labels helped drive a 3 per cent sales improvement for the half in spirits.
"The area we have seen a whole lot of growth in the first half was in what we call the 'super premium' area," Mr Salt said. "And that's grown for us around 48 per cent in the first half - we have had fantastic growth."
He said this portfolio included products such as Johnnie Walker Gold and other spirits, which sold for more than $50 a bottle.
In an effort to bolster its premium and super premium earnings, Diageo has also decided to invest further this year in its gin brand Tanqueray as well its premium rum range under the Bundaberg branding.
Frequently Asked Questions about this Article…
According to the article, a federal government tax rise of about 70% imposed four years earlier helped keep the ready-to-drink (RTD or alcopop) category growth-free. RTD sales in Australia had flat-lined for years and Diageo Australia reported a 1% fall in RTD sales in the first half of 2012–13.
Diageo's local managing director Tim Salt said the company plans to innovate to rekindle interest in RTDs, including developing new RTD ranges from its Bundaberg Rum label and redirecting marketing toward other beverages such as gin and rum, rather than relying on price cuts.
Diageo says short-term price discounting might give a temporary boost but isn't the strategy they want. The company prefers to bring consumers back with authentic, great-tasting products that deliver perceived value, rather than competing primarily on price.
Diageo is testing a Bundaberg Rum and soft-drink pre-mix in the Queensland market. The product uses brewed soft drink from a regional supplier, which Diageo says taps into authenticity as a selling point.
Ciders are taxed at a much lower level than pre-mixed spirits in Australia, giving them a strong price advantage. That tax difference has encouraged many consumers to move toward ciders, putting additional pressure on the RTD category.
The article reports Diageo's overall group sales in Australia rose 2% in the first half, with spirits sales improving by about 3% for the period.
Diageo said the super‑premium area grew strongly—around 48% in the first half—and includes high-end products such as Johnnie Walker Gold and other spirits sold for more than $50 a bottle. That strong growth has led Diageo to invest further in premium brands like Tanqueray gin and Bundaberg's premium rum range.
The article highlights that while RTDs face headwinds from a higher tax and shifting tastes, Diageo is focusing on product innovation, authenticity, and premiumisation rather than price cutting. Investors reading this can note the company's pivot toward growth in spirits and super‑premium labels (including further investment in Tanqueray and premium Bundaberg rum) as the core response documented in the article.
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