1. Joe Camel in a Bottle: Diageo, the Smirnoff Brand, and the Transformation of the Youth Alcohol Market James F. Mosher Alcohol Policy Consultations National Electronic Seminar sponsored by the Underage Drinking Enforcement Training Center, April 19, 2012

2. Diageo: The Innovator of the Distilled Spirits Industry Formed in 1997 when Guinness and Grand Metropolitan merged, becoming the largest distilled spirits company in the world. Formed in 1997 when Guinness and Grand Metropolitan merged, becoming the largest distilled spirits company in the world. Determined to expand the U.S. market, which has been dominated by beer. Determined to expand the U.S. market, which has been dominated by beer.

3. U.S. Per Capita Consumption By beverage type (14 years+) Source: Impact Databank

4. Consumption Trends: Types of Distilled Spirits 1970-2000 (Millions of gallons) Source: Impact Databank

5. Underage Drinking: A Critical Component of the Alcohol Market Those who begin drinking before age 15 are four times more likely to become heavy consumers than those who wait until age 21. Those who begin drinking before age 15 are four times more likely to become heavy consumers than those who wait until age 21. Underage drinkers consume 10%-19% of the alcohol market (almost all of which is consumed in binge drinking episodes), producing $10-$20 billion annually. Underage drinkers consume 10%-19% of the alcohol market (almost all of which is consumed in binge drinking episodes), producing $10-$20 billion annually. CAMY, 2010; Foster, 2003

6. Beverage Choice for 12 th Grade Binge* Drinkers *5+ drinks in one setting Source: Monitoring the Future

7. Alcohol Industry “unwanted” consumption and sales, 1999 Foster, 2003

8. Diageo: Competing with Beer Beer has significant marketing advantages over distilled spirits particularly for young drinkers: Advertising on network television; Lower tax rates; (In Maryland: $.09/gallon for beer; $1.50/gallon for distilled spirits) More retail outlets (In Montgomery Co. MD, 298 beer outlets compared to 25 spirits outlets).

10. Create a malt-based, low-alcohol beverage with distilled spirits branding that is appealing to young drinkers, particularly young women, and regulated as beer. The Answer

12. Developing Brand Loyalty at an Early Age “Diageo rolled out Smirnoff Ice in the US market...it suddenly put the once-stodgy Smirnoff name on the tips of millions of echo boomers’ tongues” – (Impact, May 15, 2003) Echo Boomers:  Americans born from 1980-1995  8 – 23 years old in 2003

13. “The beauty of this category is that it brings in new drinkers, people who really don’t like the taste of beer.” Marlene Coulis Director of New Products Anheuser-Busch Co. Advertising Age April 22, 2002

14. Average Age of First Use of Alcoholic Beverages among those under 21: 15.9 years old. Every day, 2,500 young people under 15 years old started drinking. Who are “New Drinkers”? SAMHSA 2010

15. Smirnoff Vodka and Smirnoff Ice Advertising Expenditures (U.S., millions of dollars) Source: Impact Databank

16. Smirnoff Ice Advertising 2002 1,533 television ads placed in media programming that overexposed youth, 26.3% of all Smirnoff Ice TV ads These ads cost $6.9 million, the sixth most spent on overexposing ads for any brand (behind only the most popular beer brands) Source: CAMY

17. Smirnoff Ice Laundry

18. Smirnoff TV Ads Violating Industry Voluntary 30% Underage Audience Composition, 2005 Smirnoff Ice: 1,318 ads, $1.1 million, 46.4 million youth impressions Smirnoff Ice: 1,318 ads, $1.1 million, 46.4 million youth impressions Smirnoff Vodkas: 337 ads, $463,000, 43.2 million youth impressions Smirnoff Vodkas: 337 ads, $463,000, 43.2 million youth impressions The brand with the second most violating ads (behind Corona beer) The brand with the second most violating ads (behind Corona beer) Source: CAMY

19. Television Advertising Placement: Youth Audience Overexposure Source: Center on Alcohol Marketing and Youth

20. Smirnoff Vodka TV Commercials, 2007 Smirnoff Vodka TV Commercials, 2007 Rated the worst vodka brand for placement in youth-oriented television programming Rated the worst vodka brand for placement in youth-oriented television programming Center on Alcohol Marketing to Youth

21. Smirnoff Marketing: Going Viral Smirnoff Vodka I Phone App Smirnoff Ice Drinking Game

23. Alcopop Brand Preferences: Underage Drinkers vs. Overall Market 5 State Survey, 4075 Respondents, 2004 54% 21% 11% 14% Wolfson M. et al. “Flavored Malt Beverage Use in a Multi-state Sample of Adolescents”, Wake Forest University, December 2005; Impact Databank 38% 9% 15%

