Diageo decision makes for far-from-Happyland
Tonic premix in Russia has angered Happyland, the company which
partnered the UK firm in launching the brand there. But Diageo
claims that Happyland failed to grow the brand sufficiently during
a period of rapid expansion in the Russian premix market.
Earlier this year, Diageo Russia announced that it was to terminate its contract for Gordon's RTD brands with Happyland Trade and Production Holding, the Russian company which has produced and marketed the brand there since 1998.
According to Happyland, the decision was due to Diageo's desire to reposition the Gordon's RTD product as a premium drink, and another company will now take over sales and marketing of the brand.
To say that Happyland was not pleased by the decision would be an understatement. The company, which has annual sales of around $130 million (€114.9m), claims to have gone beyond the call of duty in developing the brand in Russia.
It took just two years for Happyland to reach break even with the brand, and by 2001 it was selling 1,500 cases of Gordon's RTD a year - not a huge amount by global standards but nonetheless impressive given in such a short space of time and in such an undeveloped market.
Happyland cited data from Russian market research company Business Analitica which showed that Gordon s RTD brand share of the gin market increased by a factor of 23 in just three years from 0.2 per cent in 1999 to 4.7 per cent in 2002. By 2002, it added, recognition of the brand had reached 39 per cent, well ahead of its main competitor, Greenall's RTD Gin & Tonic, citing data from market research company Comcon.
The company added that sales of the parent brand in Russia had also increased over the period as a result of the success of the RTD variant.
This success, Happyland told Food and Drink Europe.com was in no small part due to its own involvement in the development of the brand in the fledgling Russian RTD market.
The launch, for example, of a 50cl can version of the brand in 2000 was as a result of Happyland's input the company said, while in March 2002 it proposed extending the Gordon's RTD gin and tonic range to include three fruit variants: lemon, orange, and grapefruit.
"The entire project from taste-testing, design R&D and certification to packaging, production and distribution was accomplished in less than six months," the company said. "The new cocktails soon captured a 22 per cent market share in Russia."
But if Happyland is to be believed, then it has ultimately been a victim of its own success. For the Russian company itself claims to have suggested to Diageo that the brand would benefit from a more premium image, in particular an upmarket glass bottle.
Happyland claims to have spent six months working on the project, carrying out taste tests, drawing up bottle designs and preparing distribution for the brand. Then came the decision to end the Gordon's RTD contract with Happyland from May 2003 and to transfer it to a company called Premier Food and Beverages - a decision which Happyland - not surprisingly - said was unbelievable.
Happyland claims that Diageo's decision to shift partner in Russia was because of its "lack of experience in the promotion of upmarket premixed drinks in glass bottles", a fact which is certainly true but which Happyland qualified by claiming that no other Russian company currently has that experience either.
While PFB was responsible for bringing the Hooch premix brand to the Russian market in 1997, Happyland claimed that the brand had significantly underperformed there, citing what it claimed were PFB's "utterly inadequate distribution capabilities and the absence of a liquor licence to conduct RTD sales" as the principal cause.
It also claimed that PFB had not yet begun producing the Gordon's Gin & Tonic premix despite winning the contract to do so three months ago.
Happyland also stressed that it produces two premix products of its own - Rings and Trophy - both sold in glass bottles, and that it was working hard to improve its understanding of this premium market.
Diageo stands by its decision
Diageo's Russian unit reacted with surprise to Happyland's complaints, not least because they came more than four months after the Russian group's contract was ended in February (and not May as Happyland claims).
The UK group said that its figures showed that the Russian premix market had grown substantially during the period of its co-operation with Happyland. The market as a whole grew from 168 million litres to 257 million litres, while the share of Happyland's own brands grew from 5.7 per cent to 20.9 per cent. Greenall's share rose went up from 4.9 to 9.8 per cent and Hooch from 1.2 per cent to 5.2 per cent, Diageo said.
"We appreciate the efforts of Happyland to improve the sales of Gordon's premixes, however, the share of the brand grew from 0.4 to 0.7 per cent only," Diageo told Food and Drink Europe.com.
"This performance was one of the reasons considered when making decision to cease cooperation with Happyland, next to its lack of experience in the premium RTD (not just bottled premix) segment."One of the ways Happyland achieved growth of Gordon's premix was essentially by selling it at the same price or less than the main competitor Greenall's, Diageo said. While this was acceptable during the introduction stage, such a strategy was considered by Diageo as potentially harmful for the global premium positioning of Gordon's.
"Therefore the decision to reposition the existing Gordon's premix range (in cans) to the appropriate premium position (in bottles) was made in co-operation with Happyland and as soon as the company achieved reasonable sales volumes."
But while Diageo agrees with Happyland on this matter, the two companies differ in their assessment of the development of the brands.
"The idea for line extensions for Gordon's Gin & Tonic were initiated by Diageo, since marketing and brand positioning has always been the responsibility of Diageo. We appreciate Happyland's contribution to the realisation of these ideas, and all the expenses Happyland encountered while doing that were compensated by Diageo shortly after termination, as well as all other financial claims of Happyland towards Diageo."
Diageo also refuted Happyland's claim about the effect on the mother brand. "We doubt that the Gordon's premix sales had any significant effect on the mother brand sales in Russia, as the gin category is still too small there and in any case the consumers base for premixes and for pure gins is totally different."
As for Happyland's claims regarding PFB's suitability to handle the premix, Diageo said that it was perfectly happy with its new partner, and that PFB was also handling sales of its premium packaged beer, Draught Guinness.
