Loch Fyne Whiskies - Scotch Whisky Review

The battle of Cardhu at the end of last year will go down in Scotch whisky history as the bloodiest since the days of Ernie Saunders and the Guinness take-overs of the mid-eighties. It broke out over Diageo’s decision to turn its top-selling single malt into a vatting of Cardhu and other malts from neighbouring distilleries on Speyside. Having informed the Scotch Whisky Association of its plans in April, the bottling lines were fired up and the first shipments of Cardhu Pure Malt began arriving in Spain. There was then a slow, rumbling build up of indignation among rival distillers, notably William Grant & Sons, as bottles began to appear on the shelves. By September, with no resolution at the Council meeting of the SWA, the Cardhu story was becoming too hot to handle. For a month it simmered behind closed doors and then exploded into the open. During November it generated more column inches and airtime than the rest of the Scotch whisky industry had managed in a year. With Diageo’s reputation under attack in the press, threats of litigation and even questions in the House of Commons to Tony Blair, an internal family feud had become a very public spat.

Then almost as quickly as it had erupted peace was declared on December 4th outside the SWA’s headquarters in Edinburgh’s Atholl Crescent. ‘Pure Malt’ was to stay, but with a new green label to differentiate it from the old brown label of Cardhu Single Malt. For interested observers like myself it was hardly the climax we’d been promised. It was also obvious who had won. While no one from Diageo’s Global Malts team was punching the air and shouting ‘Yes!!’, at least not in public, there were some pretty grim faces among rival maltistas and dark mutterings of betrayal. Strangely enough Tony Hunt, deputy MD at William Grant & Sons, was refusing to look glum on the steps of the SWA. In fact according to The Scotsman he was grinning like a Cheshire cat.

But maybe not so strange, as events were to take ‘a sudden and dramatic twist’ as they say. Three months after the issue was ‘officially’ resolved, a brief press release slipped out from Diageo HQ one quiet Tuesday in March. It seemed the world’s biggest drinks company had had a sudden change of heart. Cardhu Single Malt was to be reintroduced in its core markets in Continental Europe while its much-maligned protégé, ‘Pure Malt’, was to be phased out. The reason given by Ian Meakins, Diageo’s President of EU markets, went as follows. “Although our revised proposals for packaging were accepted by the Scotch Whisky Association, we committed to work with them on a review of Scotch whisky definitions. The direction of this definitions work is clear. In future, distillery names should be used only for single malts. We believe that our decision will allow all those involved to focus on the completion of this work.”

Let’s pause and consider a couple of things. First the timing of Diageo’s apparent volte-face. The announcement to drop Pure Malt occurred just ten days after the company released its half yearly interim results. These showed turnover up 4% to £5.06 billion and a 6% rise in operating profits to £1.16 billion. With the Cardhu affair seemingly resolved there were no awkward questions from shareholders to Diageo’s MD, Paul Walsh. Second the reaction of the media to the March 9th press release. Compared to the storm that blew up in November, the silence was almost deafening. A few articles here and there, a couple of comments and then nothing. However it did give rival distillers the opportunity to welcome the news. “I think it’s been an excellent and brave decision, and they’ve done it in the greater interest of the industry” declared Mike Keiller, chief executive of Morrison Bowmore. While Ronnie Cox of Cutty Sark International, whose great grandfather sold the Cardow distillery to DCL in 1893 said he was “absolutely delighted. Diageo have had the courage to admit defeat.” Which begs the question why, having gone through all that pain, did the company choose to surrender now. Was it really just about Scotch whisky definitions?

Before trying to answer that, let’s consider the background for a moment. The story dates back to 1997 when Diageo was formed out of what was Guiness-UDV. The company’s single malts were grouped together under one department to be run by Jonathan Driver. Cardhu was always the odd one out and did not sit easily with the Classic Malts. It was sold predominantly in Spain and was considered an ‘after-dinner drink’ rather than a single malt per se. In its packaging and price it competed head to head with Chivas Regal. Having been sold mainly in Barcelona and Madrid the brand went national under a new distributor who were thrilled to have a deluxe Scotch to add to their Smirnoff, Bailey’s and J&B. The portfolio also included Johnnie Walker Black Label, the top-selling deluxe blend that dominates the 12 year-old stakes alongside Chivas Regal just about everywhere else. For whatever reason, possibly because Black Label had some negative association with the time of Franco, the Spanish distributor was only really interested in Cardhu. With a big advertising blitz, sales took off like a rocket, but Driver insists that no one could have predicted they would grow by nearly 100,000 cases between now and then. He says that “alarm bells really started going two and a half years ago.”

