Whisky Advocate

Is Diageo going to ruin Scotch whisky?

July 8th, 2009

That’s what the major political parties in Scotland fear, after Diageo announced they were closing a distillery, bottling plant, and laying off hundreds of employees. 

They are concerned that more Scotch whisky will end up being bottled outside of Scotland. Right now, 85% of Scotch whisky is bottled in Scotland.

I’m getting this information from the Scotsman, and you can find the link to the article here.

Read the article, and then let me know your thoughts.

26 Responses to “Is Diageo going to ruin Scotch whisky?”

  1. Whisky Party says:

    This is soooo not my area of expertise, being unfamiliar with the business end of the whisky industry, but Kevin Erskine’s reply to all this strikes me as making quite a lot of sense:

    http://inebrio.com/thescotchblog/?p=1187

  2. John Hansell says:

    Whisky Party, I also try to stay out of the business side of whisky (except for where it impacts me and my business, of course). Having said this, here’s my take on it.

    I agree with Kevin. While I feel badly about the job losses–and the tradition and connection Johnnie Walker has with that plant–this is simply a strategic business decision by a major corporation. They are doing it to stay competitive.

    Ultimately, their successfull business moves will help them thrive and, hopefully, create new jobs and open up new bottling plants and distilleries.

  3. WHISKYhost says:

    I’m glad to see you weigh in on this, John. I think it’s hard to consider these developments with a level head (the Scottish economy has been in turmoil longer than the current economic crisis and any major announcement from a global corporation looks like another nail in the coffin) but we need to move beyond political rhetoric and our sadness for our Kilmarnock brethren to understand that the future of Scottish whisky is still strong.

    How do you think smaller “farmhouse” distilleries will fair given the current economic situation?

  4. Colin says:

    From the consummer’s perspective, how will changing the bottling facility change the flavour of the whisky?

  5. John Hansell says:

    WhiskyHost, yes, the Scotch whisky industry, in the long run, is still strong. And this is the reason why. They stay competitive by being as efficient as they can possibly be. In tough times, that means possible layoffs, etc.

    Regarding the smaller distilleries, they might not have as much momentum to carry them, but they can react more quickly to a changing environment. As long as they have a strong business model, I think they will be okay.

    Colin, I don’t think there should be a noticeable difference in the flavor of the product, assuming that the quality of the water they are using to bring the whisky down to bottling strength is the same. Does anyone else disagree?

  6. WHISKYhost says:

    Thanks for the response, John.

    I’m excited to taste the spirit produced by these smaller distilleries and do my best to support them with my business.

  7. Harvey Fry says:

    byz iz byz. & while Diageo YZ w/o-a-doubt a
    MOST byzantine outfit, they aren’t playing by themselves + the usual political circle-
    the-wagons we-know-best approach seems even
    less likely to produce anything beneficial to anyone but you know who.

    IF what’s IN the bottle stays more or less the same or even improves, all the rest is just PR. if it doesn’t, we’ve still gotta whole lotta alternatives & THEY KNOW IT^

    BTW, after tasting all 3 stages [= Cardhu
    before, vatted & back to scratch] of the
    last squabble, i think ALL of these people are either terribly insecure or have way way too little to do. +, think about it= in the end, guess who get’s to pay for all the wasted where-with-all-who-struck-Mac? ^uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu^

  8. Harvey Fry says:

    i wrote 7, went off to answer the phone &,
    having thus missed 3 thru 6, just now put it up.

