20 Feb
2004
European probe launched into Diageo dispute
THE row engulfing the Scotch whisky industry has intensified even further, after it emerged that the European Commission is set to investigate Diageo’s decision to turn its Cardhu single malt into a blend of five different malts.

The EC will examine the matter after receiving a letter of objection to Diageo’s move from European Parliament president Pat Cox.

It will investigate whether Diageo’s decision to alter its Cardhu product without making noticeable changes to the whisky’s packaging constitutes an infringement of internal market or consumer protection regulations.

Cox decided to write to the EC’s competition authorities after Scotland MEP Sir Neil McCormack raised the matter in the European Parliament.

Sir Neil said: "Nobody wants to stop Diageo selling Scotch, but there is a real danger that the currency of single malts could be devalued by the company’s actions."

The Scotch whisky industry has been angered by Diageo’s decision to sell Cardhu in the same style of bottle and with the name of its Speyside distillery on the label despite the fundamental change in the product.

Industry players claim the decision could damage the long-term fortunes of Scotch and confuse drinkers into thinking Cardhu was still a single malt, rather than a blend.

The drinks giant chose to dilute its single malt with other whiskies to keep up with demand in Spain, where sales have risen by more than 200,000 cases over the last decade. Last week, in a leaked memo, the Scotch Whisky Association told Diageo that it feels the only solution is for the company to withdraw its controversial Cardhu "pure malt" product.

Analysts believe the issue has turned into a PR disaster for Diageo and fundamentally damaged its relationship with the rest of the industry. It is believed that Diageo chairman Lord Blyth has expressed alarm at the damage being done to Diageo’s reputation and is putting pressure on the company’s communication division to fight back.

But a spokesman for Diageo yesterday said the company would not remove the new form of Cardhu from sale and accused some industry players of engaging in an unsavoury guerrilla war against Diageo which was blackening Scotch’s image.

In an attempt to placate the industry, Diageo will offer to radically alter Cardhu’s packaging to make clear to consumers that it is no longer a single malt. An interim packaging change will be made which will include the words "pure malt" in large letters and say that the whisky is from "a handful of Speyside distilleries". Diageo will also offer to eventually change the colour of Cardhu’s label.

However, the measures are unlikely to impress SWA members when it meets on Thursday. One member said: "There is little room for compromise. Either Diageo backs down or there could be hell to pay."

If an agreement cannot be reached, analysts believe the SWA could disintegrate. Its collapse would have long-term consequences for every Scotch producer.

The SWA’s new chief executive, Gavin Hewitt, said last week that the association was at the centre of the argument over Cardhu, and warned that any company which resigned from the body risked damaging itself and the whole industry.

He said Diageo had been taken aback by the strength of feeling against its decision to change the content of Cardhu.
Article Courtesy of The Scotsman

scotsman.com