The Scotch Blog

Edrington strategies seem to be working

The work that Edrington has been doing with their brands seems to be bearing some fruit. Here is a recap and commentary on the Edrington Group's results for the 12 months ending 31st March, 2007 and announced on July 4th 2007.

The Famous Grouse
The Famous Grouse, already popular in Scotland is starting to take off in other places, including the US. I became a big fan of the Grouse while in Scotland, where FG is the number one selling Scotch.

The Famous Grouse, our flagship brand, exceeded three million cases sold for the first time in 2006/07.  The brand has been the market leader in Scotland for the last 27 years and it is pleasing to report that it has also improved its position within the UK, its largest market. We continue to invest significantly behind The Famous Grouse in international markets and the brand has grown and developed its premium positioning in all of the key territories: Europe, The Americas and Asia Pacific.

Priced right and quite smooth it's a great house blend for your bar. I'd suggest stashing a few bottles because when a company talks about "premiumising our portfolio of key whisky brands" it generally means they will be raising prices.

India Sucker Punches Liquor Industry

What did I say?

If there was a way for India to reduce import tariffs on holdings of Indian Companies (i.e., Whyte & Mackay) while figuring out a way to retain restrictive protectionist tariffs on other imports, they would.

And apparently they did.

Today (Sunday) William Lyons reports in "Scotland on Sunday" that just days after the India Government talked about removing the protectionist national tariffs, they introduced a way for each of the 28 states to implement their OWN protectionist tariffs.

But I fully expected something like this. And I told you so.

From the Scotland on Sunday Article:

Under the terms of the Indian constitution, the central government delegates tax-raising powers on imported goods to a state level. Technically the states are being encouraged to abide by the government's World Trade Organisation commitments and levy the same excise duty on imported goods as they levy on domestic alcohol products.

But sources in India say that state duties could increase by a similar amount to the reduction in central government duties which could mean a state levy of up to 150% - effectively neutralising the national government tax cuts.

Last night one Indian based source said: "It is possible that the state duties will increase by a similar amount to the reduction in central government duties as this has happened in the past. I am therefore not yet chilling the champagne."

Any move by the states to implement such a punitive tax would likely to be frowned upon by the WTO disputes panel, which has the backing of the EU, the US, Japan, Chile and Australia.

Read the whole article here.

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UPDATE: July 16, 2007

According to a source involved in the talks the recent articles in The Scotsman are not entirely accurate.

What the EU and US have been campaigning for are non-discriminatory tax treatment for imported alcohol. As far as they are concerned, The India government has delivered this and all liquor imports should now be treated equally with domestic spirits on a tax basis.

The government is indeed in the midst of changing legislation to allow the individual states to set their own taxes on imported liquors, but the agreement stipulates that the Government will ensure that these import taxes are in line with taxes on domestic liquors.

The EU has already moved to have the WTO dispute panel on this issue, so sure are they that there is no longer an issue - they are confident that a level-playing field has been achieved.
http://ec.europa.eu/trade/issues/respectrules/dispute/pr160707_en.htm

Because of the state control, the price of alcohol may actually go up in some states, while hopefully, in others it will be reduced.

The basic Indian customs duty of 150% is still very high by international standards, and the world market hopes that this level is reduced in the foreseeable future.

Breaking News: India "mysteriously" changes its mind

Today (July 4th) the Government of India announced that it will abolish the discriminatory Additional Duty levied on Scotch Whisky and other imported spirit drinks.

I've long said that the hard-line position of the Indian government will mysteriously change to one of reconciliation. And would the threat of WTO sanctions be the cause of this change of heart?

Of course not. It's Vijay Mallya's UB Group acquisition of Whyte & Mackay, and his subsequent need to get the W&M products into India so he can then mix them with his Indian whisky-flavored Rum and try to further confuse the Indian market.

I've also stated that if there is a way to get around the tariffs - bringing in W&M products while keeping the tariffs in place for the products of other companies - he will indeed find a way to do it...he is after all a very influential Member of Parliament.

Continue reading for the SWA announcement . . .

SWA Clarifications on EU Rulings

Here is an update/clarification from the SWA's David Williamson in regard to my recent New EU Whisky Law - as well as an answer to a question I had asked.

Kevin

Further to our talk earlier this week, a provisional version of the new European Spirit Drinks Regulation, adopted by the European Parliament on Tuesday, can be found at:

http://www.europarl.europa.eu/sides/getDoc.do?type=TA&reference=P6-TA-2007-0259&language=EN&ring=A6-2007-0035

The EU definition of 'whisk(e)y' is in Annex II.  The Regulation is expected to be formally endorsed by EU Member States after the summer recess and will enter into force shortly thereafter (when the final text is officially published by the EU).

Separately, the existing entry on the blog site on this subject seems to suggest that the EU Regulation 'approves' the industry's proposals for new Scotch Whisky legislation (on definition and presentation) in the UK. 

