What caused Diddy to turn on Diageo?

What caused Diddy to turn on Diageo?

After a successful and lucrative partnership on vodka brand Ciroc spanning more than 15 years, Sean Combs filed a law suit against Diageo this week, accusing the business of racism and neglect. Whatever the outcome, it looks like the end of the relationship.

Back in 2007 Diageo had a problem. The vodka category was exploding. First Belvedere and then Grey Goose transformed and premiumised the previously low to middling world of vodka. While Diageo had splendid brands like Kettle One and Smirnoff, these weren’t the kind of super-premium brands that were now experiencing growth at the top of the market.

The company tried with a higher end vodka called Ciroc. But its original position as a vodka made from French grapes and a luxury status just did not work that well. Despite huge support from Diageo, the brand was doing less than 3% of Grey Goose’s sales volume. Something had to be done. And in a move born more from desperation than strategy, the senior team at Diageo called Sean Combs, aka Puff Daddy, aka P Diddy, aka Diddy, aka Brother Love, aka the Man That Might Save Our Vodka.

What happened next qualifies as easily one of the most impressive and outrageous business negotiations of all time. A legendary moment in the world of wine and spirits that those in the know still ruminate about over a stiff drink and with raised eyebrows – some 15 years after it all went down.

Diageo asked Diddy to become a brand spokesperson and proposed a fixed fee for his services. But Diddy wanted more than a superficial relationship. Tired of selling other people’s products, the wily entrepreneur now wanted a slice of the action. “I’ve gotten to the point where I don’t want to do just endorsements,” Diddy told the executives that day, “I want ownership”.

So a different deal was done. Diddy asked to become both the brand manager and chief marketing officer of Ciroc. He had the business cards made. And his asking price was half of all the brand’s subsequent profits from this point on. Faced with a dwindling brand and no alternative options, Diageo agreed.

Diddy should also be looking at himself and his own marketing vulnerabilities for explanations for the brand’s slight decline.

The rapper had an immediate impact. His extraordinary popularity, influence on the nightclub scene, grasp for modern culture and a genuine gift for publicity and promotion turned Ciroc from a tiny beverage oddity into one of the hottest brands in wine and spirits in a matter of months. From a standing start of less than 300,000 cases in 2007, Ciroc regularly exceeded 2.5 million cases in the years that followed.

That growth, the inherent profitability of vodka and Diddy’s very special contractual arrangement all combined to make him the richest rapper of all time. He was already a multi-millionaire thanks to his record deals and ownership of Bad Boy Records. But most conservative estimates suggest Diddy earned more than $50m every year since 2007 from his vodka deal. Much of Diddy’s $1bn fortune was made thanks to his partnership with Diageo.

A turning point

But things turned sour this week. A suit filed on Wednesday in a US court claims Diageo executives have “put their feet on the neck of Mr Combs’ brands”. The rapper is claiming Diageo is neglecting his brands partly because many of its executives now resent Diddy for “making too much money” but also because of inherent racism across the senior management team at Diageo. The suit is seeking “billions of dollars in damages due to Diageo’s neglect and breaches”.

And it concludes with a direct accusation of corporate bigotry and hypocrisy. “Cloaking itself in the language of diversity and equality is good for Diageo’s business, but it is a lie,” the lawsuit claims. “While Diageo may conspicuously include images of its black partners in advertising materials and press releases, its words only provide the illusion of inclusion”. He is not fucking about.

Diddy’s accusations appear unlikely. Diageo repeatedly scores at the apex of pretty much every DEI index known to man, woman or other. Its existing management teams are already diverse by the Nordic country club standards of multi-nationals and Diageo has set an ambitious target of ensuring 50% of its leaders are women and 45% come from ethnically diverse backgrounds by 2030. There are an enormous number of corporate fuckers out there and the lack of diversity and inclusion in marketing and across business remains a gigantic issue, but Diageo? Really?

The company has quickly and solidly denied the accusations. “For more than 15 years, we’ve had a productive and mutually beneficial relationship with Mr Combs on various business ventures, making significant investments that have resulted in financial success for all involved,” a Diageo spokesperson said this week. “We are disappointed our efforts to resolve this business dispute amicably have been ignored, and that Mr Combs has chosen to damage a productive and valued partnership.”

What has changed?

So where does Diddy’s frustration come from? After so many years and so much money, what has led him to turn on his partner? There would appear to be four issues.

First, Ciroc is a declining brand. It is still mighty and astonishingly profitable but its heyday was a decade ago. Unit sales have been gradually shrinking in recent years – partly as low barriers to entry allow a cavalcade of other vodka rivals into the scene and partly because of the strength of the rum and tequila categories in recent years. It’s also true that a decade at the top in the fickle, fabulous world of spirits is an amazing achievement. But keeping any brand at the top of this dynamic category for longer than that is incredibly tough.

Diddy should also be looking at himself and his own marketing vulnerabilities for explanations for the brand’s slight decline. He was the “CMO” after all. Instead, he has convinced himself that Ciroc’s decline is down to Diageo’s “neglect” and a dirty undercurrent of racism.

Second, a lot of that neglect centres on Diddy’s accusation that Diageo is limiting Ciroc to “urban” market segments thereby restricting broader appeal and heftier penetration. The lawsuit cites an alleged conversation between Diddy and a Diageo executive who told him that his brands would have had been granted wider distribution had “he been Martha Stewart”.

Ciroc’s very best days were probably behind it but barrels of salience, acres of physical availability and a ludicrous gross margin meant another slightly slower fortune was still left for Diddy to accumulate.

If true it’s an odd and ungainly way to make a marketing point. Diddy is wildly popular with certain sections of the market and those sections are the ones where, quite obviously, Diageo doubled down. The problem for the company is that Diddy, and a significant number of other experts, believe that hip hop became mainstream many years ago and that popularity would legitimate a broader, more ambitious marketing strategy.

The third issue is DeLeon. In 2013, Diageo and Diddy tried to do it all over again with the super-premium but super-unknown tequila brand. But lightning did not strike twice and DeLeon has never taken off anything like Ciroc did. Diddy blamed Diageo and cited poor pricing, packaging and a lack of investment in the brand. He then had to watch Diageo buy George Clooney’s tequila brand Casamigos for a cool billion dollars and then keep watching as the brand quickly grew to become the number one selling brand in the category.

Finally, the case is also your weekly reminder of just how fucked up business in the United States is at the moment. The suit notes that its case is “similar to the realities experienced by many people of colour in the United States”. And whether you see this as the story of a black entrepreneur whose brands are being neglected by an endemically racist corporation or an incredibly greedy, slightly deluded artist who sees an opportunity to make money from shaming a perfectly good company into paying him even more money – either way it’s prime evidence of how FUBAR American marketing is at this present moment.

Diageo does not seem shaken by any of this. The language the company used in its statement in response to Combs smacks of finality, almost referring to the Ciroc deal in the past tense.

That’s a sad situation. Sure, Ciroc’s very best days were probably behind it but barrels of salience, acres of physical availability and a ludicrous gross margin meant an additional fortune – albeit a slightly slower and smaller one – still awaited Puff Daddy.

Not anymore. It’s hard to see how either party can step back, shake hands and continue after this week’s events. One of the great marketing partnerships of the 21st century now appears to be on the rocks.