Diageo: where will it lead us from here?

A follow-up on Aqvavitae’s recent ‘5 positive things to say about Diageo’ vPub.

FTR: long read ahead…

It was an interesting and fun vPub, last Thursday, which Roy tongue in cheek dubbed ‘What has Diageo ever done for us?’ referencing  the famous movie scene from Moty Python’s ‘Life of Brian’ where a group of would-be revolutionaries looking to overthrow the Roman government in Jerusalem discuss which, if any, positive things have come to the city and the people of Jerusalem under Roman rule. Plenty as it turns out (and on the off chance this doesn’t ring any bells whatsoever: watch it here). And in that vPub Roy discussed if the same could be said about Diageo.

A recent article already planted a seed of what was to become today’s post and very likely also inspired Roy, so  when I saw that he planned to do a vPub on it, I decided to hold my water. Mainly because I wanted to avoid the chances of repeating what might already be said, but also because I thought it would be better to pick up on some of the things that were discussed in that vPub.

What triggered me to write this was this recent article published in the Herald of Scotland :

The new chief executive of Diageo, which accounts for about a third of Scotland's whisky production, has suggested the company will shed its "obsession" with higher-priced premium products at the expense of entry-level brands.

Speaking during a "fireside chat" at an investors' conference in Boston, Nik Jhangiani said the global drinks group will continue pushing ahead with a $625 million (£461m) cost-cutting programme but there are "big opportunities" elsewhere to improve performance. One of these would be to shift the corporate focus away from profit margin percentages in favour of the overall amount of "dollar margin" generated by lower-priced products with larger sales volumes.

(The Herald: https://www.heraldscotland.com/news/25445468.diageo-boss-re-think-premium-product-priorities/ )

When I saw this, my initial idea was ‘finally’! The prospect of Diageo altering course radically when it comes to pricing and premiumisation, seems like one we can only applaud and support. I think it is good news, probably. But when giving this some further thought, it also became quite clear Diageo have their work caught out as well. And I’m not talking about the huge challenges that await them and pretty much every other player in the drinks industry, as I can’t possibly comment on matters discussed in their board room, as I of course haven’t got a clue. What I can comment upon, is how it looks ‘out on the street’. Perception, as you well know, goes a long way.  So all of what’s about to come is written from the point of view of an enthusiast who got tired and fed up and out of shear disappointment eventually turned its back on Diageo altogether (the last time I bought and reviewed anything official Diageo was in October 2021). So when it comes to restoring credibility and customer faith, I feel there’s more to it than just getting back to being sensible when talking prices. A lot more.

Diageo's 2025 releases: the sky is no longer the limit

Credit where credit’s due(?)

Before going into that, I feel it’s helpful to pick up on a few things Roy pointed out in last week’s vPub.

It was by no means as if Roy gave  Diageo a hall pass for the credit they built in the past, as the better half of 40 minutes or so were spent pointing out why Diageo still has a lot of work to do if ever they want to make it back into our good books. Point in case being the rumours surrounding the MSRP’s of this year’s ‘Special Releases’. I will not go into depth on that as it was discussed at length during the vPub, but suffice to say that if indeed the rumours are true, it seems as if Diageo has drilled into yet another new layer of blatantly overpriced releases. From a personal point of view, this year’s prices are irrelevant in any case as I feel they have been ludicrously expensive for several years now, making it very, very easy to ignore them altogether. And if they insist on having yet another series of flashy looking bottles gathering dust on store shelves alongside bottles from not just last year but  previous years as well: it only illustrates just how much they have lost the plot.

But let us rewind a bit and look at the things Roy emphasized, pointing out that Diageo does deserve credit for a few things. Which I think is indeed necessary, as I am the first to admit that hating on Diageo is easy pickings from indeed very  low hanging fruit. And I’ve been caught in the act several times in the past, filling my pockets with that very fruit.

The good things then. There’s obviously ‘The classic Malts’, first released in 1988 at the peak of the  whisky loch of the 1980’s. Possibly and initially in an effort to turn things around by showing the world just how much diversity there is to be found when talking about single malt whisky. But one with far stretching consequences. From ‘smooth’, gentle and/or fruity stuff the likes of Glen Elgin, Dalwhinnie and Cragganmore all the way up to bold, rich, smoky, peaty  and peppery whiskies like Talisker and Lagavulin, with Oban 14 sort of covering the middle ground. You simply can’t argue with the fact that this has indeed been hugely impactful and helped pave the way for many other distilleries and companies to establish a core range of their own single malt whiskies. Diageo (for the sake of ease and convenience, I’m going to refer to them as Diageo, even if the company went under a different name at the time) were by no means the first but they did create an ‘environment’ where single malts had a place in a world utterly dominated by blends.

