When Andrew Morgan, now the boss of Diageo’s European region, ran the drinks group’s Spanish business in the early 1990s, his main problem was coping with the long hours. Working for a British company meant early starts, but conforming with the Spanish tradition of going out late meant burning the candle at both ends.

“It was pretty tough. Being in the drinks business, you would be expected to be out very late at night, which meant a very long day. In the south of the country, people would enjoy some kind of siesta, but that was less the case in Madrid, so you’d just go through the day.”

But old habits are changing as Spaniards eschew the siesta and adopt Northern European working hours, cutting back on late-night visits to bars and clubs. Throw in the impact of the recession, the smoking ban and a crackdown on drink-driving and it is not hard to see why the drinks industry is suffering a Spanish hangover.

This cocktail of woes in Spain dragged down the performance of the entire European region in Diageo’s recent half-year results. Net sales in Spain declined by 18 per cent and volumes by 20 per cent as the worsening economy led to a steep decline in consumer demand. Furthermore, Spanish drinkers, who normally set great store by favourite brands, traded down to cheaper products or simply stayed at home, drinking heavily discounted tipples. Even Diageo’s J&B brand, the country’s biggest-selling Scotch, did no more than maintain its share of the declining market.

Mr Morgan believes that although the recession has had a big impact, it has merely accelerated existing trends. “In the late Eighties and early Nineties, about 80 per cent of consumption of spirits in Spain was in the on-premises sector – bars and night-clubs – and about 70 per cent of that was consumed after 11pm,” he said. “There used to be more than 300,000 bars in Spain; today it’s close to half of that as the ‘mom and pop’ bars have closed.”

Mr Morgan, who has been president of Diageo in Europe since October 2004, said that while in Britain the smoking ban had been a big factor in pub closures, in Spain the ban was “not a big issue . . . A bigger issue has been drink-driving, which was hardly enforced at all until about two years ago, when police started cracking down. As a result, there’s been a move towards going out in local suburbs rather than going into the centre of town where you have to drive home. This trade comes earlier as well, when people tend to drink more beer and wine than spirits.”

He says that while the spirits market is declining, sales during the crucial post-11pm watershed are declining almost three times as fast. In addition to the drink-driving crackdown, there has been a shift to more normal working days, eating into traditional Spanish pursuits such as the two-hour lunch and the siesta, which in turn makes people less likely to go out late.

“There’s a competitiveness thing coming through,” Mr Morgan said. “People saying: ‘The day’s not long enough and I need to be in the office.’ People are now eating earlier. The consumption of spirits in that post-11pm slot is declining faster than the wider decline and you’ve got to assume that lifestyle changes will continue to impact on that consumption.”

Although the late-night market still accounts for 60 per cent of Diageo’s on-premises spirits sales, the challenge for Mr Morgan is converting early-evening beer and wine drinkers to spirits. He believes that the advantage Diageo has is the strength of its brands. “Taking on the beer brands is a big opportunity for us. I think it’s fair to say that beer brands don’t have the same cachet as spirits brands. J&B in Spain is nothing short of iconic. This is a brand that for a long time was able to run advertising without putting the brand name, just by featuring a piece of the packaging. It became a part of Spanish life.”

The problem is the alcoholic strength of spirits, not helped by the generous measures dispensed by Spanish bartenders, who usually hand-pour from a bottle at the customer’s table. “In consumer research, the comments you get are: it’s too strong, health concerns, drink-driving, it doesn’t go so well with meals, you have to be more responsible and in control at that time of day,” Mr Morgan said.

Yet Diageo’s research showed that early-evening drinkers were bored with beer and were looking for something more exciting, provided that it was not too strong. “We feel there’s fertile ground there if our offer was better tailored to that consumption occasion.” So Mr Morgan’s Spanish team is focusing on drinking in bars either side of the evening meal, with the after-work market seen as a big opportunity, as well as weekend lunch-times and early evenings.

Although Diageo ready-to-drink products such as Smirnoff Ice have flopped in Spain, Mr Morgan has not dismissed the premix market, while the popularity of the Spanish ritual of bringing spirits bottles, mixers and ice to the table may create an opening for cocktails. “There could be something there for us. We’re also looking at the area of dispense: are there other ways to dispense cold drinks that have an equal degree of prestige to the traditional ritual?”

It is clear that mitigating the decline of the late-night market will not be an easy nut to crack, but with Spain having proved to be one of Diageo’s most profitable markets for most of the past 25 years, it is a challenge the drinks behemoth’s European boss is determined to give his best shot.

Viva el botellón! Binge drinking, Spanish-style

Analysis: Botellón

It’s Saturday night in almost any Spanish city and hundreds of teenagers are standing around drinking and chatting.

What look like bottles of cola are being passed around – but take a slug and it is soon apparent that these bottles are laced with something much stronger. Welcome to the botellón – roughly translated as a mass drinking session – a phenomenon peculiar to Spain. The name is taken from the Spanish word for bottle and this is how Spain’s cash-strapped youth like to drink: to save them paying for expensive drinks in bars, they get out of their minds with DIY boozing sessions. The bar owners won’t thank them and neither will their parents – but they don’t care. It is a cheap, if noisy, scene, played out in cities across the country. This is where tomorrow’s drinkers learn how to take their booze.

Some local authorities in Spain are trying to organise special areas outside city centres where the kids can drink themselves into oblivion without annoying the neighbours. But, of course, this means that drinkers are further away from bars and clubs and they lose even more potential customers.

These noisy gatherings have been exported to other Southern European countries, igniting the wrath of middle-aged city dwellers.

In reality the botellón is the Spanish version of that weekend British past-time: binge drinking. Now binge drinking has arrived on the shores of the Mediterranean, to the consternation of authorities, who have introduced programmes alerting young people to the perils of heavy drinking.

Not all Spanish teenagers are alcoholics in the making. In fact, in recent years Spanish teenagers are generally drinking less.

The difference is those that do like a tipple are hitting the bottle harder.

(Graham Keeley)

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