05 Dec
2003
Whisky sour as deal leaves a nippy taste
AN UNEASY calm has settled over the whisky industry. Yesterday, it was announced that an agreement had been reached in the dispute over Cardhu "pure malt".

Just hours earlier, a militant faction looked likely to force resignations from the Scotch Whisky Association (SWA). But the critics were placated and Diageo, owner of the Cardhu brand, had compromised. The executive of the SWA brokered a deal and a schism was avoided.

Everyone was united, or so it seemed. A truce was being observed, but ripples of unrest are lingering below the surface.

As one industry insider said: "The tanks are on the lawn but for now, we have turned the engines off. This war is far from over." Another city analyst said: "The Scotch industry is a very old-fashioned industry, they are very good at patting each on the back and putting on a united front, but I have no doubt that this will run and run."

He claimed yesterday signalled a draw: "Diageo have squashed the row and the industry have the promise that the SWA will set up a working sub-group to try to set down definitions for different segments of the Scotch whisky category in the future."

The origins of the war began two years ago when Diageo was told that reserves of its Cardhu single malt 12-year-old had reached a position where they could not grow any more. For a company that had grown the brand from 9,000 cases a year to more than 250,000 in a market straddling Spain, France and Portugal, it needed a solution.

The answer was to blend five different 12-year-old single malt whiskies from a handful of distilleries which neighboured Cardhu. Under industry guidelines, this would have had to been marketed as a vatted malt, but Diageo had seen its brand grow more than 100,000 cases in three years. Research carried out on the ground in Spain found a change in the brand would affect sales.

Giving the Scotch Whisky Association just three weeks’ notice, Diageo launched its Cardhu Pure Malt on to the Spanish, French, Portuguese and Greek markets in June.

Immediately, industry analysts said the move would confuse the consumer. They warned that single malt whisky, the crown jewels of the Scotch whisky industry and the only sector that was growing, was being devalued. The fear was that in the long-term, consumers would question the whole provenance of prestige whiskies and revert to fine cognac and armagnac instead.

As Diageo’s chief executive, Paul Walsh, flew back to London from Edinburgh yesterday, he could look back at a job well done. As one city analyst said: "He played a blinder - he has managed to get away with keeping the brand name and the product in the market place."

As revealed in The Scotsman yesterday, Diageo has agreed to alter the labelling and colour of the packaging of "pure malt" Cardhu from brown to green.

It also promised not to make any similar changes to any of its other single malts and to run promotional campaigns in countries where the brand sells well to clear up any confusion about the product.

It will work with the rest of the industry to set out definitions for the different categories of whisky, starting with single malts.

Gavin Hewitt, the SWA’s new chief executive, hoped the agreement would mark the end of the "sniping and criticism" surrounding the whole issue. He said: "There was a clear undertaking that the adverse publicity was harming the industry."

Mr Hewitt rejected claims that the retention of the name Cardhu on the labelling would reignite a controversy.

It was put to Mr Hewitt that Diageo had "won" by "steamrollering its way over the industry" and getting its wish to end Cardhu as a single malt.

The chief executive said: "It is important to recognise there has been a sea change in where Diageo stands. They have recognised there were dangers in where they were going, particularly the issue of trying to suggest to consumers that it was the same product."

The militant faction led by Tony Hunt, the deputy group managing director of William Grant & Sons, has been appeased with a deal that it hopes will see Diageo withdraw the Cardhu Pure Malt next year.

Yesterday, Mr Hunt told The Scotsman he was delighted with the outcome. He said: "We are going to go now into a stage where the rules of single malt whisky are written down. When they are determined, Grant’s will campaign to have them enshrined in British law. We are confident that all single malt whisky distillers will do everything they can to bring them in line with those rules, which will be good news for the economy.

"What this whole episode has taught the whisky industry is that single malts have to be protected as the crown jewels."

One industry source said: "No single malt will be sold under the pure malt brand within a year. The feeling is that Diageo will be forced to back down eventually when the SWA draw up their guidelines."

But last night, one distillery owner who was not represented on the council of the SWA, described the announcement as "appalling".

He said: "They used to talk about smoke-filled rooms where deals are done, this deal was done in a whisky-filled room. It looks like we are beaten and nobody is happy with it."
Article Courtesy of The Scotsman

scotsman.com