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Diageo plc (NYSE:DEO)

Brunch-Time Call with Regional President Conference

September 26, 2013 8:00 am ET

Executives

John Kennedy - President of Diageo Western Europe Operations

Analysts

Melissa Earlam - UBS Investment Bank, Research Division

Pablo E. Zuanic - Liberum Capital Limited, Research Division

Alex Illingworth - Artemis Global Select Fund

Laetitia Delaye - Kepler Cheuvreux, Research Division

Francois Mosnier - Exane BNP Paribas, Research Division

Martin John Deboo - Investec Securities (UK), Research Division

Operator

Hello, and welcome to today's Brunch-time Call with the Presidents. [Operator Instructions] And just to remind you, this call is being recorded.

Today, I'm very pleased to present John Kennedy, President of Western Europe. John, please begin.

John Kennedy

Good afternoon, everybody. Thanks for your time today. I'm going to talk to you about our business in Western Europe. This is Diageo's second largest market. Although, I think we'd all agree that given the recent economic environment we've had here has presented challenges even for a company with the type of brand portfolio that we have. I'm going to do a short introduction then spend a few minutes talking through the strategy for Western Europe and a bit of detail, but then we'll get plenty of time for questions at the end.

This is my first call with you, so let me just tell you quickly about myself and my background in Diageo. I've been with the company for the last 17 years. During this time, I've had the opportunity to work in marketing, commercial and general management roles in a number of countries. I spent 4 years as the general manager of innovation in our U.S. business, covering spirits and beer; and ran our Canadian business. And then I ran our Irish operation for a number of years before spending the last 2 years in Western Europe initially as the Chief Financial Officer and then, since last November, as President. And as part of that role, I now sit on the Diageo exec.

So right now, Western Europe is a challenging market. But with challenges come opportunities, and my job is to ensure we've got the right strategy in place to take advantages of. When we announced our full year results in July, we had NSV volume downgrade, NSV down 4, and operating profit down 7. Not figures that we're happy with, but they are the results of the difficult economic environment that consumers are affected by. And that continued obviously for almost 5 years now. However, I am excited about what we can achieve in Western Europe given our strength of brand and the strong commitment I've got from the team in this business.

Western Europe is an essential part of Diageo's nearly 30% operating margins. It's also a very profitable one. And that's why an improvement in performance in this market over time will continue to make a real contribution to delivering Diageo's performance ambition. And our team in Western Europe is well aware of that. We also feel like we're the spiritual home of Diageo with some of our greatest brands coming from this market. Guinness, Baileys, Johnnie Walker, amongst others, are all created here.

Now I think we've got the right strategy for Western Europe, one which will drive maximum value and one which I know the organization that we got in place has actually got the skill to implement well. To do this, what we're going to do is employ 3 core drivers that I'm going to just expand on now. Those are nurturing the equities of our premium core brands, driving our service portfolio and ramping-up our innovation agenda.

Let's start with the brands. We have some of the most iconic brands in the industry across all categories. In Western Europe, our premium core brands are Baileys, Captain Morgan, Guinness, J&B, Johnnie Walker, Smirnoff and Tanqueray. These brands account for nearly 60% of net sales in Western Europe and a little bit more in terms of profit. One of the first things we're doing is taking a very hard look at how we use our significant market investments effectively. And we're going through a process of very significantly acquainting our media spend across these brands. Our goal is for our brands to be the most talked about in the beverage alcohol industry, and what we do in terms of media investment is a key part of that.

So we've gone through a major project over the last 6 months. We've taken some of the learnings from our North American business where we saw a switch from small-scale activity to scalable pan-European programs makes it more effective and saves us money. So we've actually been able to put ourselves in a position for the beginning of F '14 where, over the course of the next year, our media spend will increase by nearly 50% year-on-year, all from reallocation of activities across our marketing portfolio. And this increased spend will fund an exciting program which we have in place for these core brands. The programs gives me confidence about the roles these brands are going to play in terms of improving performance for Western Europe.

I'm going to take the big ones and just give you a couple of highlights on each one briefly. We'll start with Baileys where we are on a mission to drive better engagement for the brands amongst our female targets through a range of initiatives. This Christmas, we've got a great new campaign to drive visibility to the store, plus a superb, new television ad. This is on the back of the launch of the new bottle earlier this year, which is a big step forward for the brand, more modern and elegant. We're very excited about it. We've also got a major launch with Baileys Chocolat Luxe coming onto the market right now. I'm going to give you some more details about that when I talk about innovation. So we've got plans in place to get better performance out of Baileys, and that applies across Eastern Europe and the key markets of GB, Italy and others.