Onwards to the fact that Diageo has been enabling indie bottlers. Again, you can’t argue with this. Many of today’s ‘household’ names in the world of independent bottlers – A.D. Rattray, Adelphi, Murray McDavid, Signatory, Elixir Distillers, Lady of the Glenn, Compass Box, even the SMWS and many others – only saw the light of day during the 1980’s and onwards and were able to make their name because they could buy and create a stock (in many cases now worthy of awe and envy) from the big players – not just Diageo, but also Hiram Walker, Chivas Brothers, and so on. Now obviously this is a case of quid pro quo if ever there was one as on the back of the whisky loch those big conglomerates would be desperate to shift stock in any way possible, meaning they needed those independent bottlers almost as badly as the indie bottlers needed them. This has changed again in recent years, and significantly at that. The boom of the 21^st Century made it far less evident for any bottler to get if not first, then even second pickings from those big warehouses, and that’s not even considering the prices of good quality casks these days. It’s no coincidence that one of the biggest players – Gordon & Macphail – announced last year they’re leaving the indie business altogether. Around the same time Diageo announced that some of their distilleries would no longer be supplying to the indie and/or broker market. Weirdly, the otherwise always ubiquitously available Caol Ila is said to be amongst those on the ‘hands off’ list. Which, to me, suggests it might, and at least to a certain extent,  to be  more a case of creating artificial scarcity than anything. It’ll be interesting to see how long Diageo will be able to keep this up, now that the market is all but oversaturated.

The same thought or rather suspicion also applies to their decision to cut off non-Diageo distilleries from their Port Ellen maltings. Official reason being that they need the peated malt for their own production now that they’ve restarted Port Ellen as a distillery and also Brora, but it also reeks a bit as if they are trying to disrupt the production of  their competitors on Islay (and elsewhere), forcing them to turn elsewhere at a potentially higher cost as the barley will obviously have to come from further away. If and how peated malt sourced from elsewhere will impact the general flavour profile: I have honestly no idea. I have no master’s degree in economics but I do know that expelling potential customers, wholesale customers at that,  for unclear reasons at the very point of an industry facing a huge overstock in both barrels and unsold bottles, doesn’t make a lot of sense. Particularly if you take into account how some of the deals you walked out of, meant the end of sometimes long-lasting partnerships and agreements.

Positive thing number 3 brings us to the Flaura and Fauna releases. Diageo’s official releases of those distilleries in their portfolio that otherwise don’t see much in terms of official releases, let alone a core range. Granted: giving these workhorse distilleries that mainly cater to their blends their due attention, is something deserving of a nod of approval. At the time, early 1990’s, getting your hands on something from say, Blair Athol or Linkwood would always mean being dependent on the often limited distribution network of indie bottlers, whereas Diageo’s distribution literally spans the entire world. You could (and can) walk into any supermarket pretty much anywhere in the world with a very good chance of finding something like Talisker, Lagavulin or Singleton. And while not as ubiquitous, the same applies to those F&F bottles, be it in specialised stores, at a lower outturn but still pretty much the world over. Making these distilleries known and available have proven to be a success, and they stuck with it since.  I know there are quite a few enthusiasts and afficionados out there who are (very) keen on these. Personally I never really connected with them, mainly, and the irony-metre is fully revved up here, because I can almost always find more interesting expressions from these exact distilleries through independent bottlers. Whether that that will last, remains to be seen, given my previous concern of course. For the time being:  I’m well aware I find myself in a fortunate situation where I have easy access to a lot of official and indie stuff. But for a lot of people these F& F bottles are probably there only chance of finding a Teaninich, Linkwood, Blair Athol, Dailuaine... Yes, all bottles in the F&F range carry an age statement, but at 43% ABV, with added colouring and chill filtration, I’ll argue that perhaps it’s time to ‘upgrade’ the range a bit – as they do go back well over 3 decades now- by bumping up the ABV and losing the nasty E150A and the chill filtering process. They are already tapping into an enthusiast’s market, maybe it’s time to cater to what enthusiasts actually would like to see?  But again emphasis on this being from my own perspective and point of view.

