Yahoo Finance Inside P Diddy’s attack on Diageo over its ‘racist kneecapping’ of his tequila brand
When Debra Crew agreed to take the helm of Diageo earlier this year, she spoke of her desire to enhance the world’s biggest spirits maker’s reputation as a “responsible business”.
Those hopes may already be on the rocks, however, after the maker of Johnnie Walker, Smirnoff and Guinness was accused of racism by the American rapper and entrepreneur P Diddy.
Diddy – real name Sean Combs – has worked with Diageo on two brands, Cîroc vodka and DeLeón tequila, over the last fifteen years.
But in a lawsuit filed late on Wednesday, the rapper claimed Diageo has not treated the brands with the same care as those owned by white celebrities such as George Clooney.
It is seeking a court order for Diageo “to provide the equal treatment” it “contractually promised”.
His company Combs Wines and Spirits, meanwhile, is seeking billions of dollars in damages in a separate lawsuit.
The high-profile legal challenge comes at a critical point for Diageo, whose longstanding chief executive Ivan Menezes is retiring after ten years in charge.
For Menezes, who will be succeeded by current chief operating officer Crew from 1 July, the lawsuit risks staining an otherwise solid reputation.
Since taking over the company in 2013, Menezes has cultivated the image of the alcohol giant as a benevolent, forward-thinking employer.
Earlier this year Diageo was named a top company for female representation at board level, while Menezes was honoured in a list of bosses who championed inclusion among ethnic minorities.
He has previously described himself as being “determined to remove barriers, while having a positive impact on our partners, suppliers, and communities: from the way we source service, to the way we progressively portray diversity through our advertising”.
The company runs a standalone business called Pronghorn in the US which is dedicated to “cultivating the next generation of black founders, executive leaders, and entrepreneurs” in the spirits industry.
Combined with an unrivalled marketing prowess that has turned Guinness, Johnnie Walker, and Smirnoff into household names, Diageo’s shares have been commonly touted as a sensible bet – if not a hugely dynamic one – throughout recent global turmoil, rising more than 23pc over the last five years.
Earlier this year, it emerged that veteran investor Warren Buffet had placed a bet on the alcohol seller, buying a £33m stake.
Maintaining an image as a strong and stable organisation has been key for Diageo. Sources say that reputation meant that in the past it would often seem like the company was being run by the head of investor relations (IR).
“It was such a darling of the City that Diageo wanted to be bang in line with expectations and it didn’t want any surprises for investors, and so the head of IR was across absolutely everything,” a source adds.
Yet court documents filed by Combs paint a drastically different picture of the company – one coloured by frustrations and warring between its brands.
Combs claims Diageo “kneecapped” the alcohol labels he worked with them on and had “typecast” them as “black brands” that should only be marketed to “urban” consumers.
Meanwhile, the company was allegedly ploughing resources into other celebrity fronted-booze brands such as Casamigos and Aviation Gin, fronted by George Clooney and Ryan Reynolds respectively.
According to the documents, major US retailers told Combs that Cîroc and DeLeón were positioned by Diageo as “ethnic brands”.
He also accuses the spirits maker of failing to give the products sufficient prominence in its marketing compared to others, pointing to the fact that a black whiskey blender brought a case against Diageo alleging racial discrimination last year.
Diageo denies those accusations and the case is currently in arbitration.
“Cloaking itself in the language of diversity and equality is good for Diageo’s business, but it is a lie,” Combs’ claim reads.
“While Diageo may conspicuously include images of its Black partners in advertising materials and press releases, its words only provide the illusion of inclusion.”
Diageo denies all allegations of racism in both cases, and plans to fight Combs in court.
“This is a business dispute, and we are saddened that Mr Combs has chosen to recast this matter as anything other than that,” a spokesman for the company says.
“Our steadfast commitment to diversity within our company and the communities we serve is something we take very seriously. We categorically deny the allegations that have been made and will vigorously defend ourselves in the appropriate forum.
“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.”
Former executives at Diageo shrug off accusations of type-casting when it comes to marketing to specific groups, saying instead the spirit owner may try to target certain brands to “hip hop lovers”, for example, but would not do so along racial lines.
Sources point to the partnership that Diageo and Combs had with Cîroc as an example of why wider claims that it was de-prioritising the tequila line do not stand up.
After all, it would be hard to write off the performance of Cîroc as anything but a success.
The rapper’s relationship with Diageo began in 2007 when Combs agreed to use his profile and platform to promote the then-struggling vodka.
Diddy’s star power certainly had an effect. According to the documents, Cîroc was selling around 75,000 cases per year in 2007. By 2014 it was selling 2.6 million cases – a fact which Combs attributes to his involvement.
One former director at Diageo says Cîroc made Combs “10s and 10s of millions of dollars for him, which is indicative of the kind of support that they generally offer”.
Bernstein analyst Trevor Stirling adds: “He’s on a little bit of a sticky wicket in the sense that clearly Diageo and he cooperated really well on Cîroc. That has been a huge success.”
While Combs alleges Cîroc has been sidelined in the US, the brand is also a best-seller in the UK and other parts of the world, locales to which the rapper does not have a connection.
However, in 2013, Combs and Diageo partnered again to launch DeLeón, a pricey “boutique” tequila whose bottles are sold for hundreds of dollars.
“Diageo was only interested in the ‘PR’ benefits of partnering with a black businessman,” Combs alleges, pointing to numerous instances of what he believes amount to a “refusal to abide by its obligations and promises” by the drinks company.
These include discontinuing a 375ml bottle of DeLeón which he says led to a decline in sales, making packaging changes, not following up with retailers who were potentially interested in stocking the brand and not supporting the brand with marketing.
But whether these events ultimately demonstrate a systemically racist approach by Diageo may be hard to prove.
“It’s debatable, maybe Casamigos and Don Julio are just better brands than DeLeón,” says Stirling. “So I think [Combs] has got a very hard job proving it in court that somehow this was a racist behaviour on behalf of Diageo.
“Diageo could have pushed the brands that are working. So there’s a little bit of a virtuous circle there in the sense that if Casamigos and Don Julio are selling well, it’s understandable that they would have a bigger distribution than DeLeón.”
Insiders at the company brush off the claims, with one questioning why Diageo would “hobble a brand, if it had the opportunity to grow”.
Priority in marketing, they say, is given to the brands which are growing the quickest. “It doesn’t make any sense,” one source adds.
Others close to the company claim that out of 100 celebrity spirit brands that are launched, 99 “won’t work”. One former director says that “more often than not, when they do work, that’s because the celebrities really put the hours in”.
No matter how much money Combs’ partnership with Cîroc has made, it is unlikely executives at Diageo will feel good about continuing with it with the company subjected to claims of racism – although the future of the agreement is not yet clear.
Diageo’s spokesman says: “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.
“While we respect Mr. Combs as an artist and entrepreneur, his allegations lack merit, and we are confident the facts will show that he has been treated fairly.”