J&B is our power brand in Spain. And our goal there, in a very tough market, is to slow the sales decline we've seen in the last couple of years. We've got a new brand position, which is brought to life with our living color [ph] ad campaign. We've doubled the media budget in out-of-home digital and print, and created a big experiential on-premise program for the brand. Starting to see results from that.

On Captain Morgan. The brand keeps going from strength to strength. And we've got new advertising rolling out this year that highlights the brand heritage through the Captain Henry Morgan campaign, plus 6 sampling and recruitment programs that have proven successful in many countries already. Our biggest focus is on the strong countries GB, Germany, Ireland, Benelux. But we also, in the last few months, launched in France and are getting very positive indications in the first few months from customers there.

Moving on to Walker. We're focusing our investment on the successful Where Flavour is King campaign in those markets where the brand is strongest. This is a proven campaign that drives brand reappraisal. We'll invest more as well behind Johnnie Walker Double Black in innovation. That got off to a great start in the last year.

Smirnoff is another major brand. For us, social media is critical for that brand. In June, we launched Mindtunes, a program where we work with people with disabilities to literally create music with their minds. The campaign has a great engagement from consumers and, within a month of launch, had over a million views of the music video supporting documentary that went with it. So it's been a positive reaction to some highly distinctive work. I'm also feeling like we've got some of the best stuff we've had on Smirnoff in a few years. We've launched Smirnoff Gold, another innovation which has got an outstanding customer support right now. We've also launched our next signature serve, Apple Bite. You may have seen the TV advertising already, but it looks very good.

Guinness is the biggest brand, and we'll continue to focus on the Made of More campaign which helped to drive share growth across GB and Ireland in the final quarter of last fiscal year, which was a great performance. Last week, we aired a new TV campaign featuring wheelchair basketball athlete Steve Hoffman. It captures the essence of kinship and loyalty among friends, telling the story of a group of men playing wheelchair basketball with a surprise twist at the end. We're out in a pretty significant way. Hopefully, you'll see that out, I think you'll enjoy it. It's getting global coverage, and we've got more than 5 million views on YouTube since uploading it a couple of weeks ago. We've got other advertising and another TV ad in the pipe for later in the year, so we feel like we're pretty well armed in terms of great communication on the brand.

There's also some good stuff going on in innovation. Guinness Mid-Strength is something excited about. It's the 2.8% ABV variance of Guinness. It's done well in Ireland. We're looking to try it this year in GB.

On Tanqueray, we've actually got double-digit growth in F '13. And this year, we're increasing our investment in Spain where the gin category has had a real resurgence, and we're well placed to take advantage of that. And across Western Europe, we're driving the Tonight we Tanqueray campaign which implements on trade activation of bartender communication, great glassware program. And we'll do another run of our limited-edition Tanqueray Malacca offer, which was a big, big hit with our on-trade customers last year.

Now those are some of the key programs on the individual brands. One thing I'd like to mention that enables all that work is what we do on Route to Consumer. Last week, some of you had heard Mark Barnard explain our global approach on Route to Consumer strategy. Let me just give you an example of how we're applying it in Western Europe to drive growth on these premium core brands.

On RTC, what we've done in Germany over the last few years is gone from having coverage in the off-trade of about 1,500 outlets, up to 6,000. And that put us at about 65% weighted coverage right now. That has been critical part of driving double-digit growth for the last -- each of the last 3 years in our German business. And we're getting feedback from our customers, we're #1 in the type [ph] survey among spiritîroc supplier. But we're not going to arrest on that success. We think we can get to 9,000 outlets in the off-trade by '17. And we've had a hard look at the on-trade where we believe there's an opportunity to more than double the coverage that we've got of that channel. That should underpin the sustainability of the growth that we've seen in the German business. And that type of approach, we're taking and applying to every country in Western Europe [indiscernible] of where we are and where the opportunities are to deepen the strength of our Route to Consumer.

