CLOSE-UP: LIVE ISSUE - DIAGEO. Trouble at Diageo as alcopop fad begins to dry up

Rachel Gardner reports on the drinks giant's response to the waning of alcopops.

In the latest TV ad for Bacardi, Vinnie Jones suggests to a crowded Cuban bar that everyone has a "Barcardi and coke". And, as Bacardi-Martini struggles to find a successor to its Tom Cat campaign for Bacardi Breezer, it's no coincidence that it is encouraging consumers to mix their own drinks.

The ad highlights a problem faced by many drinks companies: the fashion for ready-to-drink brands is waning. This trend is felt all-too keenly by Diageo, which, during the past decade, set much store by the ready-mixed market. It will come as no surprise, therefore, that last week Diageo admitted it is planning to shake up its advertising roster.

Diageo, one of the world's biggest drinks groups, reported a 12 per cent dip in turnover in 2002. The company revised its business plan following the alcopops boom in the early 90s to go all out to corner the youth market with ready-to-drink brands. In contrast, Diageo's closest rival, Allied Domecq, has invested heavily in exploiting the over-30s wine market: it saw a 16 per cent rise in turnover in 2002.

The more recent additions to Diageo's ready-to-drink portfolio, including Gordon's Edge and Archers Aqua, have failed to secure a niche for themselves. Indeed, despite having had a lot of money pumped into it, Gordon's Edge, the gin-based alcopop, was withdrawn earlier this year because of poor sales.

The market-leading alcopop, Smirnoff Ice, may have weathered the storm better - having established itself as a popular brand because of its link with the vodka brand, which has strong credentials - but it too has suffered falling sales.

Diageo also had a scare in the US, where the rum-based Captain Morgan Gold lost some £24 million in 2002.

The decline of the ready-to-drink category has prompted Diageo to expect more from its core spirits brands. However, according to recent figures from Mintel International Group, between 1997 and 2002 only Archers and Pimm's gained share in the mixable spirits market, while other major brands have either lost ground or remained static.

One industry insider believes many ready-to-drink brands, such as the ones in which Diageo has invested so heavily, are doomed to fade away as drinkers return to the ever-popular beer, lager and mixables. He says: "I think it is becoming a fad for too many of them. As the generation that really got into the alcopops gets older, they may move on to other drinks.

"It is highly competitive at the moment and more competition means each brand has to spend more money to get noticed. This in turn puts pressure on profits and makes it difficult to support the lesser brands."

The shift away from ready-mixed drinks has also been encouraged by the chancellor Gordon Brown's "nightclub tax". His April 2002 Budget increased the duty on alcopops by 11p per bottle. This will contribute, no doubt, to the 3 per cent fall in volume sales of Smirnoff Ice this year, predicted in Diageo's trading update for July.

Other pressures have emerged. For example, advertisers find they are increasingly required to follow the letter of the alcohol advertising rules or face the consequences.

Self-regulation rules state that alcohol advertising should not encourage excessive drinking, target the under 18s or associate drinking with success in the sexual arena.

And The Portman Group, which is responsible for self-regulation in Britain, is not afraid to bare its teeth. In May, the wine company Constellation Brands was forced to withdraw its newly launched alcopop, fcuk Spirit, after, in what observers regard as a landmark decision, The Portman Group ruled that it was more likely to appeal to under 18s than adults.

And it seems that even existing advertising is no longer getting through to consumers. Diageo roster insiders to some extent blame this on the company's formulaic approach to advertising - alcohol's version of Procter & Gamble. This has led to global alignments with global networks including J. Walter Thompson and Leo Burnett.

The theory is that such arrangements are not yielding the kind of cutting-edge advertising that is required to break into the consumer's consciousness. Mother's UK work for Pimm's is the exception to the rule and the Archers and Baileys reviews that emerged last week may signal Diageo's desire to increase its reliance on creative hotshops.

Diageo has invited its roster agencies, Bartle Bogle Hegarty and Mother, plus Fallon, to pitch against the incumbent, Saatchi & Saatchi, for its UK Archers account. The inclusion of Fallon, a non-roster shop, on the list seems to demonstrate the drinks giant's intention to find more creative solutions.

The brief for Baileys, and the agencies being asked to pitch for the account, have yet to emerge. The review, however, still testifies that more is expected from the brand, which, with its proven appeal to women, has the potential to pick up the slack left by the decline of the ready-to-drink market.

Diageo may employ some of the best, most innovative marketers in the world but, in contrast, it has developed staid relationships with global networks that could have passed their sell-by date.