Euro Disnae!

Scotch whisky is losing ground to rum in Spain, to vodka in Greece, and is still recovering from a Draconian drink-driving crackdown in France. Tom Bruce-Gardyne assesses whisky’s mixed fortunes across Europe

“You have to recognise that Scotch has been going through some pretty tough trading in a lot of Europe,” says Paul Godfrey, Chivas Regal’s new brand manager. That said, he is still upbeat about the prospects for the world’s number two deluxe blend on the continent. First, because the brand has much greater clout within the region as part of the newly enlarged Pernod Ricard than it ever had under its previous owners, Seagram. And second, because past underperformance was linked to a lack of promotional support. This has now been put right with the lavish Chivas Life campaign, which Godfrey insists is beginning to bear fruit.

With the takeover of Allied Domecq, Pernod Ricard has become the world’s number one spirits company outside the USA. When it comes to Scotch, it now has a 21% share of the global market according to the International Wine & Spirit Record (IWSR). The opportunities to leverage this power are exciting, not least in Spain – the most valuable whisky market after the States.

Having grown every year since the country joined the EU in 1986, Scotch whisky consumption in Spain slipped into gentle decline in 2002. Last year it dropped a further 2.4% according to the IWSR. Apart from a recent hike in spirits duty and a crackdown on drink-driving – this being a predominantly on-trade market – the main culprit is golden rum which grew 8% to 2.67 million cases in 2004. Overall rum sales are predicted to grow from 4m to 8m cases in the next five years.

Spanish price wars

As ever, the top-selling Scotch is J&B, but sales are down from 2.6m to 2.5m cases says the IWSR, while the number two, Ballantine’s Finest, is flat on 1.7m cases. The two brands were locked in a bitter price war with some heavy discounting, but Diageo says it has raised the price of J&B and thus increased value. The number three imported Scotch, Cutty Sark, followed suit raising its price to around €10.50 a bottle. Being slightly younger and slightly less ubiquitous, the brand managed to grow 5% last year to 652,000 cases.

t Diageo, Jonathan Stordy, MD of the company’s Spanish operation, says “We’re determined to keep the category as healthy as possible.” So far one of his best-performing brands has been Cacique, a dark rum that burst through the 1m case barrier last year having recorded just 128,000 cases in 1995. Having embraced whisky and Coke, young Spaniards are turning to the original Cuba Libre of rum and Coke. But J&B is determined to reinvigorate the youth market by trialling the admix – J&B Nox and sponsoring the “nightology boat” which is said to be Europe’s largest floating nightclub.

Among premium whiskies the big brand is still Cardhu. The Diageo single malt enjoyed such stratospheric growth in the 1990s that demand threatened to outstrip supply. This led to its infamous, if short-lived, reincarnation as Cardhu Pure Malt in 2003 before an industry backlash forced its owners to reconsider. Now back as a single malt, sales dipped 5% in 2004 according to the IWSR. Yet at 190,000 cases it still sells more than eight times its nearest malt rival, Glenfiddich.

Meanwhile, Chivas Regal is around 70,000 cases, a slight drop on 2003. But Godfrey is optimistic about a revival. “Chivas sits firmly in the ‘smooth, easydrinking camp’ which is a very fertile place to be, and it’s well-suited to Spain which is about enjoying Scotch long over a bucketful of ice,” he says. With its newly acquired Allied brands, Pernod has become the dominant wine and spirits supplier in Spain with 6.9m cases of sales, virtually doubling its market share to 22% – just ahead of Diageo. However, it will take a good 12 months before all the key staff and distribution channels are fully in place.

Malt misunderstanding

Having worked on Glenfiddich with his previous employers, William Grant & Sons, Paul Godfrey has followed Cardhu’s success in Spain with interest. He realised it was never really about categories. “[Spanish] consumers have no real conception as to what is a malt and what is a blend. Cardhu just grew as an upmarket whisky – I don’t think it was ever due to a consumer desire to drink malts,” he says.