Now the second pillar that I mentioned was reserve. So this has been an area of significant growth for Diageo globally and in Western Europe where, in the last 2 fiscal years, again in each year, we have double-digit NSV growth. Our luxury category in Western Europe is big, approximately 35% of global spend, and it's growing given our position of having the luxury capital of London, Paris and Milan here. We are attracting a huge amount of shoppers, wealthy shoppers, from other parts of the world.

Now prior to 2009, we had little focus on this portfolio. But what we've done is taken our global model and applied it rigorously, putting in place a specialized sales force of around 100 people now, and they are highly capable, very well trained, high-impact sale salespeople. Developing in-bar marketing programs for each of the key reserve brand that are getting a lot of traction. And pulling these innovation lever hard, particularly at the highest end of the range, which has been good for brand equity and good for margin growth. So reserve net sales are up 20% in the last 2 years. It's a business that size of Baileys in Western Europe, and we think there's plenty of growth potential because we feel like the market, particularly in spirits, is still relatively underdeveloped and will start to touch more categories, more the nature of spirit categories, as time passes.

Just to give you a sense of some of the things we're doing and are working. Johnnie Walker, the John Walker & Sons Voyager program where our luxury yacht docked in 10 ports around Western Europe after an extensive tour of Asia was highly successfully both in terms of brand impact but also selling through the sold-product [ph] policy that we have for that program. We have -- there's a capital room, which we viewed in Munich and Madrid, that's driving you to PR value. We actually, this year, had a European winner of the world's best bartender award through the World Class program. And that's, David Rios from Bilbao took the title on that. And we celebrated that as a finals on our luxury cruise liner which visited 5 ports around the Mediterranean. And then -- and we chose Europe, because it is the home of luxury, to actually host the finals for that event this year. So in a consistent reserve strategy across all our countries in Western Europe, we feel like we've got the infrastructure to continue to perform.

2 more opportunities just to highlight there. First, on malt portfolio, we've been focusing on Talisker, The Singleton and Cardhu. We'll be scaling-up execution of the simple program with whisky festivals and mostly food, which work well. We've also launched the malts.com, a website that teaches people how to enjoy whiskies. And secondly, we'll win -- we'll focus on winning and being very competitive in super premium vodka. The Cîroc brand has gone off to a great start in some of the capital cities, particularly London, and more than doubled in sales last year. And we're doing a good job of executing our top 100 nightclubs strategy. It's a really win in the right outlets with that brand.

Last piece, the coverage innovation, our third growth driver. You heard from Syl Saller back in May about how innovation is integral to Diageo's business. Western Europe is no exception. And in F '13, net sales growth of our new product was plus 29%, which is in line with Diageo's global average and makes innovation the single biggest growth driver that we've got in the business for this market. This success is the result of in-year launches and sustaining product brought to the market in the last 2 or 3 years.

In Scotch, Johnnie Walker Double Black and The Singleton sustained their impressive growth, building on previews years. We then launched Johnnie Walker Platinum and Gold Label Reserve, which have been very successful. In F' 14, we'll launch 2 new variants of Singleton: Single Malt Whiskies, which has a series [ph] of different types of cans; and through these different woods [ph], different generation of maturation creates different flavor profiles that we think will work well. So plenty of opportunity there.

We're also doing a lot more work on operating in scale in Western Europe. This goes back to our operating model. When we launch now, we want to go across many countries. Over the summer, we did that with Parrot Bay frozen cocktails. And early indications are very positive on that brand, particularly in GB and Ireland. And next up is Baileys Chocolat Luxe, which is going to launch across all markets in Western Europe or all countries within Western Europe. Very excited about that, a liquid that was 3 years in the making, Western Europe leading on the launch of it. It's a great story. Anthony Wilson, who's the son of Steve Wilson, developed this. It is Steve Wilson who developed the original Baileys formulation. And his son who is now -- who works for us has now developed this breakthrough new product. It's been in Harvey Nick's in GB and it's now available for sale throughout England and rolling into other countries. So a good pipeline of products are already in market, and a lot more to come there that give us a lot of confidence about innovation as a growth [indiscernible].

Before moving to questions, let me just give you a couple of top line comments on the trading environment as we see it. As I said earlier, this is still a region where the macro environment is challenging. And therefore, our aim is to stabilize decline -- the decline over the next couple of years. Well, looking at different countries within Western Europe, what we see is Great Britain, which was flat in F '13, pretty much unchanged in terms of market conditions. In Iberia, we expect the rate of decline to improve somewhat because there will be less destocking than there has been in the last couple of years. However, the consumer trends are still weak and there's tax increases that are just going in, so no consumer recovery there.