    i agree with John, unless water quality is
    way south of neutral, even their master
    distillers’ll be challenged to tell blind.
    + newer more modern facilities stand to be
    less distracting than spiels anchored in
    ancient history & all the other catch as
    catch can cats & mice who drink so well.
    &, excluding some diabolical hazard, some
    of the possible savings produced by more
    efficient methods might just trickle down
    to us^

    as to the new/smaller outfits, i’m very
    enthusiastic about what’s IN some of the bottles. i think they know they have zip chance of making it UNLESS they come up with a fairly unique product= stuff that by current standards is good enough to stand on its own. i followed Arran (going on 40 different expressions so far) from
    the git go & am still high on it. even
    more exciting is the newest distillery on
    Islay= Kilchoman. of the 7 not quite 3
    year olds i’ve tried (see the 2 previous
    entries on the subject) ALL’ve been better
    than i could have imagined/expected. i’m
    not sure it can do much better, no matter
    how long they age it….but i’m very much
    looking forward to finding out^

    for all you guys who need a good reason to
    do business with Royal Mile Whiskies (RMW)
    & the Whisky Exchange (TWE) this is the
    time to take the plunge. there’s just not
    any other good way to keep up with this
    kind of breaking news^

  9. smsmmns says:

    Shareholder greed treats all investments as investments alone: cold, distant little seeds that MUST grow or be shorn. Nasty. Cruel. Shameful.

  10. Brian says:

    This belief that Diageo is ruining Scotch must have legs because non-industry folks keep asking me about it. Now I understand how Elasmobranchologists feel when a few great whites decide to chew on some surfers.

    But seriously, closing Kilmarnock won’t impact Johnnie Walker’s customers one bit. To let that happen would be a graven failure for a blender, and Diageo has to understand that.

    Kilmarnock is a tempest in a teapot, and is a pop culture distraction from the real threat to Scotch: Roseisle. We’ll see the impact of that within a decade as Diageo no longer needs non-Diageo distilleries in order to produce its blends.

    God help any independent distillery that’s relying on Diageo’s business to stay alive. That business model can’t survive once Roseisle starts supplying their blends.

  11. Louis says:

    Who knows whatever else they might be doing while they are at it. Not likely that the average Chinese consumer of Johnnie Walker Red Label would know the difference.

  12. kallaskander says:

    Hi there,

    it is all about the sad state Scottish whisky is in.

    It seems people in Scotland have by force been made aware that their national drink is not in national hands anymore. As long as the figures were right and people in the whisky industry in Scotland made a living everything was alright and nobody seemed to feel the yoke.

    Last year exports of Scotch whisky jumped the 3 billion Pound barrier. Johnnie Walker alone made about 1 billion Pounds for Diageo.

    And the world wants more, so much more that you can no longer bottle all that whisky the world demands in his hometown of Kilmarnock.

    In the views of Diageo it is a sound decision to move to a place were you can expand the bottling of Johnnie Walker. For the people in Kilmarnock and other Scots the moving away suddenly gets mixed with nationalist Scottish issues. The reasons behind that come in parts from the current politcal setup of the (still) United Kingdom.
    It could be embarrasing for the Scottish National Party (SNP) if somebody were to ask them how they see the issue of a forreign controled national drink.

    National controled? Too late for that, 95% of all Scotch is not in Scottish hands anymore. There were objections to that development at its time but nobody complained loud enough.

    It is hard for Kilmarnock and her inhabitants and it is hard for people working at Port Dundas. No questions about that. They are victims of their own success which is more than bitter and unfair.

    That it is a money driven decision with the benefit of shareholders in view and not much else does not make it easier or better.

    As to Roseisle. I do not think that Roseisle is there to make Diageo selfsufficient and independent from malts or grains from other companies. Diageo with now 28 Distilleries could use their own malts in their blends only already.

    Roseisle is a danger to smaller Diageo owned malt distilleries from the moment the boom begins to die.
    That is the purpose of Roseisle producing bulk malts and making smaller ineffetive distilleries redundant – in the eyes of financial managers that is.

    The question if bottling of whisky can be moved away from Scotland will interest the powers of the European Community.

    They stopped the exports of wine in barrels years ago and thereby caused the sherry barrel shortage in Scotland and England.

    They were about to stop the export of whisky in barrels for similar reasons and had the SWA on their side then.