24. Seven Leading Youth Alcohol Brands: Any use and binge drinking, past 30 days Pilot study, 2011, N=108 Siegal et al. 2011

25. Beverage Preference, 9 th -12 th Grade Girls (30 day prevalence, 2005) Centers for Disease Control, MMWR, July 27, 2007

26. U.S. Per Capita Consumption By beverage type (14 years+); Gallons of Ethanol Source: NIAAA

27. U.S. Per Capita Consumption By beverage type (14 years+); Gallons of Ethanol Gallons of Ethanol Source: NIAAA

28. Beverage Choice for 12 th Grade Binge* Drinkers *5+ drinks in one setting Source: Monitoring the Future

29. Consumption Trends: Types of Distilled Spirits 1970-2000 (Millions of gallons) Source: Impact Databank

30. Consumption Trends: Types of Distilled Spirits 1999-2009 (Millions of gallons)

31. Smirnoff Vodka Sales 1990 - 2006 (U.S., thousands of nine-liter cases) Introduction of Smirnoff Ice Source: Impact Databank

32. Alcopops aka Flavored “Malt” Beverages “Flavored malt beverages exhibit little or no traditional beer or malt beverage character. … Brewers … remove the color, bitterness, and taste that are generally associated with beer. … This leaves a base product to which brewers add various flavors, which typically contain distilled spirits, to achieve the desired taste profile.” Federal Alcohol and Tobacco Tax and Trade Bureau (TTB) Description of “Flavored Malt Beverages” (Alcopops)

33. Why Distilled Spirits Are Added to Alcopops According to the Flavored Malt Beverage Coalition: “Flavoring ingredients that are added to a malt beverage base to produce an FMB need to be stronger … because of the pronounced organoleptic [sensory] qualities of the base itself.” Fact Sheet, February 2003 Fact Sheet, February 2003

34. Alcohol Derived from Added Distilled Alcohol Flavorings Alcohol Percentage Derived From Added Distilled Alcohol Flavors Number of Flavored “Malt” Beverages 0-25%4 26-50%0 51-75%5 76-100%105 Maximum Alcohol Derived From Added Alcohol Flavors: 99.98% Total: 114

35. Volume of Beer Base Present in Flavored Malt Beverages Volume of Flavored “Malt” Beverage Derived From Fermented Beer Base Number of Flavored “Malt” Beverages 0-25%95 26-50%4 51-75%1 76-100%14

36. Production Schemes to Gain Regulatory Advantage Smirnoff Ice has a different formulation in the United States than in other countries where it is identified as a spirits-based beverage.

38. Alcopop Classification: State Attorneys’ General Opinions CA Alaska Hawaii NE MD ME State Attorney General Opinion for Reclassification State Attorney General Opinion Opposed to Reclassification CT

39. Alcopop Classification: Nebraska 2003:Nebraska Liquor Control Commission rules alcopops are distilled spirits, but suspends ruling pending federal rule making. 2005: NLCC reverses 2003 ruling, adopts federal rule. 2006:Nebraska Attorney General issues opinion supporting NLCC ruling. March 2, 2012: Nebraska Supreme Court rules alcopops are distilled spirits under Nebraska law April 2, 2012: Nebraska Legislature overrules Supreme Court and adopts federal rule.

40. Guy Smith “Reputation & Crisis Management” Expert 2000-2008: VP for Marketing Public Relations, Diageo 1998-1999: Special Advisor to President Clinton 1975-1992: VP-Corporate Affairs, Philip Morris Company

41. “In our marketing activities, we never target people under the legal purchase age.” Diageo Corporate Citizenship Report, 2003.

42. Supersized Alcopops: “Binge in a Can”

46. Diageo’s CEO Paul Walsh “Diageo chief executive sees salary package hit £3.5m [$5.45 million] as 900 lose jobs” 2009 news headline Salary the following year: $9.4 million

47. The Creators of Colt 45 Blast Evan and Daren Metropoulos “We want to win. We want to blow these brands out, explode them, and make everyone lots of money.” Evan Metropolous

48. Possible Unfair Business Practice Allegations Tax fraud Tax fraud Youth market targeting that encourages illegal behavior Youth market targeting that encourages illegal behavior Unfair competition Unfair competition

49. May 19, 2011 Maryland Raises Alcohol Tax

50. Voter support for dime-a-drink, Maryland 2010

51. Contact Information Jimmosher@sbclgobal.net www.alcoholpolicyconsultations.com