Diageo’s Global Media Agency Review Comes Amid Greater Scrutiny of Costs

Marketing needs to better deliver on ROI

The world's largest spirits maker, Diageo, signaled a potential change in its agency lineup when it released fiscal first-half results earlier this year: Revealing a drop in operating profit, new CFO Kathryn Mikells stressed the need for better ROI from lower marketing spending and said the company had renegotiated media costs in North America, Europe, Brazil, Mexico and Australia in the six-month period.

Now, the company with global brands like Johnnie Walker, Smirnoff, Captain Morgan, Tanqueray and Guinness confirmed it is conducting its first global review with "a closed shortlist of agencies." It would not otherwise comment on the search or incumbents.

Dentsu Aegis's Carat network, which handles Diageo media in the U.S., U.K. and APAC region, also declined to comment. It won $130 million of Diageo's domestic business in 2010 after a review that included WPP incumbent MediaCom.

For the fiscal half ending in January, Diageo said global net sales rose 1.8 percent, but those in the U.S.—the company's largest and most profitable market—dropped 2 percent. The company said marketing spending decreased 10 percent in the region because of savings in media and agency fees as well as procurement-driven efficiencies. 

As evidence of reining in costs, Mikells noted Diageo had spent nearly $1.2 billion on all of its marketing efforts in the first half of fiscal 2016, down 5 percent from a year earlier. It didn't disclose global media spending, but some sources estimate it as nearly double that amount. In the U.S. last year, Diageo spent $105 million on measured media, down from $147 million in 2014, according to Kantar Media. Diageo is shifting toward more data-driven marketing strategies, per sources.

London-based CFO Mikells started the job last November after a long run at United Airlines and more recently Xerox and ADT. In the press announcement about her hiring, Diageo praised "her track record for capital discipline, for developing strong cost cultures and for creating efficient, agile organizations."

Last year Diageo also said North America chief marketing and innovation officer Peter McDonough would be replaced after nine years. James Thompson, managing director for the company's global reserve business, took on that role Aug. 1. In addition to handling Diageo luxury brands like Johnnie Walker Blue Label, Cîroc Vodka and Ketel One Vodka, Thompson spent six years as Diageo's CMO for Asia Pacific. He has also held several North American roles, including that of president, Guinness Canada.