It was bound to happen sometime that I would write something about Diageo since they are more or less constantly in the news lately. Although writing is a big word here. I merely point out the relevant articles and quote a story from the Ileach. For those of you who never heard of Diageo, this company is the biggest drinks corporation in the world. With Pernod, it owns 60% of Scotch whisky production. With Pernod, William Grant, Edrington and Bacardi, it owns 80% of Scotch whisky production. Diageo owns 27 distilleries, 17 of which are in Speyside, representing almost 40% of the 44 operating distilleries in the area (out of 53). It makes £2.5 billion profit per annum and it also owns Lagavulin, Caol Ila and Port Ellen Maltings on Islay. And I recently found out that Diageo is Dutch.... now I have your attention :-)

All the attention the company received lately is not because they are the best employer in Scotland, at least not for the 900 people that will most likely be laid off by shutting down the Port Dundas distillery in Glasgow and a packaging plant in Kilmarnock. You can imagine that this triggered a negative wave of publicity, specially given the hard times at this very moment on the job market. Someone on Islay who wasn't afraid to speak out was Mark Reynier, MD of Bruichladdich distillery, who is not the biggest fan of Diageo to say the least. On his blog, www.laddieblog.com you can read several stories why, and a lot of other good stuff by the way. Also ForArgyll spent millions of pixels to explain what is going on and as far as I can judge they have done a superb job. I advice you to read the articles Diageo: the real issue is the Scotch Whisky Industry and Diageo the continuing Saga. Make sure not to skip the comment section! Continue reading...

The praise in the latest article of ForArgyll goes out to Carl Reavey, editor of Islay's own newspaper The Ileach. Carl Reavey takes his responsibility and is not afraid to criticise mighty Diageo, something other media are not to keen on due to the huge power the drink giant has in Scotland. For the sake of being complete I'd like to publish Carl's superb article on this blog, as well as the response from Brian Higgs, Malt Distilling Director Diageo, Scotland.

Now I tend to believe that the Malt Distilling Director of Diageo himself responded directly to Carl Reavey's article simply because Carl made such a strong point, otherwise you let a lower ranked member of staff write a letter or not respond at all. I will let you decide for yourself but I think it's remarkable that a director of a multinational responds in person to an article in a, with all respects, relatively small newspaper. Where there's (peat) smoke there is a fire.....

Diageo - Convenient whipping boys or a threat to ‘the legendary reputation of Scotch whisky’?

The whole of Scotland is after Diageo at the moment. Alex Salmond addressed the 20,000 demonstrators in Kilmarnock last weekend thus: 'Today’s march and rally demonstrated that the people of Scotland stand behind Kilmarnock and the campaign to keep Diageo in the town. 'This rally marks another step forward in the joint campaign to persuade Diageo of the substantial economic advantages in retaining their long established and hugely beneficial links with the communities of Scotland.'

Perhaps even more telling were the words of Scottish Conservatives leader Annabel Goldie, who said: 'This march has sent a powerful and passionate message to Diageo. 'Across communities, across political parties and across organisations that message is: Do not tarnish the legendary reputation of scotch whisky and do not abandon the legacy of generations of skilled and loyal employees who have made Diageo the hugely successful company it is today. 'Corporate success should never exclude corporate responsibility.' Blimey. That was the Tories!

But what did she mean? Were these just empty words? Is this ire simply aimed at a convenient faceless corporation, or is there something more going on? Are Diageo simply doing the wrong thing in the wrong place at the wrong time, or is Annabel Goldie correct - does corporate Diageo represent a threat to the 'legendary reputation of Scotch whisky'? The evidence for the defence does not look good. Diageo was only created in 1997, at a time when the unpleasant whiffs from the troubled past of its constituent parts were still wafting about. Some of the characters involved included Ivan Boesky the New York stockbroker, who was jailed for insider trading and the infamous Guinness Chairman Ernest Saunders who was convicted of fraud. Saunders famously contracted Alzheimer’s disease while inside and was released after serving only ten months. He subsequently became the only person in the world ever to have recovered. Gerald Ronson, one of the co-accused in the Guinness scandal implied in his autobiography that he planted the idea in Saunders head that he should feign mental illness - going on to suggest that this wouldn’t be too difficult for Saunders 'because besides being a psychotic liar, you are mentally deranged'

While any company of the size of Diageo is bound to create some controversy, it is the nature of some of the controversies which tends to raise eyebrows. The company claims to promote ‘responsible drinking’, and indeed pushes this to an almost embarrassing extent in some circumstances, yet in 2006 the Advertising Standards Authority slapped its wrists for promoting its alcopop ‘Smirnoff Ice’ to under eighteens. In 2002 the company faced another inquiry into Smirnoff Ice, this time by American regulators. The Bureau of Alcohol, Tobacco and Firearms (BATF) looked into the branding of the drink amid concerns it could be misleading to consumers. The problem revolved around the fact that 'Smirnoff Ice does not contain vodka - or any other type of similarly distilled alcohol - but rather a 'malt beverage' derivative, a fermented alcohol more akin to beer than to vodka.' Nice.

