Scotching industry vultures to rebuild a brand Fraser Thornton

This was the situation that faced Fraser Thornton, now managing director of Burn Stewart, when he joined the then-listed company, run by his father, Bill, in the mid-1990s. Currently owned by the Trinidadian conglomerate CL Financial, the maker of Scottish Leader, Deanston, Bunnahabhain, and Black Bottle, Burn Stewart will this month unveil growth figures that put beyond doubt the distiller's status as the comeback kid of the Scotch industry.

With turnover growth in the region of 20 per cent expected, the figures help validate the do-or-die path on which Thornton has taken a company that emerged from the volatile bulk-trading market only to enter stock exchange hell.

"When you are dealing with a company that has been through a bad patch, the trick is to stay the course," says Alan Gray, whisky analyst for Sutherlands stockbrokers.

"Not only has Fraser encouraged CL to put a lot of money behind building previously underdeveloped brands like Black Bottle and Bunnahabhain, but with Scottish Leader he has taken the hard road of building brands in the generally declining UK market. Given that exports rose at 5.9 per cent last year, and 90 per cent of this business is exports, few bother to do this."

The industry view of Thornton is of a convivial, shrewd business strategist, who has expended the shoe-leather and put in the air miles as an international salesman for Scotch and its brand values. It also does not hurt that the world of whisky "kent his faither", though he insists that this has done him no favours within the company.

A company that 20 years ago had no distilleries, let alone any brands, has all but completed the strategy - heavily associated with Thornton - to have Scottish Leader taken seriously as a must-stock best seller to match the popular blends Bell's and Famous Grouse.

While Thornton is naturally content that Scottish Leader is massive in Taiwan (the fifth biggest international market for blended Scotch and the fourth for malt), and big in Iceland, France and elsewhere, he is not prepared to leave it at that.

BS has assiduously worked the on-trade market to set up the bases, and we can expect to hear more about the brand, which has been redesigned at a cost of about 500,000 (see right), in the consumer advertising space in the months ahead,

It is Scottish Leader that changed BS's game from one of mere survival.

As Thornton tells it: "By the mid-1990s with whisky prices falling and the trading position of Burn Stewart becoming more difficult, it was becoming ever harder to see a way in which the company would be able to raise enough money buy a significant brand or organisation again.

"It became clear to me that we were going to have to build a brand from scratch."

Ten years later, and Scottish Leader has the respectable home-market presence that allows BS's overseas sales team to look foreign buyers in the eye. Thornton says: "The main question you get in the US or wherever, other than the ones about distilleries and so on, was 'What do you sell in your home country?'

"People like to know that a brand has got a strong base in its heartland. It's a slightly weak position, heading out trying to convince a distributor in Greece or Italy or wherever you are, to have to say, 'Well, actually no-one really drinks it in Scotland'."

BS's strategy with Scottish Leader could be described as radically old-fashioned: cultivating mutually sweet deals with the independent trade and building trust at the grass roots in a way that bigger players have long since ceased to do.

"We felt that if we were going to build a position here the first thing we needed was the support of the Scottish trade. We gathered a small sales team and headed out to the stronger players, saying, 'Here we are, we're a Scottish business. We want to be part of the Scottish drinks trade and we want your support but we are not arrogant enough to think we have all the solutions for you. How can we both make money out of this?'

"It was quite a good way to go because there's less and less of that approach, as the major organisations say, 'We have this brand, this brand and this brand - you do X, Y, Z, because if you don't we're not supplying you.' If you don't have that muscle you have to take a different approach, It was quite a nice message for the trade to be hearing."

Scottish Leader also brokered sponsorship deals with the Rangers, Celtic and Hearts, whose fan base matches the brand's demographic target.

Recently published Neilsen on-trade statistics now put Scottish Leader, which is carefully positioned as representing "affordable aspiration" (i.e. dead centre between the 8 supermarket offer and the 12.50 Bells or Grouse) at No 3 in the Scottish on trade, with sales up 14 per cent on the previous year.

In other words, the business is scarcely recognisable from 1987, the year when Bill Thornton bought the company along with fellow directors and venture capital backers. The initial strategy then was to build the bottling side and reduce dependence on bulk trading of whisky to third-party bottlers, which meant dangerously skimpy margins.

Whisky prices quadrupled in the late 1980s, and BS, which had struggled to make 500,000 profit, was earning 8 million. Such spectacular growth precipitated a flotation in 1991, which valued the business at 75m, providing a handsome exit for Thornton snr's venture capital backers.

The purpose of the float was to raise money to acquire distilleries; Deanston in Doune in 1991 and Tobermoray in 1993. Neither was in top condition - the long-running refurbishment of Deanston has this year been completed, to act as BS's corporate showcase.

In between there have been wild fluctuations in BS fortunes as whisky prices entered a depressed cycle, and the company was trapped in an over-reliance on supermarket own-label business. With Walmart's Asda - not known as the supplier's chum - its biggest customer, the company bobbed along on the tide, and BS's share price saw competitors measuring the company for its corporate coffin.

This was the time, in the mid-1990s, when Thornton was cutting his teeth as manager of BS's North American business, where the growing market was for single malts, fashionably enjoyed with a fat cigar. He recalls that, two weeks out of every six, he was dispatched to the US, arriving in New York, drinking and smoking his way down to Miami, returning with a liver like a Strasbourg goose's.

Thornton recalls: "It was terrific for me because you were right in the face at the front end business. We would go out with our importer and just go and see retailers, shop by shop, trying to sell. I had eight sales calls a day and then put on my dinner suit to go out and tell people what makes Tobermory or Deanston different from other brands.

"These days I'm keen that anyone at the commercial end of our business spends time in that kind of environment, because until you understood actually how difficult it is to convince people on a daily basis what makes your brand special, you aren't fully conversant with the business."

This coming-from-behind attention to brand-building was born out of BS's drive to improve the quality and sustainability of its earnings, but there was no guarantee it would succeed, given the difficulty of building brands. Seeing the vultures circling overhead is an experience that Thornton has not forgotten.

"Our closest allies in the industry stuck by us, though the attitude of direct competitors ... disappointed me," he says. "I have always thought that you have to fight on the strength of your businesses, not the weakness of others."

By 1999, things were improving a bit, the brands were in the early stage of development and the company was over the worst. CL built up its stake in the business before acquiring it in 2003 in a deal that valued the BS at 100m including debt.

Now that the company is thriving, the squash-playing managing director's determination is having the laugh on those who kicked the company when it was down. With that satisfaction he must be happy to let bygones be bygones.

"Oh, I wouldn't go that far" he laughs.