Ireland had a very tough F '13, particularly deteriorating conditions in the off-trade. We haven't seen a rebound in that, so have not counted that into our projections. We do expect better results in Northern Europe, Germany and Austria to continue to grow at double digit rates. And then lastly, we'd expect in France some improvements after lapping, destocking and the excise tax increase in January 2012. So I'd also expect the performance in our wine business to improve in F '14 following the 7% decline last year as we pulled out of some low-margin lines and lapped a couple of tough periods things like on comer [ph] sale.

On operating margin, it declined 0.9 points last year. We saw lower sales and a negative price/mix. I'd expect margins to decline again in F '14 but at a reduced level.

So to conclude, we do have the right strategy in Western Europe. And I think we've got the ability to execute it like we haven't had before. We -- when we put the off model in place a couple of years ago, the new operating model that really allows us to run one business at scale, it's given us real opportunities to execute this strategy more effectively. So we do think, with the focus on premium core brands, reserve and innovation, and continuing to build the runway for those programs to reach the consumer, we will get the best possible results out of the market. That gives me confidence that the team here can stabilize the decline in Western Europe over the next couple of years.

Let me pause there. And operator, I'll just ask you to open up the line, and we'll start the questions session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of Melissa Earlam at UBS.

Melissa Earlam - UBS Investment Bank, Research Division

John, just a couple of questions for me, please. You commented about how you expect the operating margins in Western Europe to decline again in 2014. Is that largely a function of operating and marketing spen,d, which seems to be the case particularly for the premium core brands? And then could you talk about any additional potential you see for cost savings in the region?

John Kennedy

Sure. On the margin and the marketing investments, we would -- the decline in the market and the op margin is partly due to a fairly stable overhead base but a significant decline in NSV last year. So that's what's most of the math. If you look at the marketing spend, there's a major upweight on the media element of the premium core brand, but we've been able to engineer that by reallocation within the total marketing budget. And what we found is, as we've set up the Western Europe market in the operating model, we're getting a lot more procurement savings because we're operating in scale, we're finding programs that work and insisting we run those across many countries rather than tailing [ph] country by country, which is reducing the nonworking investment in -- the nonworking euros in the budget. So that's in more of a reallocation. On the question on cost savings, I mean, with the way we're looking at the business is we think, on the structure and the overhead, we've got it about right, right now to compete well in the market. We then share [ph] and try to stabilize the business. So we're not looking at any significant change in total spend there. I think we will reallocate to frontline and we can come back to reach the consumer, but we see opportunities to reshape some of the overhead investments to make an even stronger sales organization. The other element of the equation is obviously the cost saves. And we are working very closely with our supplier organization on where we can drive our cost savings that we can actually use to invest in driving further growth in the premium core brands.

Melissa Earlam - UBS Investment Bank, Research Division

Just to clarify. We shouldn't expect a huge change in the marketing-to-net sales ratio year-on-year in fiscal '14, and the margin pressure is purely coming through from the negative top line, then.

John Kennedy

Yes, that's probably correct, yes.

Operator

Our next question is from the line of Pablo Zuanic at Liberum Capital.

Pablo E. Zuanic - Liberum Capital Limited, Research Division

Look, 3 questions. Number one, can you just give some color between beer and spirits and remind us how heavy is beer in Western Europe? I mean, is it 30% of sales? That's the first question. The second one, when we think in terms of this premium portfolio and the reserve portfolio, you said that you were under-indexed -- or euro is under-indexed in that sense. Can you just give us some reference points in terms of how much are you under-indexed compared to other regions? And the third and last, when we think of whisky in general, I understand that we're doing scotch, but whisky in general, is that category seeing a lot of entry from bourbon, or a bigger push by Beam, Brown-Forman and other companies? And is that a problem for you in Western Europe? I mean, are more those brands taking share away from your base scotch business?

John Kennedy

Yes. Could you just repeat that, the middle question? I didn't hear the whole thing.