If satisfying the Spanish had been the only concern, Cardhu might well have coped as a single malt, but of course Diageo’s ambitions went further than that. There was Portugal, Greece and one day the US—a potentially huge market for the brand which currently sells a mere 4,000 cases there. Various options were looked at. To create a new brand and call it say, ‘Glen-dhu’ was quickly rejected. To dampen sales by raising the price was considered ‘commercial suicide’. “If we went down the high price limited supply route,” said Driver, “we would be walking away from the malt whisky market in Southern Europe.” In his view using scarcity to justify a price hike only works for connoisseur malts like Lagavulin.

But what of that other solution to a supply problem—abandon the 12 year old age statement? This is what Tony Hunt says he would have done; indeed his main brand, Glenfiddich, had to do just that on occasion and suffer the odd snide comment as a result. Yet it seems in this case, the magic figure 12 was too important. There was also the prospect of a big inventory hole in 2007 thanks to nine months’ lost production in the mid-90s when a new still-house was built at the distillery. Besides, even if it were unaged, Cardhu would hardly have the stocks to conquer North America on its own.

The solution, as everyone knows, was to create Cardhu Pure Malt—a vatting of Cardhu, Glendullan and various other Speysides. Driver says that five years ago his mission at Diageo was “to go away and get the share [of the malt market] that matches our productive capacity.” The trouble was Glenfiddich was two and a half times the size of Diageo’s biggest malt distillery. It had tried with Glen Ord, dubbed the ‘the Glenfiddich buster’, and had failed. But with a vatted malt there would be no restriction on supply. At which point the sales graph of the world’s fastest growing brand of malt whisky could continue its cartoon-like trajectory and overtake Glenfiddich within ten years. No wonder William Grant’s were worried.

As for the perpetrator, it transpires it was not some suit at Diageo Head Office but the larger than life figure of Turnbull Hutton. “I’ll hold my hand up, it was me,” said the company’s former head of Scotch whisky production. “It was the logical way to go.” It is a view he still holds, though if Turnbull had had his way the execution might have been rather better. For a start Diageo might have changed the name of the distillery from Cardhu to Cardow a lot earlier than it did. Leaving it so late only fuelled the indignation of its rivals. And choosing a subjective phrase like ‘Pure Malt’ was bound to be provocative, implying it was somehow better than a single malt. On the other hand no one at Diageo feels any need to apologise for the quality of the whisky itself. The vatting preserved the style and flavour of Cardhu Single Malt and may well have improved it. If consumers didn’t like it they would have voted with their feet. It certainly wasn’t a cheaper option, which is usually the motive for someone trying to ‘pass off’ a product as something else—this being the crime of which Diageo were accused. “We were very clear that as long as we were bringing consumers with us in Cardhu Pure Malt we were fulfilling our part of the bargain,” Driver told me in March.

However the company did know that Cardhu Pure Malt was likely to be contentious among some in the industry, even if they badly underestimated the level of concern. What they didn’t anticipate was the very public nature of the row when it blew up particularly in Scotland, and here one can sympathise. This was not a brand destined to be sold in the UK after all, and besides the whole issue seemed far too technical to be of interest to the mainstream media. But Diageo reckoned without the genius of Jack Irvine, William Grant’s secret weapon.

Jack Irvine knows a thing or two about the media having been Rupert Murdoch’s main man in Scotland and editor of the Scottish Sun. Now with his own Glasgow PR company, Media House, the so-called ‘rottweiler of Scottish spin’ was perfectly placed to turn up the heat and get the issue into the open. “I have been retained by William Grant & Sons to help resolve this unfortunate situation,” he wrote to Members of the Scottish Parliament on November 3rd. There followed a blistering attack on Diageo’s “sharp practice against the consumer” ending with a reminder to MSPs that this was “the company which introduced Smirnoff Ice—the only trouble was that it contained no Smirnoff!”

