Who owns our whisky?
Diageo is cutting 900 jobs at Kilmarnock and elsewhere, and Indian-owned Whyte & Mackay is axing 100 more. But does it matter that conglomerates and firms outside Scotland own most of the whisky industry? Chris Watt has been finding out
DECADES of foreign incursion have turned the Scotch whisky industry into a fiefdom of the major conglomerates, according to the heir to one of Scotland's last independent spirits dynasties.
George Grant, the sixth generation of his family to work at the Glenfarclas distillery in Speyside, made the comments after Whyte & Mackay, owned by an Indian tycoon, announced nearly 100 redundancies in its Scottish heartland.
Overseas firms now control nearly half Scotland's distilleries, and of the 60% that remain within UK ownership only around half belong to Scottish companies.
Grant, who has lived at the Glenfarclas distillery site since he was three years old, said: "It's incredible the changes that have occurred. We're family-owned and run, but it's weird when you go across to the US or somewhere and tell them that most distilleries are owned by Diageo, or Pernod Ricard. Most people, unfortunately, don't care.
"The world we're in is a conglomerate state, unfortunately."
The Grant family firm - not to be confused with the larger W Grant operation, which also retains its independence - is one Scotch whisky firm that has held out against foreign buyers.
But of Scotland's 105 distilleries, only 20 or so remain the property of smaller independent operators, and some of those are newer firms opened in the last decade.
Approximately 17% of Scotland's whisky industry is owned by continental Europe, with the largest players coming from France. Pernod Ricard, Louis Vuitton Moët Hennessy (LVMH), Gruppo Campari, and La Martiniquaise, which has recently purchased Glen Moray distillery, are among the largest European owners.
Japanese firms such as Suntory account for 5% of the Scotch industry but, perhaps contrary to public perceptions, the United States owns relatively little, with just 2% of Scotland's distilleries.
Of multinationals elsewhere in the world, Thailand owns a chunk through its InterBev holding, Indian multimillionaire Vijay Mallya owns Whyte & Mackay, and a number of Caribbean rum firms make up the balance.
The latest figures may chill the blood of traditionalists who seek to keep Scotch in Scottish hands, but commentators across the industry spoke out in defence of big corporations and international investors.
Alan Gray, a whisky analyst with 40 years of experience, said although recent decades have seen a dramatic shift towards foreign ownership, this has led to increased investment and accelerated growth.
According to figures he has compiled for his annual Scotch Whisky Industry Review, the proportion of distilleries owned by UK firms has dropped from 78% in 1980 to just 60% now. The popular imagination often bestows "Local Hero" status on smaller firms, but Gray was upbeat about the effects of foreign and big-business intervention.
"In the main, the firms have actually done quite a good job, he said. "Scotch is such an international drink - 91% is exported - that you could actually see it as positive. It shows the importance that foreign investors put in it."
Diageo owns almost a third of Scotland's distilleries, and Peter Smith, the firm's head of Scotch and regulatory affairs, said: "You've got these foreign companies seeing the strength of Scotch and buying into the industry. It undoubtedly has a positive effect and it's been very, very successful. Last year there were £3.5bn of exports."
And while Diageo's London headquarters means it is often viewed with suspicion in the Scotch industry, Smith was at pains to point out that 30% to 40% of the company's global staff are employed in Scotland.
Of those brands still owned and based in Scotland, many of the biggest sellers belong to two large operators: the Edrington Group and W Grant & Sons.
Edrington, which last month announced record pre-tax profits of £94.8m, is unusual among whisky producers in being controlled by a charitable trust. Established in Glasgow in the 1850s, The Robertson Trust is now funded mainly through profits from its whisky business, and last year gave almost £10m to various charities. Historically, the group has adopted a "safety in numbers" approach, helping its brands to hold out against foreign interest, and it has recently shaken up its business by expanding overseas with the acquisition of Brugal rum in the Caribbean.
W Grant & Sons, which vies with Edrington for the title of second-largest producer in the UK, is still family-owned in spite of its massive size. It has also expanded recently beyond its traditional business, launching Sailor Jerry rum and the award-winning Hendrick's gin.