    Not sure what the Paul Diageo lead SWA thinks of that. And I do not know what the EC thinks about exports of Scotch in bulk in tankers.

    So I would say the situation is not yet decided. And if the EC steps in they could well be the ones who stop Diageo moving Scotch whisky out of Scotland when it is not already bottled.

  13. butephoto says:

    Business is business, unfortunately. Not nice for the people losing their jobs but It happens all the time throughout the manufacturing industry.

    The craft/farm distilleries won’t be affected in any way in all this. They are a different breed entirely. Having recently visited the new Abhainn Dearg distillery on the Isle of Lewis you wouldn’t find anything more the opposite of a huge corporation if you tried. And whatever goes on around Diageo certainly won’t affect distilleries like that.

  14. Tim F says:

    Sam, those are strong words, mate. To call a business decision ‘cruel’ attaches an emotive value implying that someone made this decision to take pleasure from the suffering of others – is that what you really believe?

    No-one is happy about the situation, but I think your language is a little strong.

  15. bgulien says:

    I guess it’s going the way almost every drinks company went.
    Buy the distilleries, got the brand name, build an enormous, automated factory/bottling plant, somewhere, close the distilleries, except for a few visitor centre distilleries (nice for the tourist and goodwill) and distill. Like someone already said: the average Chinese won’t taste the difference.
    It’s all emotional, but there we got the museum-like visitor centre distilleries.
    The beer industry went the same way. There are now some micro-distilleries and the people who really want the real stuff will find it.
    The US Bourbon market is probably going the same way.
    It’s not good, but inevitable.

  16. John Hansell says:

    Great comments everyone. Kallaskander, I particularly appreciated your taking the time to put down some well thought out points.

    Sam (smsmmns), I have to agree with Tim F on this one. No one is happy about the situation, but to call it shameful??

    Diageo’s decision is just a reminder that this is a business. And to survive and prosper (which we all want for the whisky industry), these kinds of decisions need to be made in difficult economic times like this.

    I don’t think that the big wigs at Diageo were celebrating after they made this decision. I suspect it was the opposite.

    I run a business and I think of my employees as family. I had to let someone go back in March. Did I want to do it? No! It was very painful. But for my business to survive and prosper, I had no choice.

    Would you rather I kept all my employees because letting someone go would be “nasty, cruel, and shameful”? If I kept this logic up, eventually there would be no more Malt Advocate magazine, no more WhiskyFest, no more WDJK. Which would you prefer?

    Diageo is in the same situation, albiet with a few more employees than I have. For them to survive (indeed for the industry to survive), these sorts of painful, difficult, business decisions must unfortunately be made.

  17. […] part of Scotland going to ruin Scotch whisky? There’s a great discussion happening now at the Malt Advocate blog on the subject.  Personally, I agree with Kevin Erskine (The Scotch Blog)’s […]

  18. B.J. Reed says:

    I think there are two separate issues – One has to do with the actual decision and what drove it – The second is the process by which it is being carried out.

    I am in no position to determine whether the decision makes good business sense, clearly Diagio thinks so. The way it was handled has caused a lot of consternation and questioning about motives and methods by which decisions were made.

    If it lingers and actual buying decisions are changed then it will have been because of the “how” as much as the “what” and “why”.

  19. I know industry pros have said more often than I can count that the water used in distilling is not significant. However often they might have said it, I still don’t believe them.
    The same thing goes for bottling: I wish I did believe it doesn’t matter, I really do. But if Johnny Walker will no longer be bottled in Scotland, I, for one, will be highly skeptical of the final product. (And I truly like this fine blend!)

