Why the Jygsaw deal isn't puzzling

It's just four years since Steve Perez, the boss of VK RTD firm Global Brands, told Off Licence News that he liked "being a thorn in the side of the big corporations ".

It was something of a surprise then when the biggest drinks corporation of the lot, Diageo, decided to place the sales and marketing for two of its minnow spirits brands - Myers's rum and Goldschlager - into Global's portfolio in the UK.

The

manoeuvre was part of a fledgling movement by big brand owners to hive off relatively low sellers to third-party agencies.

Scottish & Newcastle placed its Courage ale portfolio into a minority-owned joint venture with Wells & Young's last year, and followed it up with another JV for a clutch of second stream ale and

cider brands at the start of this.

That deal saw a group of former senior S&N executives come together as Jygsaw Brands and in turn form a joint venture, Heritage Drinks, with S&N to manage a line-up comprising

McEwan's, Younger's, Newcastle Exhibition, Woodpecker and Scrumpy Jack.

In a technically complex arrangement, the sales and marketing are licensed to Jygsaw, and the production is then contracted back to S&N. Jygsaw is also handling the marketing, but not the sales, of Newcastle Brown.

While the construction of the deal may be complex, the guiding principle is simple for S&N, and for Diageo in its own arrangement: the brands concerned are supposed to receive more marketing muscle as a result, leaving S&N and Diageo free to pump more staff time and cash into the likes of Baileys, Smirnoff, Foster's and Strongbow.

Jon Edwards, Jygsaw's marketing director, said: "There are some substantial brands involved, but it's very difficult to get the right level of focus in a company that's aligned around four major brands.

"The trade will see more activity on the brands we're handling, with the focus for the first few months on trading development, which will lead to more activity with customers."

As far as S&N is concerned, Edwards likens the arrangement to a "greenhouse, where they can take brands to nurture them".

He adds: "Consumers haven't fallen out of love with these brands even though they may not have been given the TLC they need."

Edwards says sustaining such brands also benefits the S&N production chain, supporting the economies of scale that allow what S&N calls the power brands at the top of the food chain to prosper.

For small to medium-sized operators, such deals offer the chance to add to the portfolio something that people in the trade have heard of, rather than face a Dragon's Den-style grilling from buyers about something that's just been knocked up by the lab, or unearthed by a brand manager while on holiday.

Global has some credible spirits in its portfolio,

such as Ypioca cachaça and Sobieski Polish vodka, but both are starting from scratch, and

Myers's rum and Goldschlager will instantly become the most famous brands in its spirits portfolio.

Myers's seems well-placed to make hay in the

revived rum market, but would struggle for space in a cluttered Diageo rum portfolio containing Captain Morgan and Morgan's Spiced, plus the top-end niche brands Zacapa and Pampero.

Goldschlager is a cinnamon schnapps laced with gold leaf, ripe for growth in the speciality spirits segment that's burgeoned on the back of cocktail culture, but always likely to lack the scale to get a mention in dispatches when the year-end results are announced.

James Pennefather, whisky brand director at Diageo GB, who has overseen the outsourcing deal, says: "This partnership will allow stronger focus to be put on two of our smaller brands to help unlock growth. We are hoping to see both brands grow by between 15 and 25% per year."

Perez at Global said two years ago that he was looking to take on second-string brands from larger firms and the Myers's/Goldschlager deal is the result.

He says: "Goldschlager is a very well-recognised brand and there is a huge opportunity for us to grow its market share."

Myers's, he adds, "is still relatively new in this market" and he foresees better distribution within Global's smaller family of brands.

Both these deals seem to have slipped by with little comment other than from those directly involved, but if Pennefather's predictions come to fruition there might be more to come. You can bet your life that people high up in companies

such as Pernod Ricard, InBev and Constellation will be watching keenly to see how the brands involved perform.

Pennefather says Diageo has "no plans at present" to outsource further brands, but leaves the door open by saying the company "will always look at options on how we can maximise

our brands".

And the Jygsaw arrangement allows the flexibility to take on other brands from S&N or other brand owners, if the business model proves successful.

If these two deals work, it will be no surprise to see other minor brands emerging from big brand owners' portfolios to find homes with other companies they've previously thought of as a thorn in the side.

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