And while the giants tower over the industry, several smaller players spoke with grudging admiration of the work of the larger firms.
Jonathan Brown from the family-owned Drambuie liqueur firm, said: "You hear the same sort of arguments about Scottish land-ownership, and I think my view is that it doesn't matter so much where the owners of the company come from as how they run the business and act as guardians of the product. There's a number of cases where significant foreign investment has benefited industries, whether in whisky or elsewhere."
George Grant added: "If it wasn't for companies like Diageo, the rest of us might actually struggle. They're out there educating people - they've got a team of 30-odd whisky ambassadors who run tastings in the States every night, and they're not afraid to tell people that there are other brands beyond Johnnie Walker. They move people into drinking malt, but once you drink malts you realise there are other brands out there."
Even as the debate over ownership rumbles on, the Scotch whisky market still has plenty of space for both larger and smaller producers, said Leonard Russell, who owns and manages the family firm that produces Glengoyne.
"As the industry has consolidated, the size of the niche market has become bigger and so we too have become bigger. We think of ourselves a moderately sized family producer as top of division two, with the big multinationals in division one," he said.
"They can get huge distribution and build large brands, but we can be quite lean and mean and choose our market. We're not looking at costs as much as them. I say to the people who make Glengoyne, just make the best whisky you can', and that gives them enormous job satisfaction."
Scotch Whisky Association spokesman David Williamson stressed the importance of the fact that all Scotch whisky must, by law, be made in Scotland.
He added: "International investment shows confidence in the future growth of Scotch and is good news for the industry, helping Scottish distilleries compete in 200 export markets worldwide."
But even as they sing the praises of foreign owners, Scotland's domestically-owned firms are proud to state that they will be retaining their homeland bases long into the future.
"My father and grandfather were approached by foreign buyers, but you can only sell a distillery once - after that, what do you do?" asked Grant. "It's a great honour I have as the sixth generation here. If I walk into the warehouse I can see my name stencilled on every cask. That has to mean something."
Who drinks our drams?
WITH an export market of more than 200 countries, Scotch whisky can truly claim to be the world's most global spirit.
More than 90% of whisky consumers live outside the UK, and overseas sales of Scotch account for more than £3bn annually - almost one quarter of UK food and drink exports.
Given the USA's wealthy population of approximately 300 million people, it is not surprising America leads the world in whisky consumption. More than £371m of Scotch whisky was sold to the US last year, accounting for more than 100 million bottles - though France is fast catching up with the States as the most lucrative export market.
Despite having less than a quarter of the US population, the French actually drank more Scotch over the course of 2008 than their American counterparts. Consumers in France tended to buy cheaper whiskies, meaning that export values were slightly lower, but the gap between the two countries is closing fast as whisky catches on with Gallic drinkers. Figures from the Scotch Whisky Association show that France already buys more Scotch in a month than it does Cognac in a year.
Coming in third in the global exports table is Spain, where whisky is a popular drink with young clubbers. Contrary to the UK market, which tends to be geared towards older connoisseurs, many Mediterranean drinkers favour light blends with ice and mixers.
The remaining places on the global export table are spread around the world, with Singapore, South Korea, Greece, Germany, South Africa, Taiwan and Venezuela all enthusiastic whisky fans.
As leading distilleries look ahead to the future, however, many have their sights set firmly on the emerging markets that are expected to dominate the next century. While India, China, Russia, Mexico and Brazil may not drink huge quantities of whisky at the moment, demand is expected to soar as disposable incomes increase.
Overcoming the popularity of domestic spirits, such as cachaca, rum and tequila, will be one of the toughest challenges ahead for Scotch producers, and local contacts are seen as one of the key advantages provided by international conglomerates.
Scotch producers are united in their optimism for the future. Whisky exports rose steadily from 952 million bottles in 1999 to 1.8 billion last year and as the appeal grows worldwide, so too do whisky firms, Scottish-owned or otherwise ...
Sunday, November 15, 2009
Who owns Scotland's Whisky?
OK, so this is an OLD story, but I only just read it. It appeared on August 8th, 2010 on the HeraldScotland.com website, click here for the original posting. The only author byline was "heraldscotland staff."