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Diageo plans 'could ruin Scotch whisky'

Published: 08/07/2009

By Gerri Peev and David Maddox


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DIAGEO'S plan to end Johnnie Walker's historic links with Kilmarnock could be the beginning of a process that will destroy the Scotch whisky industry, MPs have warned.

In a rare show of unity, MPs from the four main political parties in Scotland have sent a letter to the company's chief executive Paul Walsh demanding that he reverses the decision to close its Kilmarnock plant and a 200-year-old distillery in Glasgow.

The politicians claimed Scotland's links to premium whisky would be irrevocably severed if packaging operations were moved away.

And they argued that if Diageo got its way over moving Johnnie Walker from the town of its birth, then it was capable of breaking Scotland's link with the product, too.

The MPs said the end result could be the bottling of whisky overseas, especially in the growing markets of India and China.

This, they said, would seriously damage Scotland's premium product, as well as bringing about the loss of thousands of jobs and billions of pounds from the economy.

However, a spokesman for Diageo accused the MPs of overreacting. "We fully appreciate that emotions are running high, but we reserve our right to have undertaken a major review of our business in Scotland," he said.

He claimed the firm was committed to working with politicians and was taking its consultation process seriously.

But he warned: "We are concerned that political intervention and speculation may create a more anxious environment for our employees and could be counter-productive to the consultation process."

The case put forward by the MPs has been backed by Alan Gray, of Sutherland and Partners in Edinburgh, one of the country's foremost whisky business analysts. "I would go along with what the MPs are saying completely," he said.

"I think there is a danger that this could develop into something more and that bottling could be moved outside Scotland."

He said that, currently, just over 85 per cent of whisky was bottled in Scotland and the loss of this would lead to large-scale job losses in bottling plants and transporters. Mr Gray warned that Diageo's current plans to rationalise bottling in Fife followed similar moves by other major whisky producers.

Allied Distillers recently moved all its bottling to a single plant near Dumbarton.

But even more importantly, he said that bottling outside Scotland would damage the image of the product, worth just over £3 billion in export sales and even more in the domestic UK market.

For whisky to be classified as Scotch, it needs to be produced in Scotland, but Mr Gray said: "If it is not bottled as well in Scotland, that breaks an important link with the country, which I believe will seriously damage the product."

He added: "It would be a tragedy if bottling was moved abroad.

I may be wrong, but we will not know until it happens, and then it may be too late."

At a press conference in Westminster, Alistair Carmichael, the Liberal Democrat MP for Orkney and Shetland, attacked Diageo's "shabby" treatment of its workforce in Kilmarnock.

And he warned the company's move could push the native whisky industry into terminal decline, like the steel and coal industries.

"If you allow the link to be broken, then ultimately it will lead to the destruction of the Scottish whisky industry and to the destruction of the Scottish economy," he said.

Whisky accounts for one in 50 jobs in Scotland, employing about 10,000 people, with a further 30,000 jobs indirectly reliant on it.

Mr Carmichael added: "What we have here is a product that we alone have as a country.

"This is not just about the work force – it is about the fate of the industry. What is being proposed here could ultimately do to our whisky industry what happened to our steel industry and our coal industry."

Des Browne, the Kilmarnock and Loudon MP and former Scottish secretary, warned the company that it risked destroying its brands if it started moving bottling operations overseas.

"You interfere with that link (with Scotland] at your peril. Eventually you destroy what people are buying, which is the provenance of the product."

Mr Browne denied that he was being alarmist and pointed to comments by the chief executive of Diageo Scotland that he had not ruled out moving packaging abroad.

"Twenty per cent of Scotch whisky is bottled abroad. There is no protection for us," Mr Browne said.

"This is about Scotland standing up for Scotland."

Angus Robertson, the SNP's Westminster leader, said it was difficult to reconcile Diageo's decision to axe so many jobs when the company had made a profit of £1.6bn.

Shadow Scottish secretary David Mundell warned against allowing Scotch whisky to become some "generic" product that could be manufactured anywhere.

"This is potentially a slippery slope and this is the point where we must say we have got to hold the line," he said.

