02 Nov

Scotch on the rocks over Diageo

THE Scotch Whisky Association has been thrown into chaos over an unprecedented split between Diageo, Scotland’s largest whisky producer, and the rest of the industry.

Members of the SWA, the industry’s trade body, will put intense pressure on Diageo to reconsider its decision to axe its Cardhu single malt brand when its governing council meets next month.

Diageo received a barrage of criticism from the industry’s major players last week after Scotland on Sunday revealed it had turned Cardhu into ‘vatted’ malt - a blend of five whiskies - to meet demand.

Despite the fundamental change in the product, Diageo has retained Cardhu’s existing packaging, apart from changing the words "single malt" to "pure malt".

There are widespread concerns among rivals that the move will severely tarnish the reputation of Scotch in key overseas markets, denting exports and reducing the cache of premium single malt products.

A spokesman from one of the largest Scotch producers said yesterday: "Diageo stands alone against the rest of the industry over this issue. It is a pariah and we will seek to bring the company to heel when the SWA council meets in December."

One industry source said the rift could jeopardise the SWA’s future. He said: "At least one member has threatened to resign already. If the SWA is unable, or unwilling, to resolve this crisis, it could be left irrevocably split. That would be horrendous for the industry."

SWA chairman Ian Good, who is also the chief executive of Glasgow whisky group Edrington, will chair the council meeting and attempt to heal the rift.

The next SWA council meeting is on December 4. Any of the 16 council members can propose that Diageo should be formally admonished for its actions. Any motion needs majority support to be carried.

A spokesman for the SWA said: "This matter will be discussed in the appropriate forum of the SWA council. We cannot comment further."

Last night, Alex Salmond, the former SNP leader and MP for Banff and Buchan, said he would raise the matter at Westminster. He called on the company to reconsider its actions.

We will seek to bring them to heel when the SWA meets in December

He said: "It is probably the most foolish thing I have seen in the whisky industry in 30 years. It seems to be sacrificing long-term consumer confidence for short-term profit. I am not surprised the rest of the industry is aghast.

"I would think Diageo has a responsibility to protect the integrity of the product. It’s disappointing that it does not seem to be doing so. The company is playing a dangerous game."

One industry player said last night that Diageo should be expelled from the SWA for acting to the detriment of the industry. He said: "How can Diageo sit round the table with the rest of the industry after something like this?"

But Richard Watling, Scotch whisky category director at Diageo, said: "I can’t imagine Diageo not being part of the SWA. I am sure we can reconcile the situation with other members."

Watling dismissed fears that Diageo would turn Oban and Lagavulin into blends, saying: "We have made it clear that this is a one-off case.

"The discussion is about Cardhu alone. We have as much interest in preserving the good name in single malt whisky as anybody else."

Watling said Diageo was forced to blend Cardhu in order to meet demand in Spain, where sales have risen by 200,000 cases over the past decade.

Last night, a member of the Cummings family, who sold Cardhu to its current owners, said he was "horrified" by Diageo’s behaviour.

He said: "I find it extraordinary that a company such as Diageo, which has such a strong influence on the industry, should have deviated from the accepted norms. "Single malts are like chateau bottlings. If you turn 30 acres of chateau vineyards into 150 acres then you are bringing its reputation into question.

"The industry is where it is in the world because of the aspirational nature of single malts. Diageo is killing the goose that lays the golden eggs."

He added that he feared the SWA would not act to resolve the crisis in a decisive manner because Diageo contributes over 40% of its funding every year. "He who pays the piper generally calls the tune."

A spokesman for Glenmorangie said: "Glenmorangie is very concerned about this issue and the potential effect it could have on the integrity of the important single malt market."

Other companies leading the charge against Diageo include William Grant, which is understood to be considering legal action against its rival, and Allied Domeq, which has made direct representations to Diageo.

A source close to Allied said: "Diageo told Allied in no uncertain terms to go away."

Edrington has made it clear it has no plans to follow Diageo’s move to blend any of its single malt products but declined to criticise Diageo for its actions.

Article Courtesy of The Scotsman