Distillers go with flow as Latin America develops taste for Scotch

Bottles of Buchanan's and Old Parr disappeared from bars and liquor stores in Europe decades ago, but in this corner of the southern hemisphere the brands are synonymous with a thriving Scotch whisky market. A growing class of affluent consumers in their 20s and 30s crowd chic bars across Mexico and South America, and in large numbers they have taken to one of Scotland's iconic products.

Along with Asia, Latin America has been identified by the Scotch industry as a key region for the future, with the likes of Venezuela, Brazil and Colombia already becoming substantial markets. In 2008, of all the spirits imported into the region, 56 per cent of it by value was Scotch.

The potential for growth is massive, with imported spirits accounting for only 13 per cent of total consumption in the region.

As political and economic volatility decreases in Latin America, affluence is increasing and the opportunity growing.

Diageo, which owns eight of the top 12 Scotch brands in Latin America, has seen compound growth in the category of almost 8 per cent a year during the last five years, as sales in the UK struggle.

Both Buchanan's and Johnnie Walker sell more than a million 12 bottle cases a year in Latin America.

"The great thing about Scotch is it's aspirational," Randy Millian, Diageo's managing director for Latin America and the Caribbean.

An American who lived in Argentina and Costa Rica as a child (his father was a diplomat) Millian knows the region well and has held senior positions with several multinationals there.

While most of Latin America's 340 million adult population may not be able to afford Scotch, Diageo estimates that there are 50 million households with an income of more than $10,000 a year.

"That's a big number," Millian says. As well as selling huge quantities of regular brands, Diageo continually introduces new premium and luxury lines to appeal to the growing middle class. Millian admits that while volatility goes with the territory, the trend is improving.

Latin America suffered a banking crisis in 2003, meaning the financial system was prepared for last year's troubles. "The banking system in a lot of countries in Latin America is a lot better than in Europe, because it went through all this," Millian said in Diageo's Colombia headquarters in Bogota. "The US looks to Brazil as a model of what they would like to do with their banks."

Although careful not to name targets, Diageo's Latin American executives are clearly excited by the future potential of the market.

While the future for countries such as Venezuela remains uncertain, Millian says highly social Latin Americans usually cope with whatever life throws their way.

"Latins will be good with life. The place could be falling down around them and they'll still be having a good time with their friends."

Latins also love to be linked with brands, both fashionable and historical. Another popular Scotch in the region, White Horse, had the label altered to remove the horse image, only to be replace it recently to fuel nostalgia. "Young men remember their fathers drinking White Horse and remember the label, so we put it back on there," says Millian.

Despite its dominance of the Scotch category in the region, United Distillers (which later merged with Guinness to form Diageo) only established a direct business in the region in the 1990s, many decades after Scotch was introduced to the wealthier parts of society.

The history of Scotch in Latin America began when the barons of the industry went across the world in the early 20th century, taking product with them in their suitcase. Sometimes establishing distribution links was secondary to recreational pursuits. Buchanan's – a brand which many Latin drinkers feel ownership of – was brought to South America when Sir James Buchanan, a keen horseman, went to Argentina to seek what were considered the finest horse breeders in the world.

But a long history has not prevented the image of Scotch there from moving with the times in Latin America, perhaps much more so than in the UK.

Johnnie Walker's "Keep Walking" campaign was launched at the Grand Prix of Brazil with a 500 seat stadium for its fans. The brand is closely linked with a major anti-drink driving campaign fronted by two time world champion Mika Hakkinen.

But the success in attracting young and upwardly mobile drinkers in Latin America raises questions about the struggles of the industry in the UK to recruit new drinkers in force.

Ken Robertson, Diageo's head of Scottish corporate affairs, says South America has a number of advantages in fostering a vibrant drinking culture, including its climate and family oriented society.

However Robertson, a board member on the Scotch Whisky Association and The Keepers of the Quaich, says the industry may have also lost touch with younger drinkers since the 1960s and 70s in the UK and has failed to reinvent itself to new drinkers.

Robertson believes that while brands such as Johnnie Walker have been focused at the massive international opportunities, domestic brands in the UK may have less appeal. He said: "Somehow or other we haven't kept (Scotch] as alive as we should have done. I can only speak for Diageo but I suspect in the industry that's something we need to address. Can we get any of that back? It will require a lot of fundamental change, and the problem is, at what point does it become the law of diminishing returns?"

So is it possible that international companies might simply accept that the UK may have turned ex-growth, and focus resources on markets such as Latin America?

"You could see that situation and you could almost end up there by default," he says.

"The brand owners have got to ask themselves, 'do we want to have a growing business here, or do we want to do it on a care maintenance sort of basis, and grow elsewhere'. That will be a tough one (to answer] because the opportunities in Asia and beyond are such that you're going to have to invest."

While Scotland appreciates the economic benefit of the industry, Robertson says most Scots know little of the workings of the industry, with little real ownership of the industry.

"If you have very willing consumers who actually want your products in other parts of the world, and you've got people you're fighting to convince at home, you're going to go where you can grow your business and it's joy to do so."