Business World

Monday 26 September 2016

Inside the innovation lab at Guinness maker Diageo - where Hop House 13 was born

Lauren Davidson

Published 20/06/2016 | 07:56

The Guinness Brewery at St James’s Gate in Dublin
The Guinness Brewery at St James’s Gate in Dublin

In a nondescript business park in Bishops Stortford, hidden in the shadows of a Travis Perkins and a Mack bananas warehouse, lies a large, bland unit where people in lab coats slip quietly in and out of single unmarked doors.

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Hidden within its faceless walls are the bubbling potions, wafting scents and unfamiliar flavours of the innovation lab belonging to drinks giant Diageo, where the lack of phone signal adds to the feeling that something worth keeping secret is happening behind these doors.

Think of it as the Willy Wonka factory of booze, without Roald Dahl’s lickable wallpaper or chewing gum that changes through three flavours (although there could be a winner for Diageo in a salt, tequila and lime version).

A different kind of magic takes place here. It’s where the global spirits manufacturer concocts its recipes to keep its centuries-old brands current.

“There’s this recognition at Diageo that innovation is the key growth driver,” says Sian Anderson, who oversees the FTSE 100 company’s “innovation, research and development” arm. “And some of our brands have been around for 250 years or longer.”

Diageo, the owner of some of the world’s best-selling alcohol brands, including Smirnoff, Johnnie Walker and Guinness, has become increasingly reliant on the products of this unit amid slumping sales in major markets, economic woes in China and currency fluctuations in once-vibrant emerging economies.

The word “innovation” was mentioned no less than 23 times in its full-year results for 2015 after the company posted a 1pc fall in overall volumes with a 3pc drop in North America, which accounts for about a third of its sales.

But the company’s focus on this area is not just a desperate attempt to revive flagging sales.

Diageo chief executive Ivan Menezes has described the change in tack as “moving from a push orientation to a replenishment model” by not only recruiting consumers but “re-recruiting” them – that is, when your brands are so successful that they already account for large chunks of their respective markets, how do you continue to grow?

While Diageo does introduce new brands – such as David Beckham’s Haig Club whisky and Jinzu, the gin and Japanese sake hybrid – most of its innovation centres around alterations to the existing portfolio.

The company approaches this in several ways: it capitalises on popular brands by bringing new variations to market (such as Baileys Chocolat Luxe), renoses brands in response to drinkers’ changing demands (such as Pimm’s Cider Cup) and tweaks drinks in an effort to crack new markets or a wider consumer base (such as Smirnoff Ice).

The lab also created Guinness’ Hop House 13 Lager, Captain Morgan White Rum and Gordon’s Frozen Cooler, the pre-made gin-based slushie.

Speaking to investors last year, Menezes said that the company’s team is “moving with urgency, imagination and discipline”, which is “crucial” in an “increasingly dynamic consumer landscape”.

The innovation portfolio added £1.5bn to global sales in 2015, up from £700m in  2010.

In the UK, the unit is in its fourth year of continuous growth and now accounts for 12pc of Diageo’s British business, up from 4pc five years ago. In the first half of 2016, UK sales of innovation products were 21pc higher than last year, contributing an extra £7m in sales.

At the lab in Hertfordshire, the so-called “liquid scientists” are feeling the pressure of this achievement. “We’re actually being pulled from above rather than trying to push ourselves on to the business because of the success rate that we’ve had,” says Anderson, who has worked at Diageo for 24 years.

While it can usually take between one and five years for a product to be developed to full commercialisation – Baileys Chocolat Luxe, which Anderson calls “wizardry” because of the unlikely mixture of alcohol, cream and chocolate, took three years to create – the latest Pimm’s variety went from the initial idea to the supermarket shelves in six months.

“In September, we hadn’t thought of Pimm’s Cider Cup. By March, we’d launched it.” The pre-mixed cider drink, a relatively new category for Diageo, was the most successful new cider launch of 2015, outselling its rivals in its first two months on shelves by at least five to one.

“We do need to be commercially savvy, we need to think about how much money we make for the parent company and jump on opportunities we see,” Anderson says.

But she insists that the sense of creativity and experimentation that has driven the lab’s success has not been squashed by corporate ambition. Staff are still “encouraged to play” and often engage in internal competitions to see who can come up with the best drink – Diageo’s version of an office “bake-off”. In recent years, employees have battled it out over recipes for sloe gin, limoncello and elderflower champagne.

Earlier this month, the lab made the rare move of opening its doors to outsiders, inviting 11 of the UK’s best bartenders into its hallowed halls.

Competing in the final round of World Class, Diageo’s bartending competition, the participants were given one day to create a new bitters out of a previously unknown scent, choosing from a range including vetiver oil (woody, grapefruit), labdanum resinoid (smoky, liquorice) and pink pepperberry (spicy, blackcurrant).

Contestants huddled over clean, white stations in the lab – skinny jeans poking out from under pristine lab coats – were waving test tubes in front of their noses and scrawling formulas on the side of glass beakers.

Bringing together bartenders and Diageo’s scientists was driven by the idea that consumer tastes and changing lifestyles are as important as what is stirred up from on high.

While the rise of craft beers and artisanal spirit makers has been a thorn in Diageo’s side, it has simultaneously helped to create a new type of drinker – one to which the lab is well-placed to cater.

“Consumers are becoming more interested in ingredients,” says Daniel Dove, manager of World Class.

“Five years ago, in a bar, the consumer would have chosen a drink they felt comfortable with. Now, they will choose something new. Now, they want to know what’s in the drink and they want to be able to share that knowledge with others.”

Dove points to a cocktail of external factors that have changed the direction of the alcohol market, from the growing interest in food consumption and healthy living in general to the popularity of sharing one’s adventurous experiences on Instagram and Snapchat.

While those will keep Diageo’s scientists in gainful employment, Anderson believes that they are still several steps ahead of the consumer.

“Most of our innovation is proactive, but it can feel reactive by the time it comes to market – and that’s a good thing, because it means the consumer is ready.”

Her team is already cooking up what we’ll be drinking in 2020, although of course they are tight-lipped about specific products they are preparing for market.

But Anderson will say that she expects the current trends in flavours – such as culinary mixes, desserts and “things that are familiar but with a twist” – to stir up further sales and that we could see more collaborations with food, following on from the recent launches of Guinness sausages and Baileys ice cream.

She is also confident that wider issues such as responsible drinking and sugar consumption will come to play an increasingly important role in alcohol innovation.

When it does, her lab-coated team will be ready.

Telegraph.co.uk

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