Rather, the SWA is in discussions with UK government about the industry's package of proposals and how best to introduce the domestic legislation that will implement them.  Once that domestic legislation is passed, there is an opportunity to take things forward at EU level.  Under the new EU Regulation, there is a facility for individual Member States, such as the UK, to register their national rules on spirit drinks with geographical indications at EU level, and to have the rules enforced across the rest of the EU.   

I hope this is helpful.

David Williamson
Public Affairs Manager
Government & Consumer Affairs
Scotch Whisky Association

I had also asked David:

"What is the SWA position on someone mixing Scotch Whisky (or any whisky which does/will meet the generally accepted definitions of whisky (i.e., grain; oak; maturation, etc.) with a drink that does not meet the definition (e.g., a molasses-based "whisky")."

If a Scotch Whisky, or any other whisky as defined under the EU Regulation, is mixed with any other spirit, e.g. a molasses-based spirit, then the final product cannot, under EU and UK
law, be described as 'Scotch Whisky' or 'whisky'.

Under both current EU law and the new EU Regulation, such a product would have to be described as a 'spirit drink'.  (There are fairly complicated rules as to what else could appear on the label depending on the circumstances.) 

Both the current EU Regulation, and the new one, apply equally to spirits produced and sold in the EU, spirits imported into the EU, and spirits exported from the EU.  In other words, the new text makes no change in this regard.

New EU Whisky Law

Today (June 19th), The Scotch Whisky Association announced that the European Parliament voted and approved clearer EU rules on whisky production, which includes improved protection for Scotch Whisky

The approved regulations include a wide range of improvements to existing EU spirit drinks law, including a clearer legal definition of ‘whisky’, which will assist whisky distillers to tackle unfair and misleading practices overseas.

Nick Soper, the SWA’s European Affairs Director, commented:

Improved EU protection for the traditional way of making Scotch Whisky is a significant step forward. It will be easier to protect Scotch from unfair practices, supporting export success and the jobs that depend on that continued success.

Throughout our campaign, the SWA has welcomed the support of the European Commission, Scottish Executive, UK Government and MEPs. Working together, we have secured an important result for Scottish distillers and the highest level of protection for Scotch Whisky and consumers.”

I spoke with David Williamson of the SWA early this morning, and we discussed the potential future impacts of the new regulations.

While the actual final verbiage has not been released, David was happy that the SWA/UK proposed rules were approved which will make it easier to ensure national rules on Scotch whisky are enforced across the 27 EU Member States. Reflecting traditional practice, the new law, for example, makes it explicit that "whisky" cannot be flavoured or sweetened - this does not prevent the continued production of whisky liqueurs - it simply means that they can not be presented as "whisky" without a qualifier.

I asked David about legal and regulatory specifics in regards to labeling when a Scotch Whisky is theoretically mixed with an alcohol that may not meet the EU definition of whisky. David promised to get back to me on this. . . I'll follow up with the SWA response once I receive it.

SWA statement on UB Group

The SWA will be releasing a brief press release reaffirming their desire to work with UB on "matters of mutual interest" in regard to protecting and promoting Scotch whisky in the world market.

The saga ends. And starts.

As reported here yesterday, the UB Group purchase of Whyte & Mackay closed today. The final price was GBP 595 million (US $1.18 billion). Not bad considering Sidney Frank sold Grey Goose (a single product) to Bacardi for US $2.3 billion.

Now the fun starts. Mallya plans to introduce Whyte & Mackay's brands to the Indian market immediately. However with the punitive tariffs still in place, that will make Jura & Dalmore very expensive products.

Will, as I suggested in the past, the Indian government mysteriously and suddenly cave in to WTO demands and remove the tariffs, or does Mallya have something up his sleeve whereby Indian-owned products get the same pass as Indian made products?

If so, that's sure to piss of the SWA even more.

Stay tuned. I can assure you, this soap opera is not over.

Is India being bullied?

That's what Charles MacLean, arguably "Scotland's foremost whisky writer", seems to think.

In Sunday's The Telegraph (Calcutta India), Charles MacLean, was interviewed in regard to the long-running, and imminent sale of Whyte & Mackay to the UB group.

MacLean also said the “Scottish Whisky Association has been trying to bully the Indian government” into lowering tariffs — and he forecast this, too, would happen since lower taxes would be good both for the Indian government and the Scottish whisky industry.

Wow. Does MacLean really view the very reasonable attempts by the SWA to get tariffs lowered as "bullying"?

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<UPDATE 1: If Mr. MacLean was misquoted by the Indian Press, I certainly invite him to let everyone know that fact here on The Scotch Blog and demand a retraction from the Telegraph!>

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Perhaps it is MacLean's existing business relationship with Mallya that is coloring his views:

In November, UB flew him to India for a hectic tour of Delhi, Mumbai, Calcutta, Bangalore, Hyderabad and Goa during when his mission was to speak about Black Dog, a brand first made by Whyte & Mackay in 1879 but now owned and marketed by Mallya.

“When someone as astute and as close to the levers of power as Vijay Mallya starts looking to secure spirit supply by buying Scotch distilleries and brands and promoting his own Scotch, Black Dog, which I helped with last November, then the writing is on the wall,” said MacLean.

