Mark Kleinman on marketing and the City: brand 'copycats'

Mark Kleinman
Mark Kleinman

Diageo's 'copycat' case against Sainsbury's will have implications for all brand-owners and retailers.

Fresh fruit, cucumber and a sprig of mint may be the traditional accompaniment to that classic English summer drink, Pimm's, but Sainsbury's encounter with the Diageo brand looks set to prove an altogether more spicy affair.

The supermarket has been hit by a lawsuit from Diageo, the world's biggest alcoholic beverages company, over its Pitchers product, which Diageo alleges is a copycat version of Pimm's. Pitchers, claims Diageo, infringes its intellectual property rights, a charge the supermarket chain denies in the strongest possible terms.

Notwithstanding the apparent similarities between the labels of the two drinks, the legal action may also prove interesting as a renewed litmus test of the appetite of retailers and brand-owners to lock horns in the courts. Given what it may say about the fortunes of either side, shareholders in both businesses are likely to be paying close attention to the outcome.

'We can confirm that we have issued legal proceedings against Sainsbury's in relation to an intellectual property matter,' Diageo stated last week. 'It would be inappropriate to comment further other than to say that Sainsbury's is a valued customer of Diageo and we hope will continue to be so... It is Diageo's firm intent that our strong trading relationship should not be affected by this discrete dispute.'

Diageo's statement is as revealing for what it does not say as what it does. For much of the past decade, retailers and brand-owners have been embedded in a power struggle that has assumed huge importance for the manufacturers of FMCG brands.

The two sides have been able to work together more closely than was possible in the past, assisted by the availability of detailed sales and customer data that allow more effective NPD and targeted promotions. Tesco's acquisition of specialist CRM agency dunnhumby, more than five years ago, is now rightly regarded as one of the smartest acts of the management team assembled by Tesco chief executive Sir Terry Leahy.

Yet there has emerged another, more tense dimension to the relationship, which has sprung from the greater power that has coalesced among the major multiples in recent years. As they have spent millions of pounds building their own-label ranges, many of which now account for a significant proportion of their turnovers, an inevitable friction has arisen between the sides.

In addition, the recession has prompted the tightening of supplier terms by retailers and brand-owners alike. This is a more nuanced picture than it first appears. While the balance of power is often assumed to lie with the major retailers, recent changes to payments enforced by the likes of Diageo and Unilever have angered many smaller suppliers.

The Diageo-Sainsbury's dispute is far from the first of its kind. Most take place beneath the radar of public scrutiny, and much of the focus of Western multinational brand-owners has recently been steered toward emerging markets such as China, where the policing of intellectual property rights is far less rigorously enforced and the line between protecting brands and antagonising domestic political and commercial power-brokers can often seem a difficult one to tread.

Closer to home, Diageo's hope for its relationship with Sainsbury's to be unaffected by the Pimm's dispute might be borne out by events, or might turn out to be little more than wishful thinking. Either way, a win for the drinks firm will help brand-owners everywhere breathe a little more easily.
 
Mark Kleinman is the former City editor of the Sunday Telegraph. He will be joining Sky News as City editor, and The Times as a columnist, next month

30 seconds on Pimm's

  • Pimm's No. 1 Cup was a tonic invented by James Pimm, who owned an oyster bar in the City of London in the early 1840s.

  • The brew, formulated from gin, quinine and a mixture of herbs (secret, of course), was sold to customers as an aid to digestion. The 'cup' of the name referred to the small tankards in which it was sold.

  • Pimm recruited some of his clientele as financial backers and began to market Pimm's No. 1 commercially in 1859.

  • The drink soon became fashion-able and was shipped to all corners of the Empire.

  • Pimm's expanded its range with a further five variants in the aftermath of World War II. No. 2 used whisky as its spirit base, No. 3 brandy, No. 4 rum, No. 5 rye, and No. 6 vodka. Aside from the original No. 1, No. 6 is in the only variant still in regular production, but on a much smaller scale.

  • Pimm's No. 1 has an alcohol content of 25% before mixing - often with lemonade, pieces of fruit, cucumber and mint.

  • The brand entered Diageo's portfolio via precursor firm United Vintners & Distillers.

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