Shake-up looms for whisky sector

By PETER RANSCOMBE
Published on 30/09/2012 00:00

STROLL along the drinks aisle of any big supermarket and you’ll see a plethora of whisky brands jostling to grab your attention, from Bell’s, J&B and Johnnie Walker to Dalmore, Jura and Whyte & Mackay.

Yet, while the shelves may be stocked high with label after label of Highland, Islay and Speyside varieties, a relatively small number of very large companies produce the vast majority of Scotland’s national drink.

Global spirits giants Diageo and Pernod Ricard dominate the market, with the chasing pack including players such as Glenfiddich-owner William Grant & Son and Famous Grouse-maker Edrington.

Confirmation that London-listed Diageo – which makes Gordon’s gin, Guinness stout and Smirnoff vodka as well as Bell’s and Johnnie Walker – is in talks to take a stake in Indian tycoon Vijay Mallya’s United Spirits has reignited speculation of further deal activity in the Scotch sector.

Some City analysts have already predicted that Diageo could be forced to sell off some whisky assets if it takes a controlling stake in United Spirits, which bought Glasgow-based distiller Whyte & Mackay in 2007 for nearly £600 million.

Diageo – created in 1997 through the merger of Grand Metropolitan and United Distillers-owner Guinness – already accounts for 27 per cent of malt whisky production and some 44 per cent of grain output. Whyte & Mackay makes about 12 per cent of Scotland’s grain whisky at its giant Invergordon plant and owns the Dalmore, Fettercairn, Jura and Tamnavulin malt distilleries.

“Looking at the price United Spirits paid for Whyte & Mackay, you’re looking at some of the mid-tier players as being potential buyers,” said one industry insider.

“Having routes to market through which you can sell the whisky is the key point, so you’d be looking at people like Campari or Bacardi.”

Italian drinks maker Campari already owns the Glen Grant distillery in Rothes and has pulled off a string of deals in recent years to buy Wild Turkey bourbon for $575m (£413m), Skyy vodka for $440m and, most recently, the spirits arm of Jamaican rum maker Lascelles for $415m.

Rum maker Bacardi bought John Dewar & Sons in 1997, taking control of 6 per cent of malt production through distilleries at Aberfeldy, Aultmore, Craigellachie, Macduff and Royal Brackla, near Nairn.

But two industry sources questioned whether Diageo would indeed be forced to sell assets if the deal went through.

“Diageo doesn’t have the same dominance in the malt whisky market that it does in other categories,” said another sector insider.

“The real question mark would be over grain production because of Whyte & Mackay’s large distillery in Invergordon.”

Another added: “Diageo owned 40 distilleries at one stage but has already sold some.

“I think Diageo would be pleased to get its hands on the Whyte & Mackay assets.

“But if they were to sell distilleries then I think they’d get a lot of interest in Dalmore and Jura in particular. These are valuable assets and so a lot of the smaller players may be put off because they wouldn’t be able to afford them.

“The recent sale of Bruichladdich really drew a line in the sand. It showed how much interest there is in the Scotch whisky industry.”

French brandy maker Rémy Cointreau agreed in July to buy Islay-based Bruichladdich for £58m in what is believed to have been the highest price ever paid for a distillery.

The Office of Fair Trading would only begin to look at competition issues once a formal takeover deal has been signed or if the two firms refer the deal to the watchdog.

But, as one industry source argued: “Diageo isn’t interested in Whyte & Mackay. It doesn’t feature in its thinking. All it’s interested in is being able to distribute more of its whiskies in India.”