Diageo given cold shoulder over pure malt move

- Last updated on GMT

Related tags: Diageo, Whisky

Diageo's decision to change its Cardhu Scotch whisky from a single
malt to a pure malt - a blend of malts from different distilleries
- has met with widespread condemnation from the rest of the
industry, so much so in fact that the world's biggest spirits group
looks likely to be forced to withdraw the brand.

Faced with a lack of whisky from the Cardhu distillery to continue making the single malt, Diageo​ decided instead to relaunch the brand - which has a major following in Spain, Greece, Portugal and France - as a pure malt.

But it was the decision to retain the brand name and packaging - changing only the label from 'single' to 'pure' - which really angered other whisky makers. Consumers, they argued, were being deceived into thinking that nothing had changed while being presented with a whisky which was clearly of poorer quality than its predecessor.

The impact that this would have on the reputation of a drink whose very existence is built on that one element was too terrible to imagine, Diageo's rivals claimed, calling on the Scotch Whisky Association, which regulates and promotes production of Scotland's most famous export, to take action against the company.

According to a report in The Scotsman​ newspaper, that action is likely to be a demand that Diageo withdraw Cardhu Pure Malt from the market on the grounds that using malt whisky not distilled entirely at Cardhu is illegal.

The SWA had thus far remained impartial, leaving Diageo to argue its own case in the face of growing criticism.

"We believe that the implications of the move have been distorted and over-dramatised,"​ said Jonathan Driver, Diageo's global brand director for malts. "Cardhu Pure Malt will contain other Speyside malt whiskies including malt whisky from Cardow distillery (formerly known as Cardhu), but will deliver the same pure Speyside flavour and style. This means that we can supply much more of it to markets where it is popular."

Driver said that Cardhu was a victim of its own success, claiming that it had been the fastest growing malt whisky brand in the world for the last five years, above all in Spain, France, Greece and Portugal, selling over 280,000 cases a year. "The only problem is that we cannot deliver any more Cardhu 12 year old single malt than we do at present. Production cannot easily be increased beyond present capacity, and even if it could, it would be another 12 years before the additional product became available."

He said that Cardhu drinkers would not switch to cheaper blended whiskies to replace their favourite tipple, nor would they trade up to more expensive single malts - at least not immediately. And, he added, they would not necessarily switch to competitor brands in the same price bracket, preferring to stick with the taste profile they like.

"In this area of the market, not supplying what people want means that they'd just as easily switch out of Scotch whisky to other spirits, such as the aged rums now popping up everywhere, or other spirits like tequila, vodka or gin,"​ he said.

So Diageo has essentially justified the move as defending the popularity of Scotch whisky against other spirits, rather than as pure versus single malt. "The protection and the integrity of the single malt segment is as important to Diageo as to any other stakeholder in the industry. With around a 17% share of annual malt whisky sales it is inconceivable that we would want to damage such an important piece of business,"​ said Driver.

He said that the fears of other industry players were overblown, and that Cardhu drinkers would understand that this was a similar, but not identical product, helped by a major advertising campaign.

While Driver is certainly right in saying that something radical is needed to ensure the future popularity of Scotch whisky - which has perennially failed to shake off its pipe-and-slippers image - the decision to change Cardhu has much more to do with Diageo's desperate attempt not to lose the momentum it has created behind the brand by running out of whisky.

The other whisky makers, of course, are just as keen to profit from this momentum as Diageo. Driver's argument that consumers would switch from Cardhu to other spirits just as easily as they would to other 12-year-old malts is somewhat glib - people who drink whisky usually do so because they are interested in the product, and will frequently experiment between brands.

If one of these disappears because of a lack of whisky, they are much more likely to switch to another brand in the same price point than to a different spirit - and are indeed likely to try several alternatives to find one which suits their palate. Only if they fail to find a whisky they like are they really likely to switch to another product.

Diageo's other alternative - to increase the price of Cardhu as stocks diminish in the hope that its loyal following would swallow the price rise - was clearly too risky a strategy for the company.

The Scotsman report suggests that Diageo has no support at all from the rest of the industry, and that the overwhelming opposition to the move has forced the SWA's hand. Although a final decision will not come until next week, the future of Cardhu's Pure Malt looks decidedly uncertain - but no less so than that of the industry as a whole.

Related topics: Market Trends

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