  20. Harvey Fry says:

    TW (#18): think about why you believe what
    you believe:

    1. the volcanic heat water is subjected to
    in the distilling process CHANGES its very
    chemical structure. whatever the shape of
    the still, when the condensate falls back
    into the pot, the liquid is not the same
    as when it came down the hill. try blind
    tasting 5 similar water samples with any
    distillate. or take any glass of water at
    any distillery & put 5 different whiskies
    beside it on the table. even if you’re
    the ghost of MJ, i’ll bet you can’t match
    the right to right more than what the odds
    would be. water is just BYZ PR. but if it
    puts that extra oomph in your dram, Cnoc
    yourself out^

    2. more & more, just about everything is now made with the most modern of machines.
    what difference does it make if you locate
    them in Tegucigalpa or KilMarysknockerach?
    again, when the sheet hits the tongue, i’ll
    bet the farm you’ll be as good at guessing
    from whence as the average Chinese.

    for me, ALL THAT MATTERS IS WHAT’S IN THE
    BOTTLE[s]. since i can’t really escape all the words, i have to let my taste buds be the translators of last resort. if they
    say it’s OK……….? significance is a
    quaint dance done by coochiecoos embedded in somebody else’s brain^

  21. Neil Fusillo says:

    Ruining? Nonsense. Changing? Absolutely.

    Diageo is an incredibly powerful and self-serving (as one would expect of a business to at least some degree) force in the industry. With what, 25 whisk(e)y brands alone, plus a plethora of other alcohol brands from gin to champagne to beer.

    The decisions they make about their business affect thousands of employees and millions of drinkers throughout the world.

    But Diageo, as massive as they are, do not own every scotch distillery in Scotland. They don’t even own half of them. If Diageo ceased to exist tomorrow, would that be the end of Scotch?

    That’s the question that politicians have to ask themselves, because that’s a very real issue. If Diageo can’t make business decisions (within reason) that allow it to continue to remain profitable, then many Scotch brands might cease to exist altogether. Will that ruin Scotch whisky any less than sending it overseas to be bottled? Or the closing of a few plants here and there?

    It’s all very well to grandstand and rabble rouse when you’re a politician who needs to look as though he’s fighting for his constituents, but the reporting media should (and likely does) know better.

  22. @ Harvey & Neil: I like both the opinion and the photographs of one of you far better (not saying who!).

    Anyway, I’m not a scientist, but I still believe that once you break the chain and Scotch is no longer bottled in the country of its origin, it will make room for further concessions.
    I, too, am all about what is in the bottle. But I am in deep anguish whether or not this intended change by Diageo might change matters drastically. I really am.

  23. kallaskander says:

    Hi there,

    a simply answer to the original question.

    Of course not!

    http://www.thedrinksbusiness.com/index.php?option=com_content&task=view&id=10183&Itemid=66

  24. Red_Arremer says:

    Diageo has a monopoly share in the scotch market and operates on a global scale. Elementary economics tells us that its interests will become increasingly different from those of consumers. It should be obvious that Diageo is exerting a crappy influence on scotch. Just ask yourself, “When was the last time that Diageo’s board of directors did anything good for my relationship with scotch?”

    On another note, John, I am really surprised that you would compare yourself laying off an employee to Diageo closing down a bottling plant. And straightforwardly compare your own feelings about your decision to the feelings of the various members of Diageo’s board of directors. There is no analogy either case.

    The badness of you laying someone off is tempered by the goodness of your business project, which should survive. The badness of Diageo harming anyone in any way isn’t tempered by anything because Diageo is a monopoly force in the scotch market, which should not survive. It should be broken up before its massive, unwieldy amalgamation of spirit interests dictates more and more often that scotch must change for the worse.

    Compare Glenfarclas and Macallan. Macallan is probably doing better business. But as a scotch consumer which business model do you prefer? Do you get my drift? People are justifying Diageo’s activities as dictated by some business sense, which all business men share. But there are different ways to do business and Glenfarclas is still working it just fine.

  25. Scotty Freebairn says:

    Diageo’s attitude reminds me of General Motors a few years ago – “If it is good for General Motors, it is good for this country.” Diageo creates a perception of doing whatever they want to improve the bottom line, regardless of what it does for customers, products, or country. This is negative to the extreme in this circumstance, in my opinion.

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