Pablo E. Zuanic - Liberum Capital Limited, Research Division

Well, the middle question is more about you mentioned that, the reserve super premium category, whichever way you define it, you say that category is -- it's underdeveloped in Western Europe compared to other parts of the world. So just give us some metrics to put that in context and, especially, I think, what categories and how quick can that be improved.

John Kennedy

Yes, okay, yes. Got it, okay. So just thinking about the first one, on beer and spirits. So about 1/4 of our business is in beer in Western Europe, and the rest is primarily in spirits. The beer portfolio obviously fields very heavily toward GB and Ireland because of the strength of the Guinness brand. The -- if you look at the performance of the 2 categories, beer is a little bit weaker because we're operating in the Irish and the GB on-trades, which are 2 markets which have been tough for the last few years. So you get a slightly stronger trend in total spirit. On reserve, yes, we're -- we've been -- we're -- about 9% of our sales would be reserve right now. That's a little bit under what we see for the rest of the business, particularly in other developed markets like North America. And what -- where the big opportunity seems to be is not so much in whisky, where we have a very big and successful single malt business in Europe, but on the luxury and the other categories. So blended whisky, bourbon, tequila, vodka, all of those markets, all of those categories have seen very large levels of premiumization in markets like the United States. We think we're just at the beginning of that curve in Europe and, therefore, feel confident that those categories can drive significant reserve growth for a number of years. On the whisky question, in general, yes, I think what we're seeing -- to the specific question on bourbon, we think there's going to be an opportunity at the high end of bourbon. And we tend to play that as part of our reserve portfolio. So we think that's an opportunity. We have successful competitors like Brown-Forman who've done well. But we think that points more to the opportunity rather than a threat because Diageo only has about 20% share of the whisky market in Western Europe. And given we have the Johnnie Walker brand, our most valuable asset, with all the tools about how to -- in terms of global brand program, I think there's a lot of opportunities to do even better at whisky over time. And we're very committed, particularly with Walker, across Europe and then J&B, in particular countries to make sure those brands perform, yes.

Operator

Our next question is from the line of Alex Illingworth at Artemis.

Alex Illingworth - Artemis Global Select Fund

The increase in marketing spend, you talk about a reallocation from other areas. In what particular areas is that reallocation from?

John Kennedy

It would be -- I would try to give you a couple of examples. I think, broadly, we use the same kind of above-the-line, below-the-line classification you've seen in a lot of consumer goods companies. So there is -- the upweight in media is an increase that comes directly out of trade marketing, below-the-line promotional budgets. But what we've seen is we can take a program, like we've got a whisky festival program that works very effectively, however, we only ran it in 2 or 3 countries several years ago. We were creating different types of whisky programs across 9 or 10 different countries. We've collapsed all that, spent -- created 1 program, run that everywhere. So we actually think the below-the-line is as effective, if not more so in previously, but significantly cheaper. And that's where we've taken money and allocated into media which is a combination of broadcast media and digital, so the big social element as well as the mainstream media being used.

Operator

[Operator Instructions] We go back to the line of Pablo Zuanic of Liberum Capital.

Pablo E. Zuanic - Liberum Capital Limited, Research Division

Look, my question is not so much about current operating trends, sales or margins, but I'm just trying to understand the structure of the spirits business. So can you just give us more color in terms of, one, within spirits, what's the mix? How much is whisky or other brand spirits, how much is wine, how big is Baileys. Anything you can give in terms of color in terms of the spirits business in Western Europe would help. And then number two, when you said that your market share in whisky is 20%, can we just again provide more color there? Within whisky, you have scotch, you have bourbon, you have other types of whiskies. I mean, just give us more sense in terms of where the opportunity lies. I suppose it's not just in scotch. But just if you can expand on that.

John Kennedy

Sure, yes. I think, probably, just kind of giving you a sense of the scale of major brands would help you understand the shape of the portfolio. I mean, we've talked about Guinness, and the beer business in total being about 1/4 of our turnover. When you go into spirits on their own, what you would have are 3 or 4 very big brands. So we've got big presence in vodka with Smirnoff, a big presence in liquors with Baileys, a big presence in whisky with Johnnie Walker, primarily, but then in France and Spain with J&B. Those would be -- those brands would probably account for about 2/3 of our spirits sales. Now around that, we actually have a full range of offers within each category. And you ask about whisky, where if you looked at that business, the Johnnie Walker brand is you have Red Label, but then you have a significant Black Label business and a growing luxury business with label -- with the mark side [ph] blue -- Johnnie Walker Blue and a part of [ph] Go Reserve and Platinum. So we play at different price points. And then we have a very significant single malt business, one of the biggest in the world, particularly driven now in countries like France where our leading malts, which cover a broad range of price points, are extremely successful, so much so that it's the category where it's actually hard to provide enough liquid for the core brand to satisfy demand. So hopefully, that gives you a little bit more feel for the portfolio.