A malt whose name began to melt

THERE have been doubts over whether Diageo is a suitable custodian of the heritage and history of Scotch whisky ever since the drinks giant made a botched attempt to "modernise" single malts.

In 2003 it relaunched its Cardhu brand from being a traditional single malt to what it described as a "pure malt". This meant the drink was produced in several different distilleries.

Diageo described the move as an innovation and denied criticism that it was undermining the whisky brand.

At the time the company claimed that the term "pure malt" was not a new one and that it was using a well-known definition for vatted malt whisky.

Jonathan Driver, Diageo's then global brand director, added: "So this is an innovation to seek to look after two assets: the value of Cardhu as a brand and the place of Scotch whisky as a category in the hearts and minds of these consumers."

However, the product sparked fury in the whisky world led by the Grant family, powerful owners of the Glenfiddich distillery in Speyside. The family firm turned the issue into a political one by writing to every MSP, accusing Diageo of "gambling on might being right".

Eventually the critics forced Diageo to withdraw all its Cardhu bottles from the European market. The product was redefined as blend malt whisky and the Cardhu single malt was reintroduced.

The compromise still left many unhappy because it was seen as a "stitch-up" by the big companies against the independent producers.

When the agreement was reached early last year, John Glaser, director of specialist Scotch whisky maker Compass Box, described it as bad for business.

"My main concern with this is about consumer confusion and the potential dampening of sales to products forced to carry the term blended malt Scotch whisky," he said.

Others described the new label as "ludicrous" and questioned why the Scotch Whisky Association had even allowed it to happen.

And the episode has left deep rifts within the industry and allegations that an old boys' network was preventing new ideas and innovation.

Now the decision by Diageo to close the 200-year-old Dundas distillery in Glasgow and end Johnnie Walker's 179-year link with Kilmarnock has raised concerns that the company is trying another "innovation" which could seriously damage the Scotch whisky brand.

The fear is that by ending historic links with locations and particular brands of whisky the company is preparing for a much bigger push taking whisky out of Scotland.

Already, between 15-20 per cent of whisky is bottled outside the country and there are concerns that this will rise, especially as Diageo tries to push into the emerging markets of India and China. Bottling in those lands would save huge amounts of money, but it would also damage the image of a premium product and its historic link with Scotland.

Diageo's influence in whisky market has been increasing over the years. It owns 28 of the 100 whisky distilleries in Scotland and controls around one third of the products.

These include some of the industry's most famous names – Lagavulin, Dalwhinnie, Talisker, Oban among its single malts, and Johnnie Walker, Bells and White Horse among its many blends.

If it makes a move then it seems others may follow.

Diageo denies land plans linked with possible plant closure

PLANS to redevelop land near the Johnnie Walker bottling plant in Kilmarnock have nothing to do with the possible closure of the operation, drinks firm Diageo claimed yesterday.

The company issued a statement after it emerged that it had submitted a planning application for houses on land connected to the plant.

The firm – which submitted the proposals with East Ayrshire Council for the residential development on 6 April – admitted the timing of an application was "unfortunate".

The move has prompted fears that bosses had already made their minds up to shut the Kilmarnock bottling plant, with the loss of about 700 jobs.

Diageo insisted the application to build the homes – on existing recreational land, woods and a staff car park – was not linked to the closure plan and had been under consideration for five years.

But Kilmarnock and Loudoun MP Des Browne said: "This is potentially explosive. The discovery suggests the company may have been planning to close the plant for some time.

"If so, they have been pulling the wool over everybody's eyes. It makes me doubt their claim that Diageo discussed possible closure with their staff as soon as they could."

Mr Browne, the former Scottish secretary, said: "Selling off the staff car park is only consistent with a plan to shut the plant. You can't consult meaningfully with the work force if you've made your mind up."

Employees have accused Diageo of keeping the planning application secret. The company has said the application had been discussed with employees and union representatives.

A spokesman for Diageo said: "Across our operations, Diageo has pieces of land that for various reasons are no longer required or are unlikely to be used for business needs. This land at Balmoral Road was first identified for possible development more than five years ago. It was considered to offer long-term potential for redevelopment as it is close to existing housing and therefore unsuitable for expansion of the main Kilmarnock plant."

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