Within days Irvine had it raised in Holyrood, Westminster and the European Parliament at Strasbourg and had mobilised the all-party Scotch Whisky Association. At the same time he was furiously feeding the press. His paymasters at William Grant’s were well-pleased. Deputy MD, Tony Hunt, praised his ability to get “what sounded a very technical, esoteric issue—the difference between vatted and single malt—into the public arena.” As for the reward, rumoured to be well into six figures, Hunt said, “I think in the end we have a result that will deliver long-term value for the industry. So if William Grant & Sons have had to dip into their sporrans to pay for it, well I think it was money well spent.”

Asked if it were ‘Jack Wot Won It’?, to use a Sun-style headline, Irvine sounded bashful. “I was given a job to do, a pretty tough job. We did it, we got handsomely rewarded for it, we got the result.” He also played down his achievement. “We were pushing at an open door. It was a great story. It was about Scotland’s most famous product and it was about David vs. Goliath. Newspapers love all that.” In other words the story had become the story and it didn’t much matter what Diageo said, they were always going to be the villains. The one thing the PR campaign failed to achieve was any significant coverage in foreign markets. In his letter to MSPs in early November, Irvine wrote of how the issue would soon ‘catch fire’ abroad. This did not happen.

William Grant’s hired Media House because the Scotch Whisky Association were unable to resolve the matter behind closed doors. According to Tony Hunt, “The SWA have some difficulty policing Diageo because Diageo are the dominant player and provide reportedly 40% of the funding for the SWA.” Irvine puts it more bluntly, “Grant’s and all the rest of the boys felt that if Diageo didn’t get a short, sharp lesson, Diageo were never going to change their ways, because Diageo has always been a bully.” In the early sixties the Chairman of what was then DCL supposedly threatened to cut off grain supplies to Grant’s when he heard they planned to advertise one of their whiskies on TV.

So was it really media pressure? Jack Irvine clearly thinks so. “They [Diageo] knew there was a lot more to come. They knew we could be very, very bad boys when we wanted to. And we had virtually ‘carte blanche’ to bring these people to their knees, as long as it was all done legally and above board. They knew they were in for just bucket-loads of this stuff.”

For his part Turnbull Hutton finds the whole story ‘bizarre’. “My understanding is that certain members of the board got the wobbles because of the bad publicity.” There has been speculation that Lord Blyth, Diageo’s 63 year-old chairman, was so embarrassed by the whole episode he wanted to draw a veil over it. Meanwhile in the background hung the vague threat of litigation. “We have sued people in the past,” said Tony Hunt darkly. “We have sued Glen Catrine over Grant’s Vodka. But suing a company like Glen Catrine is one thing, suing Diageo would be a nightmare.”

Informed sources say that it was not fear of ending up in the courts that resolved matters, but a secret deal struck between Glen Gordon of William Grant’s and Diageo on or around December 4th. As a family member, Gordon was Group MD until 2000, and then stayed on as a non-executive director. He has now left the company “to pursue other family interests”. The green label was simply a fig leaf designed to give Diageo the chance to leave the scene with its dignity intact. Tony Hunt insists the dispute was never personal. “We were never fighting a blood feud with Diageo”. Whether Jonathan Driver sees it this way is another matter.

We will never know what stories Jack Irvine had up his sleeve nor whether media interest would have endured. Eventually negative comment would have drip-fed into the stock market, but as things stand Alan Gray, whisky analyst at Sutherlands, does not believe Diageo has suffered any lasting harm. The costs would have been nothing compared to the £18 million reputedly spent on withdrawing Captain Morgan rum from the US in late 2002. Meanwhile something big is expected to rise from the ashes of Pure Malt. “I think it’s very safe to say that there is a lot of energy inside Diageo to produce a massively successful malt whisky brand as a consequence of all this,” said Driver in March. “There is considerable corporate energy and personal energy to bring that to fruition in a time period that might be less than 12 months.” With Glenfiddich in its sights, revenge could be sweet indeed.