In December 2003, Diageo provoked a storm in the Scotch whisky industry over its decision to change its Cardhu brand from a single malt to a vatted malt (also known as a pure malt) whilst retaining the original name and bottle style. Diageo took this action because it did not have sufficient reserves to meet demand in the Spanish market, where Cardhu had been successful. They were eventually forced to back down after a fierce campaign led by whisky independent William Grant and Sons.

On Islay, the noted drinks journalist Andrew Jefford pointed out in his book 'Peat Smoke and Spirit' that: 'The vast majority of the whisky in every bottle of Lagavulin has been aged not on Islay, but on the Scottish mainland. Lagavulin and Caol Ila are the two big exceptions to the general principle that Islay whisky is aged on the island - and to the general belief that island-aging has a profound influence on the quality of the spirit.' To Diageo, these points are irrelevant. Why should it matter where Lagavulin is matured? Why should it matter that bottles of Cardhu are actually mostly filled with spirit from other distilleries? To Diageo, Smirnoff is just a brand - it does not necessarily mean vodka. Does the Diageo Board think the French, Spanish, American, Indian and Chinese markets care about the association of Johnnie Walker with Kilmarnock? In the world inhabited by the world’s largest drinks company, the word ‘Kilmarnock’ represents nothing but an unnecessary overhead.

The logical conclusion of this approach is to ask, why should Diageo bother with individual distilleries at all? If you can hire a few of the right people, why not build one uber-efficient mega distillofactory, where super-bright chemists can reproduce the flavours and nuances of the ancient whisky brands in the comfort of the laboratory and then programme the hi-tech megastills to deliver exactly the right spirit of exactly the right character in exactly the right amounts? The distillofactory could be promoted as super-green and ultra-sustainable. It could be located next to a major port for bringing in the malting barley from around the world - purchased from wherever the market is currently most favourable. It could be located next to a railhead from where colossal volumes of finished product could be efficiently distributed. Spirit exhibiting the character of every whisky region, indeed every distillery, in Scotland could all be produced in one environmentally sound, sustainable, drink-aware kind of place.

When Diageo announced their £100million investment at Roseisle David Gosnell, Managing Director of Diageo Global Supply and Global Procurement, said: 'Through exports of Scotch Whisky, Scotland has a strong representation in the global economy. To maintain Scotland’s competitiveness, we need to be fast, responsive and adaptable and deliver even higher levels of service and support. This means investing in a modern, flexible supply chain - by doing this we will help Scotland maintain its competitive position and ensure the continued success of the Scotch Whisky industry.' Critics will continue to maintain that the closure of Kilmarnock is simply one more step along this path.

Carl Reavey
Editor Ileach Newspaper
Bowmore, Islay

Diageo displeasure

Dear Sir
I read with a mixture of anger and despair your piece on Diageo in The Ileach 36/20 1 August 2009. The anger comes from an inability to find any rationale for the piece other than malicious gossip based on ill-informed comments and outlandish conspiracy theories. The despair was generated by the knowledge that a number of colleagues on Islay, who I am immensely proud and privileged to be associated with, would have to read and endure this nonsense. After reflection and consideration I came to the conclusion that my anger may be somewhat of an over reaction and the content of the piece may simply have been a result of a lack of information about Diageo, its products and its people. Ignorance of the facts, whilst unfortunate, may not necessarily be malicious. So, I suggest we have a meeting where I can explain our company, its products, its values and our long-term business strategy. I will arrange to bring with me, where you think useful, various colleagues who will happily answer any questions I do not have the qualifications or experience to address. But before we do this, I think you owe an apology. Not an apology to ‘corporate’ Diageo, not to me, but to the employees of Port Ellen Maltings, Lagavulin Distillery and Caoilla Distillery. Whatever the reasons behind your piece, be they driven by malice or ignorance, these people do not deserve to have to read such dross.

Brian Higgs
Malt Distilling Director
Diageo, Scotland

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