It’s ironic that Allied Domecq’s shares dropped by 22.75p when the board announced an increase in pre-tax profits of 16 per cent, ostensibly because advertising and marketing spend had grown by just one per cent to £161m.
Surely this is the increased return on investment many shareholders look for, especially in more mature markets? Allied claims to be focusing on profit and shareholder value, and the evidence suggests this strategy is working. Why is Allied criticised for keeping spend only slightly ahead of inflation, and adopting a strategy of investment in the growing wine sector when the spirits market is in long-term decline?
Such resolute self-confidence shows a strategic maturity, which acknowledges that comparison with the Diageo monolith is invidious. It cannot be seen as virtuous to increase overall marketing by 13 per cent on priority brands, as UDV Guinness has done, and then exclaim that “increasing the advertising budget will not necessarily bring the sparkle back to neglected brands”. Allied has proved it can return strong profit growth and control expenditure, allowing for tactical acquisition of brands to boost its portfolio.
Surely an ordered acquisition of complementary brands will deliver “increased shareholder value” as opposed to the wholesale purchase of anything that comes up? Allied has had a few years to get used to the number two position it has enjoyed since IDV and UD merged, and has had time to think through its strategy. Perhaps we should praise Allied for being so focused on its strengths and refusing to play catch-up?
Of course, we must be mindful of some curious about-turns: the sale of the now legendary Plymouth Gin brand, for instance, has created a headache for Beefeater. But after the loss of champagne and vodka brands in the past few years, the acquisition of Mumm and Stolichnaya should fill the void in these categories.
Overall, Allied has got more right than wrong. That it can achieve growth on static spend is a trick most advertisers would wish to emulate.
Perspectives Red Cell