Thirst for status aids whisky sales

Published on Thursday 30 September 2010 18:57

Diageo's new distillery is vital to meet demand in emerging markets despite global downturn, writes Peter Ranscombe

THERE'S an unforgettable scene in the third season of US television drama series The West Wing in which White House chief of staff Leo McGarry, played by the late John Spencer, recounts a meeting with two potential donors to President Bartlet's first election campaign during one of the show's signature flashback scenes.

Sitting on the table between McGarry and the pair of rich businessmen is a bottle of Johnnie Walker Blue Label, a blended Scotch made from the distiller's "very rarest whiskies". One of the would-be donors tells him that "Bartenders are selling this for $30 a shot."

The fictional McGarry is suitably impressed by the status that the whisky conveys - but in bars around the developing world, Diageo's global whisky category director David Gates knows that fact is imitating fiction.

"You could buy a Mercedes-Benz or an iPad but to shell out $20 to put a bottle of Johnnie Walker or J&B on your table is a great way for people in emerging markets to show they're moving up in the world," grins Gates as he shows journalists around Roseisle, Diageo's newest distillery and the first big plant built in Scotland in three decades.

"When you have consumers who are entering a stage of economic empowerment that they haven't enjoyed previously, they have an innate desire to demonstrate their status.

"Whisky is quite an affordable way to demonstrate that status. That's a real fundamental driver and you see it everywhere, particularly in emerging markets."

The thirst for Scotch in emerging markets in Africa, Latin America and the Asia-Pacific region is driving an expansion of the industry in Scotland.

Scotch exports rose by 3 per cent last year to 3.13 billion, contributing 99 a second to the UK's trade balance. Export volumes increased by 4 per cent, with the equivalent of 1.1 billion 70-centilitre bottles being shipped abroad. In Brazil, sales rose by 44 per cent, while Mexico was up 25 per cent and Taiwan 14 per cent.

Such growth prompted Diageo, the world's largest Scotch producer, to build its 28th malt distillery at Roseisle near Elgin.

The building looks more like a science-fiction writer's vision of a futuristic factory than a distillery, with the glass walls and stainless steel equipment offset by copper-green cladding around the entrance, symbolising the point in the production of the spirit when a green tinge indicates the distiller has moved from the "foreshots" - which are discarded - to the usable "middle cut".

"We still use the same process as 100 years ago," explains Gordon Winton, the site's operations manager. "It's just that we now have sequences and processes that take most of the manual operations out of it. The jobs that used to be done by ten people can now be done by two."

Only 11 people are employed at the distillery, with a handful of others at the attached "bio-energy" plant, which burns by-products from the distillation process to heat the water and steam used on the site.

At 14 million, the plant is an expensive investment but one that Sean Pritchard, by-products and operations services manager, says will pay for itself within nine years due to the amount of diesel saved on site and at nearby Burghead malting, where hot water is pumped for use in the malting process.

In total, Diageo employs about 4,500 people in Scotland, although the total will fall to about 4,000 by 2012, when the company's Johnnie Walker bottling plant in Kilmarnock will close, with the loss of 700 jobs, and switch to Leven, where about 450 posts are being created at the 90m facility.

Roseisle's 26m distillery, which will be officially opened by Diageo chief executive Paul Walsh on 11 October, entered production in the summer of 2009 and the first whisky will be available for use in Diageo's blends from 2012, after it has undergone the legal minimum of three years of ageing in a wooden cask.

The 14 stills - the vessels in which the drink is made - are capable of producing both "light-character" Speyside malt as well as "heavy-character" spirit thanks to the use of two sets of condensers. The copper condensers give light flavours, while stainless steel equipment does the job of the older "worm tub" wooden condensers, which give heavier Speyside malts their characteristics.

The new distillery is capable of producing up to 12.6 million litres of spirit each year, but will run at about ten million litres. The extra capacity will take Diageo's malt whisky production to about 83 million litres a year, which - when added to the grain whisky produced at Cameronbridge, near Leven, in Fife, and the North British Distillery in Edinburgh, a joint venture with Famous Grouse-owner Edrington - gives a total of 200 million litres each year, around one-third of Scotland's total production.

After spending 600m over the past six years on infrastructure in Scotland, Bryan Donaghey, managing director north of the Border, thinks the company will have to expand its warehouses in the next two years.

"We're laying down more Scotch to meet future demand than we're selling out of the warehouses," he explains. "We could even be starting to look at building another distillery in a couple of years' time."

Roseisle's extra production will help to quench the thirst of connoisseurs in emerging markets around the world, where Diageo is using a stream of different sales and marketing techniques to tempt drinkers away from locally produced spirits and into the waiting arms of Johnnie Walker, Arthur Bell and the group's other big blended whisky brands. Promotional spending on Johnnie Walker alone amounts to some 300m a year.

Russia is an interesting case in point: the group's push into the giant country was hit by the economic downturn, but instead of losing sales as drinkers turned back to cheaper homegrown vodka, Diageo introduced Bell's at a price point below its Johnnie Walker brand but above its White Horse label.

The situation is replicated in Latin America, where Diageo is using brands including J&B and Johnnie Walker to hit different demographics. The company's Buchanan's brand - virtually unheard of by many Scots - is the biggest seller among the Hispanic community in North America as well as being popular in countries including Mexico.

Buchanan's exemplifies the drinks group's marketing strength - having roped in celebrities including actor Robert Carlyle and Formula 1 world racing champions Jenson Button and Lewis Hamilton to promote sister brand Johnnie Walker, the company's has used Elton John, Jon Bon Jovi and even Sting in its "Buchanan's Forever" campaign. The scheme has also funded school projects in South America and introduced a "don't drink and drive" education campaign.

Education is a theme picked up on by Donaghey, fresh on the back of the defeat of the Scottish Government's plan for minimum pricing on a unit of alcohol.

"Minimum pricing has been shown not to work," he says. "We certainly have problems with some people's relationship with alcohol in Scotland but what we need is education programmes that will change our whole society. That could take 30 years, rather than over our current political timescales."