Roy concluded with highlighting the importance of two iconic brands: the aforementioned Lagavulin 16 and Johnnie Walker. The former being Roy’s personal epiphany whisky (and chances are that with 30 distilleries under their ownership, one of them was to you what Lagavulin 16 was to Roy), the latter being important as it is arguably the icon of icons, the most recognisable whisky brand in the world, second to none apart from maybe Jack Daniel’s. Johnnie Walker is what drives everything else, and without it, there would be no Diageo, and likely  the whisky landscape as we know it today may very well look completely different.  I’ve said it already, but Diageo deserve credit if only for the massive, global distribution network they’ve built throughout history, making whisky available to millions of people around the world. And if Lagavulin or another single malt (with me it was Laphroaig 10) was your epiphany moment, chances are a bottle of something from Diageo’s flagship brand Johnnie Walker would’ve been your gateway whisky.

Mixed messages

So, an open, honest question: to what extent can they still be credited for all of this? Because if there is one thing clear from all of these positive things, is that all of them are things from the past, well before there was even such a thing as Diageo. We can and need to acknowledge the good things Diageo (or to be precise: their predecessors) have brought us, but isn’t it also perhaps a bit painful that we need to dig almost 40 years back into the past to be able to do so? Because let’s be honest: their recent track record isn’t exactly one worthy of praise and applause.

Diageo have done very little in the way of rewarding brand loyalty. In fact they’ve been punishing it!  Ruthlessly! This is of course the obvious one.  I’ve already hinted at it with the example of the frankly insane price tags they slap on their special releases, increasing them year by year. £450 or there about for a 21 year old Dailuaine is indeed ‘special’, but not in a good way. What the quote from mr. Jhangiani suggests is that we may see this changing in the (near?) future. Essentially admitting that you’ve been taking the mickey out of these releases AND your customer base would indeed be a good place to start. If this means some return to normality for some of your other suddenly ‘premium’ products remains to be seen. But restoring some sort of faith with customers you’ve lost in recent years by more than doubling some of your prices almost overnight like you did with Talisker 18 and older age statements from Caol Ila, might actually mean people start talking about these again, rather than complaining ad nauseam about how they are now out of reach for the vast majority of your customers. Also, and while we’re at it: Please don’t treat us like walking talking cash machines and expect us to cough up hundreds of pounds/dollars/euro’s to be able to get a glimpse of your resurrected icons like Brora or Port Ellen. Nothing curbs our enthusiasm about the return of these iconic distilleries more than being downright fleeced just to get our foot in the door. We’re not asking for ‘cheap’, ever, but what we do expect, demand in fact, is that prices be reasonable.

As a consequence of this: learn how to read the room. In a time where there is choice a plenty, get to know and understand who your customers are and how they think. There’s a whisky for everyone, and those out there who are happy to buy a Johnnie Walker 12 an all it represents, aren’t necessarily the same people who are buying your single malts. If you want to remain relevant and competitive, do your single malts justice by giving them their due TLC: 46% ABV, natural colour and unchill filtered IS the way forward. This nail has been hammered down so many times, it has pretty much shattered the wood. Less flannel, less messing around, less tampering, more honest, good quality malt whisky. Enthusiasts may be a small percentage of your customers, but we are the invested, returning customers, willing to spend a significant amount of money on whisky. Again I’m only talking about myself here, but even if you own some 30 Scottish  malt distilleries, there are still dozens and dozens of other producers who do release with (Ralfy incoming) integrity, making it increasingly easy to ignore that 12 year old Cragganmore or even something as  iconic as your 12 year old Caol Ila. There’s a place for entry level single malts at budget prices alongside your blends, I’m sure, but particularly in the case of some of your bigger distilleries, surely it can be a case of offering both, catering to occasional supermarket customers and those of us who actually want to get a real taste of what Cragganmore (pars pro toto, obviously) is capable of.