MacLean must have also bought into the propaganda of the Indian government/media/beverage industry triumvirate and accepted the Indian claim that this molasses-based distilled beverage is, in fact, whisky, and not the more appropriately named "rum".

MacLean pointed out. “Bear in mind that India is the largest consumer of whisky in the world by a long chalk — 70 million cases per annum; global sales of Scotch amount to a mere 85.5 million cases. All but less that one per cent of the whisky drunk in India is locally made.”

The regulations of most nations do not agree that it can be called whisky - and every legal definition of the countries which do not allow the India spirit to be imported dictate that whisky is a distillate made from grains.

The sun never sets...

Mr. Mallya has made a ridiculous correlation between the SWA's protection of the Scottish Whisky industry and 19th century "British imperialism".

"This imposition of British imperialism is unacceptable," Mr Mallya was quoted as saying last year. "The SWA has to understand there are two sides to the coin. They have double standards. I will continue to oppose SWA coming to India until they allow us to sell in England and Scotland."

The SWA has NO desire to "go to India" they simply want to allow Scotch whisky to have a fair shot at being sold in Asia. Campbell Evans' quote from yesterday's story was on the money:

"This is often dressed up as an issue for the Scottish industry, but there are 70 countries around the world that have legal definitions that whisky be made from cereals.

If you've read The Scotch Blog in the past, you'll know that I appreciate what the SWA does on many fronts, and I disagree with them on as many. On this one, I am 150% behind them.

Fallout?

If you thought the saga of the purchase of W&M was interesting, wait until the purchase actually happens - which according to sources will (barring last-minute problems) be announced tomorrow in Glasgow for somewhere around £610m.

Will Mallya withdraw Whyte & Mackay as an SWA member? Will the SWA extend an olive branch - by way of a council seat to Mallya? Will there be a talent flight from W&M?

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<UPDATE 2: When a member company's ownership changes, under SWA rules, that company ceases to be a member of the Association.  Anyone who is a distiller, bottler, or blender of Scotch Whisky, who is prepared to sign up to the terms of membership, can apply to join.>

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Two things are for sure.

1. Resumes are being freshened up at Dalmore House, and
2. Willie Tait and Richard Paterson will be told not to talk to me anymore :).

Hey, how about this self-serving idea?

What do you do when you don't like how the world views your product? Change your product?

HEAVENS NO! You try to change the world.

Apparently that's how the Indian liquor industry views the world of business, because during the World Whiskies Conference, the managing director of India-based United Spirits (part of Vijay Mallya's United Beverages Group) called for the deregulation of the whisky industry.

Apparently they don't like the fact that stringent rules about the definition of whisky prevent their molasses-based rum from being called whisky and sold abroad.

Their solution? Get rid of all those pesky rules & regulations from around the world that define beverage identity.

From ArabianBusiness.com:

The managing director of Indian-based United Spirits has called for the deregulation of the global whisky industry. Speaking at last month's World Whiskies Conference in Glasgow, Vijay Rekhi said steps should be taken towards an all-inclusive category.

"There should be no barrier on whisky definition based on geography, as this can, and does lead to constraints on consumption. Whisky cannot ring-fence itself, so I think we need to broad-base the definition of whisky in all parts of the world," he urged.

In his speech to delegates, Rekhi stressed the potential of the Indian beverage market for Scotch whisky. Despite a global increase in demand for the beverage, the amount exported to India last year dropped by 6%, with the Scottish Whisky Association blaming the Indian tax regime - which can add up to 550% in import duty - for the decline in sales.

Campbell Evans, director of government and consumer affairs at the Scotch Whisky Association responded by saying that the World Trade Organisation's issue of tariffs was totally divorced from the Indian definition point, and therefore something that had to be resolved by the Indian government.

"This is often dressed up as an issue for the Scottish industry, but there are 70 countries around the world that have legal definitions that whisky be made from cereals, so it is a national issue" concluded Evans.

One World Whiskies Conference attendee was at this presentation and told me:

It led to a lively debate and lots of discussion. I think it's fair to say that he didn't convince many people.

We scoop everyone. Again.

On May 7th, here on The Scotch Blog, Sam Simmons announced that Edrington would stop selling JMR whisky in the UK markets.

From May 10th's edition of  "The Herald":

Efforts to rejuvenate whisky are scotched

Meanwhile, JMR Easy Drinking Whisky Company, founded in 2003, has withdrawn its range of three blended malt whiskies - the Big Spicy One, The Smokey Peaty One and The Smooth Sweeter One - from the UK market after disappointing sales.

The company, backed by Edrington, had hoped to "demystify" the world of Scotch and make the sector more palatable to outsiders. Its three founders, brothers Jon and Mark Geary and master blender David "Robbo" Robertson, claimed they had "chucked out the Scotch whisky rule book" through their quirky and irreverent approach to marketing.

However, the company yesterday (TSB ed. - May 9th) confirmed it has thrown in the towel in the UK market. Founder director Mark Geary said it will instead be focusing on the US market.

Yeah, that's right. You heard it here first on May 7th:).