The company defines innovation broadly, encompassing everything from product development (which it calls 'liquid development') to technology and packaging.
According to Sheth, innovation is embedded in every market. Her 40-member team is global, but market-facing and as such, Diageo’s innovation pipeline is closely linked to market strategies.
What are Diageo’s key priorities in the region?
Diageo’s key priorities include ensuring brilliant execution of our premium core brands, accelerating the growth of Reserve, our luxury division, and innovating at scale. We’re also ensuring we have great routes to the consumer, which includes market, supply footprint and distribution. Finally, we make sure we have great talent to guarantee the success of our plans.
How are you achieving this?
We’re doing a lot of things around execution of our premium core brands such as Bundaberg, Smirnoff and Johnnie Walker Red. The Red Label Step Up programme, an educational programme created for people to learn about whiskey categories, is all about fantastic execution in venues where our core customers hang out.
As for innovation, we’re constantly creating exciting flavours and variants within our core brands. For example, the Smirnoff brand is experimenting with chili and honey in India, and Elderflower in Australia. We make sure we’re continuously keeping our brands vibrant through new initiatives.
We’re also offering consumers the opportunity to 'premiumise' and trade up. To that end, Diageo is investing heavily in Reserve. Our global Reserve team just moved to Asia, our centre of excellence for luxury. Diageo has launched finishing centres in Shanghai and Singapore for bespoke exclusive variants. Of course there are the Johnnie Walker Houses in Shanghai and Beijing, and we recently opened one in Seoul.
How do you see innovation and how critical is it?
Innovation is a key growth engine for Diageo. Over the last five years we’ve contributed £1.4 billion or $2.3 million. So if you look at North America, 73 per cent of innovation [new products] launched over the last five years are still growing at a fairly healthy rate. For our competitors, just 32 per cent of their new products are still in the market.
Innovation is embedded in every market, and we have dedicated resources focusing on it. The innovation team at Diageo is a global one but market-facing. This means we have the opportunity to share successes and ideas quickly, but ideas are based on local consumer insights. Therefore our innovation pipleline is closely linked to market strategies. Bundaberg rum in Australia is a good example of that.
What other areas does innovation extend to?
For us, innovation drives existing brands. Core brands remain relevant and vibrant and we extend them to new formats and reach new consumers. We also create new brands to unlock breakthrough opportunities.
Where do new product ideas come from?
We first start with the category or brand strategy. From there we look at opportunities and challenges. Ideas come from anywhere. Sometimes they come from consumers and other times from suppliers. In fact, some of our great limited editions have come from suppliers. We also learn from other categories and brands.
How big is the innovation team in Asia-Pacific?
We are about 40 people here. We have dedicated people in every market and we have functional experts supporting them in design and liquid development. We also have a lab out of Hong Kong, which develops liquids based out of Asian insights.
What is the big challenge in innovation?
I wouldn’t call it a challenge, but the one we’re working on is scale. APAC is very diverse and while we are great at pace and agility, scale is a key area of focus.
What are the trends you’re seeing in the region?
Luxury is absolutely key. There is a huge growth in high-net-worth individuals [HNIs] here. Almost 35 per cent of HNIs are based here. These consumers and their tastes are much more sophisticated. They are expecting more bespoke offerings.
Then there’s the generation-Y consumer segment, which has just come into legal drinking age. They are totally different in terms of how they behave. They are digitally savvy and they earn middle-class salaries but behave like premium consumers. These consumers are looking for more ways to express themselves.
We are also seeing growth among women drinkers. In Thailand, for instance, the number of women drinkers has tripled. Women are more empowered and looking for choices in drinking occasions.