There has to be more than meets the eye

This of course also means that Diageo needs to start listening to those people who actually know what they are talking about: the staff. Those that run the distillery on a daily basis may not be the best placed people when talking long term business strategies but I bet they might have a useful thing or two to say about what’s best for their distillery. So, by all means: show us that you care. The (potential) strike risk at one of your ‘darling distilleries’ in recent years (Talisker) shouldn’t be taken lightly. Multimillion investments in state of the art visitor centres are something to be proud of and boast about and I applaud you for it. I think (hope) it helps emphasize the importance of Scotch whisky to the world and how Scotland and whisky are forever intertwined and it’s a strong asset for Scotch tourism and, in the best case scenario, actually is of use to generally curious people who want to learn more about whisky. Just make sure it’s not all just superficial and hollow but actually meaningful. If you invest in these whisky hubs, but fail to take care of or invest in what’s behind these big, shiny ‘whisky attractions’ and ignore what is best for your distilleries and the people working at those distilleries,  rest assured a big shiny centre won’t compensate for it. Not in the long run.

On a side note, to conclude: a bit of transparency wouldn’t hurt! Through  their interest in  ‘Distill Ventures’, Diageo invested in cooperating with promising startups and smaller scale producers  in the past. That was (is) a great example of how a company as big as Diageo can help new producers in foreign markets develop and grow from strength to strength.  American distillery Westward and Danish distillery Stauning are two examples here. Unfortunately  that too has now become a  case of ‘The Lord giveth and the Lord taketh away’ as Diageo pulled the plug on the whole investment earlier this year, leading to a significant job loss of 25%  and a 50% cut in production at Denmark’s largest distillery. Westward even ended up filing for bankruptcy. And of course I ‘m not the one who gets to see the books nor keep an eye on them, and I totally get that a business needs to be profitable in order to survive and that investments are made with the expectation of delivering returns. But also know that decisions like this, even if they’re necessary and vital for the survival of the company or branch, don’t look good on you. Particularly when you fail to give the wider public an explanation on the how and why that digs a bit deeper than the usual and bog standard ‘re-evaluating how to make the best use of our assets’ sort of thing. I can only  hope that those who lost their jobs have been treated better…

I could go on but it’s been a long read already and I don’t want to tilt into a rather gratuitous rant.

Stauning distillery (c) distillery website

Cautious optimism

Perhaps there is light at the end of the tunnel and we indeed have good reasons to be at least hopeful that the juggernaut (THE juggernaut) of whisky can be able of making decisions that will have us, the community, rise up from our seats to give them an ovation. I’ve already hinted at a few things that would make for a good start, but I have no illusions whatsoever that someone who is actually part of the decision making process will actually read this. As said, the recent announcement is a (cautious) reason for optimism.

How this change of tactics will play out and how it will be put into practice, remains to be seen. There’s no denying the challenging tasks ahead – what with a second whisky loch upon us, overseas markets that have all but come to a grinding stop (and believe me that a lot of companies have put a lot of their eggs in the baskets of those  markets – particularly in Asia) and a whole generation of people coming of legal age that are  less inclined to consume alcohol. But being the biggest player in the game, if there is one company out there able to turn things around, it’s probably Diageo. The obvious and go-to practices have already been mentioned in that press quote:  nearly half a billion in cost-cutting programs. Which comes down to selling off brands, and, inevitably, closing down others (the rumour that Teaninich will be, if not axed, then certainly mothballed, seems a persistent and stubborn one). But there’s got to be more to it, surely? As the biggest player in the business, you don’t simply react to situations beyond your control by upscaling and expanding in the good times only to axe brands and companies when things get rough? No, you  steer and control  things, you lay out short- and long term strategies that will benefit you to make sure you thrive during the good times, but more importantly, do more than just survive during the bad times. You are the big oil tanker here, with a lot of other, smaller ships around you:  some are cargo vessels, some are luxury yachts, some are tiny scale operations the size of  a rowing boat, and all are affected by the ripples you cause in the water. And being the big ass oil tanker, we get that altering course goes slow, and takes time and effort, but you are indeed still a master of the seas. You’ve got the brands, you’ve got the stock, you’ve got the money. You’ve got the knowledge, the skills,  distribution network… You may not be able to control the weather, but  rather than some life raft that helplessly goes wherever the waves lead it, you set the course, determine what happens and where you want to go. And in that regard whatever lies ahead in the world of whisky, is partly up to you. Just some pointers from a small scale blogger. The audacity, I know…

With no lovin' in our souls

And no money in our coats

You can't say we're satisfied

Angie, Angie

You can't say we never tried