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.
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.