Pablo E. Zuanic - Liberum Capital Limited, Research Division

That's fine. And again, I'll just do a follow-up, and then I'm sorry to take up so much time here. But I was recently at a L'Oréal event in Paris, and they were explaining that, at least in the luxury business for their cosmetics business in France, 30% of the business in total in France comes from tourists, right? Now what I'm surprised is, obviously, duty free -- or well, at least you know, in duty free, this is going to be as the high end [ph] and all those stores. But these are brands that people are going to also buy obviously when they travel in China, in duty free. So I'm just trying to understand if there -- if it makes sense to try to make that analogy with liquor. I mean, why -- and we said liquor is 9%, right? But why -- is that 35% a number that -- why can't liquor be in the same league in that regard? And why is this so different? Is it more difficult to carry? I mean, at the end of the day, my argument is that, those people, let's say, from China, that account for 35% of the business of luxury cosmetics in France could have bought it in China, in duty-frees in Hong Kong or Singapore, in Asia. The same applies to liquor. So why -- what is it about cosmetics that it's different compared to liquor that liquor -- because duty free or luxury in general is so small compared to cosmetics?

John Kennedy

I don't know the exact numbers to -- in cosmetics to compare that. But we do think there's going to be very significant growth from the international tariffs. And there's no doubt that it's a different experience when you are in Paris, at Galeries Lafayette, versus buying it in duty free in Asia. So there's -- that's attractive. People are spending a lot of money. We're actually starting to run a program specifically for the traveler, including advertising from the airport, bespoke offers within the key department stores. And we're getting good traction on those. So I think there's always a bit of practicality in carrying liquids back on a plane with you. And it's a little bit more work. But we are actually seeing our customers and the end consumers are very open to us selling to them while they're traveling in Europe. So I think it's going to -- maybe cosmetics has been there longer, but I think we will grow that business significantly over the next couple of years.

Pablo E. Zuanic - Liberum Capital Limited, Research Division

I mean, my point -- and again I'm sorry. I mean, when -- I think we have Johnnie Walker House in Shanghai, then why not have something equivalent in Europe, anyway, for those tourists that walk buy your side [ph]. I mean, we have that. Or do you have it, do you find [ph]?

John Kennedy

Yes, we've looked at, do you create a bespoke retail environment. We haven't done it yet. It could be something that we do in the future. What we're starting with, though, is making sure that the actual offers that we have here are totally suitable for the international tariffs. I don’t know if you're familiar with what they're doing in Johnnie Walker House, but there's very specific Chinese limited-edition products that we're making sure are available to those shoppers when they're in Europe as well as when they're in China and making sure those are coordinated. So I think the first step will be better marketing, more sustained support, before we take the step of kind of a bespoke retail opportunity. But as it grows, we could look at that in the future.

Operator

Our next question is from the line of Laetitia Delaye of Kepler Cheuvreux.

Laetitia Delaye - Kepler Cheuvreux, Research Division

A quick question on media spend increase from a geographical standpoint. The big increase, is it focused basically on the markets of Northern Europe where we see the greatest growth? Is it pretty much evenly split? Is it some catch-up maybe in the Southern Europe where you've been maybe catching a bit investments over the past few years? Can you maybe give us some color from a geographical standpoint what this increase is about?

John Kennedy

Sure, yes. Laetitia, it's a combination of both. So we're actually investing more in media in pretty much every part of the business in F '14. What -- but it's not completely even, but we've taken a few examples of where we've got good growth and it can be accelerated. But we've also gone after a couple of pockets, and I mentioned J&B in Spain where we were just too light on our investment levels. And even though a brand in a country like that is in a tough position, it's still a very important business and has to have a competitive share of voice. So we've spread the investment around when we've done those job. And on that point in general, how do you balance your investment between growth and between protecting challenged businesses? We think the Route to Consumer work will help us in countries like Spain as well where we know that there's big opportunities to improve the strength of our on-trade sales force. And we're in the process of kicking that program off right now. So this, it will be a balance across driving growth in high-potential countries but also protecting the base in very high-value, significant markets like Ireland, Iberia, Italy and Greece.

