Diageo – The Innovative Dinosaur

by Oliver Klimek on October 17, 2010

End of September 2010 saw a major public relations effort by Scotch market leader Diageo to convince journalists and bloggers of the qualities of their new Roseisle distillery in Elgin on Speyside. In fact the distillery is not all new, it has been operating rather quietly for about a year, but the official inauguration took place only now.

The bloggers invited have published their reports now, like Cask Strength and the Edinburgh Whisky Blog to pick out two of them by random.

Roseisle is hailed as a the most modern, efficient and environmentally friendly of all Scottish distilleries, and especially the latter fact is strongly emphasized by the owners. With its annual output of 10 million litres of malt whisky it is not the largest distillery in Scotland; this merit goes to Glenlivet who just recently have expanded their capacity to 10.5 million litres.

But this does not keep many people from painting bleak pictures regarding the effects of Roseisle on the Scotch whisky landscape as a whole. The most commmon fear is that some of the smaller distilleries may face an uncertain future because of the high output and efficiency of Roseisle. Of course this topic was also a major point of dicussion during the offiical presentation, but not suprisingly Diageo tried to dismiss the fears by stating that Rosisle’s reason of existence was the growing intenational demand for blended Scotch that could only be met by building a huge new distillery.

I was not invited to the presentation, so I have to draw my conclusions from second hand knowledge. But even if Diageo’s arguments seem fair and understandable now, I have my doubts about what may happen in the future.

Now it’s a Boom – What Will Happen in a Recession?

Diageo is a global player in the drinks business. They currently see a rising demand for whisky in Asia, Africa or South America and they want to be ready to supply enough of their booze to these emerging markets. That’s fine for now, but history shows that the whisky business has never been an upward leading one way road.

Sooner or later the global demand for whisky will decline again. Even if it may be only temporary, Diageo will have to make decisions how to cope with it. Now what may be a likely scenario? We have to consider two important facts:

Diageo owns 28 distilleries in Scotland. It may suprise some of you not familar with the structures of the Scotch whisky industry, but most of these distilleries are actually rather small with a typical output of about 2 million litres per year or even less, and many of them are also still operated in a fairly traditional way. Roseisle actually looks even a bit out of place in this light.

Diageo is focused on blends. The company is deeply rooted in the tradition of Johnnie Walker. Blends are by far the most important whisky products for Diageo. Even with such prolific distilleries like Lagavulin or Talisker they are not present in the Top Ten of Scotch single malts. The Diageo Classic Malt series may seem very dominant in the supermarket of on the shelf of your local bar, but this range has not secured them a true stronghold in the single malt market! Half of the Diageo distilleries have no official single malt bottlings*), Linkwood, Mortlach or Benrinnes are a few examples. They are used primarly for the many blend brands of the company.

It does not take much prohecy to predict what will happen when global demand for whisky in general and blended Scotch in particular will decline. A big global conglomerate with a few very modern and a lot of old-fashioned and iniffecient distilleries in their portfolio will be faced wit the tough desicion to reduce their production capacity. Will they close down the highly efficient Roseisle or oldies like picturesque Blair Athol and Royal Lochnagar?

By treating blended whisky as a global commodity, Diageo with its immense influence on the Scotch whisky industry has put a good part of the Scottish economy under a constant threat, as the recent closing of the Kilmarnock bottling plant has proven. I wonder if the strange concept of concentration on basically a single product together with a simultaneous extreme diversification of production facilities will have a future.

Addendum (18 Oct 2010): Perhaps the most frightening point for me about Roseisle is that its existence is justified by Diageo with very optimistic predictions of how whisky consumption could develop in emerging markets several years down the road. This will only work out if they used a high quality crystal ball for their predictions, but what will happen if it was only a soap bubble? Linking the Scottish economy to predictions about not-yet-so-developed countries makes me feel uneasy.


*) (18 Oct 2010) I received complaints about the “no official bottlings” statement. I am well aware of the Flora & Fauna bottlings, and of course all Manager’s Choices are OBs as well. But these are all “umbrella” bottlings of a range of distilleries and no standalone distillery brands. This is what I was hinting at.

{ 8 comments… read them below or add one }

Steffen Bräuner October 17, 2010 at 8:04 pm

Most of Diageo’s distilleries seem to have a function in the big group these days

Royal Lochnagar, the smallest distillery in the group, is functioning as their whiskyschool, where all their staff is taken thru to get educated about all the aspects in whisky production

In essence its a very old fashioned distillery where whisky is very handmade

Steffen

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Oliver Klimek October 17, 2010 at 9:02 pm

That’s a tidbit I didn’t know. Let’s just hope the staff won’t get a shock if they see Roseisle for the first time after having been trained at Lochnagar ;)

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gal October 17, 2010 at 9:42 pm

Oliver

i agree.
seeing this big new shiny distillery gives me the creeps. i dont like it one bit!

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Steffen Bräuner October 17, 2010 at 10:14 pm

Well, it got a lot of press. Anyone lifted an eyebrow when Glenburgiw was rebuild in 2004 into a similar big distillery ?

When Glenlivet was extended this year it got some press, for being modern and efficient and what not, with the press invited even. Looking at the distillery it’s just a “copy” of Glenburgie :-)

So Chivas has basically done the same as Diageo, just split it over two distilleries, no mordorisation there, to me it seems like Diageo is a bit unlucky with being in the line of fire here compared to their main competitors (Grants made Ailsa Bay, noone thinks they will ever close Glenfiddich and Balvenie, myself included – and I know Ailsa Bay is a Balvenie clone)

Chivas has their own training distillery as well : Glentauchers

Having seen Royal Lochnagar, its nice to know the Diageo staff is trained in the whiskybasic the somewhat old fashioned way. If I understood them correctly, it was just the production staff who went thru a short school there.

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Jason's Scotch Whisky Reviews October 18, 2010 at 3:24 am

I have heard that Oban is run by two guys, a computer and a cat. I’m serious.

I have a real love/hate relationship with Diageo. On the one hand, I recognize their genius of marketing (ie. freezing scotch as suggested with Gold Label; Johnnie Walker Blue at a ridiculous price, no age statement, great but not fantastic, but sells!) and on the other, I sense they are a corporate behemoth that can shut down a distillery in a heart beat if sales drop. But, let’s not beat up on them too much. It’s not like the other drinks companies are kindred spirits of the scotch enthusiast. Remember it was Highland Distillers who shut down Tamdhu without much explanation. I understood the operation was profitable, just not profitable enough . . . .

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Oliver Klimek October 18, 2010 at 6:38 am

I don’t think I’m beating them up, just expressing some doubts that I am not alone with. They can make great whisky, but I am not comfortable with what they do with it.

And there are a lot of twofold issues with Diageo. The Edinburgh Whisky Blog article makes a nice point about Diageo lamenting tha much “bullshit” is written, but on the other hand they are very very reluctant to give out information.

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Jason's Scotch Whisky Reviews October 18, 2010 at 11:37 pm

Reluctant to give out info, absolutely! I emailed them about the disappearance in Canada and parts of the US of Johnnie Walker Green and Gold Labels (I hear it is no longer supplied in Canada as they can sell it in the Far East for more money), and to date no response. Usually when I pose a question they get back to me asap. Ahh well . . .

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Peat March 12, 2013 at 11:44 am

Having tried and not liked Johnny Walker Black and not liked it, and the Blue, which I thought was good, and probably worth $40 – $60, it’s beyond me how Johnny Walker is so highly regarded.

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