Operator

[Operator Instructions] Our next question is from the line of Francois Mosnier of Exane BNP Paribas.

Francois Mosnier - Exane BNP Paribas, Research Division

Just a quick question on your comment that you had about Ireland, the on-trade, where you said you did not notice any recovery. This seems to be contrary to what we're seeing in the sales growth that Irish pubs are reporting. Can you comment a bit on that? Is that spirits -- is that an issue of spirits versus beer? Or is it a market share issue?

John Kennedy

Yes, the -- I mean, the Irish on-trade, I'm not sure what comments you're seeing recently, Francois. But all the numbers we're looking at, we focused it more on beer because it's a very big beer business for us. We're seeing a decline over the last year that varies anywhere between kind of 5% and 7%. That's a period of about a year ago when the government put in a tax increase of 20% on excise. And you've got a very price-sensitive consumer in Ireland. So there's been a moderation on that because we had a relatively warm weather over the summer so there are more people going to the pubs for at least a few weeks. But as we go into September and we look at the ongoing trend, it's about the same. There hasn't been any real recovery in that channel.

Operator

Our next question is from the line of Martin Deboo of Investec.

Martin John Deboo - Investec Securities (UK), Research Division

John, Martin Deboo, Investec. John, can you just remind us around the excise and regulatory climates in Western Europe, anything coming down the pipe in terms of excise changes or minimum pricing or anything else that's beyond business-as-usual increases?

John Kennedy

Once -- I mean, a sort of the biggest thing that we're paying attention to is, as governments goes through their fiscal correction and on-tariff programs, they moved away -- they tended to move away from direct tax and focus on indirect taxes. DAC and particularly excise are usually on the table as options. So if you -- I mean, if just look at the last year, across Europe, I mean, there would have been quite a broad range of tax increases in GB, Ireland, Portugal, Netherlands, Belgium, France in either-or spirits and beer. What will happen as we go forward? This is still being talked about. We're planning some excise increase right now. In Spain, we've just got one through. Ireland has got one on the table. GB has the ongoing duty escalator, which means plus 2% ahead of inflation each year automatically. So with the price-sensitive consumer, we think it's always a risk of dampening consumer demand by continuing to raise tax. So a lot of our efforts are on making the case with the government on the fact that, as they increase taxes, the actual tax paid can go lower because they go too high and push consumers away. We've also focused hard where we're being clear [ph] on, the hospitality industry, the level of employment that drives the importance of tourism to many of these countries. But it's an ongoing battle, and I think it'll continue for the next 3 years.

Martin John Deboo - Investec Securities (UK), Research Division

And John, a quick follow-up. You focused on lobbying to try and get more specific taxes rather than to lower them [ph]. Is that something that's important to you? Or are you relatively indifferent to that?

John Kennedy

Well, I mean, it's not top of the list. I mean, what -- really, what we're doing is paying attention to the country-by-country [ph] battles. And we would consider GB where if you look back the last 5 years in the level of duty for that bottle of spirits [ph] through the ongoing escalator, we think it's unacceptable. Really, it's a threat to our business and the industry. And our -- we worked hard and as an industry to see what we can do to change the attitude of governments around pulling that lever automatically each year.

Operator

[Operator Instructions] John, as there are no further questions in the queue, may I please pass it back to you for closing comments?

John Kennedy

Sure. Well, thanks again, everyone, for joining the call. I've been told we have quite a large number on the line, which is great.

Just to conclude this call. Having been in the -- this role for almost a year and have had a chance to really take a look at the business, the market and our prospects, I'm convinced about the right strategy for this business. We got a couple of core platforms, that we're going to have to put all of our energy into, around those core brands, around reserve and innovation and make sure that we've got the Route to Consumer to leverage our great offers across all 3 of them. It will be a tough economic and market environments for the foreseeable future, but we're determined to work very hard to make sure that, medium term, a couple of years from now, we're able to get this business back out of decline.

I look forward to talking to you about that as the journey progresses. Thank you.

Operator

This now concludes our call. Thank you, all, very much for attending. You may now disconnect your lines.

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