Malts are growing 10% if you exclude Cardhu, claims Luke Tegner who manages Glenrothes, the number four single malt behind Knockando and Glenfiddich. All three brands did well, pointing to a growing appreciation of single malts and that universal consumer trend of drinking less but better. The success of Glenrothes is despite a shelf price some €10 above Cardhu which sells for €24-€25. Also premium-priced and performing well is The Macallan in fifth place, ahead of a growing trail of other malt brands. All are benefiting from the increasing number of specialist outlets and delicatessens that have started to stock single malts.

Yet the selection on offer remains tiny compared to what’s on offer across the border in a typical French caviste. Around 400 of these independent offlicences manage to cling on against the odds. As in Britain, the power of the multiples to crush any lonesome shopkeeper in their path is awesome. Unable to compete on price, the cavistes survive through specialisation. “They won’t touch anything sold in the supermarkets,” says Derek Hancock of Gordon & Macphail. The company’s malts are distributed through La Maison du Whisky in Paris which frequently buys whole casks, which are then bottled and distributed, complete with tasting notes, to other independent specialists. Another niche player to find refuge from the mainstream is Pràban na Linne, the Gaelic whisky company on the Isle of Skye, for whom France is the largest market.

The big players acknowledge the role played by the cavistes. At Glenmorangie, marketing director Simon Erlanger, says “The volumes may be small, but they are important for image building and spreading knowledge.” They also offer a haven from retailer power with French hypermarket buyers among the most ruthless in Europe.

Bargain basement

France is still the world’s biggest Scotch market by volume with case sales of 9.1m in 2004, according to Impact International. Actual consumption is even higher given the 1.2m cases that apparently flowed through the Pyrenèes last year in cross-border shopping. In value, however, it lags third behind the US and Spain; French whisky drinkers are bombarded with bargain Scotch and malts as low as €10 a bottle.

A look at the top three blends reveals no big international names at all. Instead of a J&B or a Johnnie Walker, you find William Peel in pole position with 1.6m cases, with its stablemate Label 5 in third place behind Pernod’s Clan Campbell. By all accounts margins for suppliers are tight verging on nonexistent – though at least discounting is restrained with offers of €1 to €1.50 off, compared to those deep-cut promotions in the UK. In theory, this should make for a more stable environment when it comes to building brands.

The good news is that last year’s shipments to France were up 3% in volume and 9% in value according to the Scotch Whisky Association. Breaking down the figures further, bottled blends were up 11% in volume and value and now stand at 6m cases worth £169.7m. While bottled malts rose 7% to 0.6m cases, and 9% in value to £49.9m. This comes on the back of a disastrous 2003 when a prolonged heat-wave followed a crackdown on drink-driving that hit all spirits badly. At one point MAT sales of single malt were down 14%.

 “We feared the big buyers would take a delisting axe to their shelves,” says Simon Erlanger. But this hasn’t happened according to ACNielsen which puts the average number of “references” for Scotch in a French hypermarket at 54, of which 19 are malt. Even if some of these references include different pack sizes of the same brand, it is a staggering amount nonetheless. This figure hasn’t changed in the last three years. This is partly because there is no obvious contender like rum waiting in the wings.

Germany remains an important Scotch whisky market in volume more than value, thanks to the country’s stagnant economy and a price-driven off-trade. Paul Godfrey finds it “strange that German consumers clearly believe in powerful, upmarket brands for cars and hi-tech products, but not for food and drink where discount chains like Aldi and Lidl have such a strong foothold”. He speculates they may have inherited this “bargain mentality” from East Germany after unification. The two top-selling blends were down – Ballantine’s Finest by 5% to 341,000 cases and Johnnie Walker Red by 12% to 227,000. Mainstream malts have also suffered, unlike the more esoteric brands which have built a small but intensely loyal fan base through whisky festivals and clubs. Germany boasts some of the most ardent malt anoraks in the world.

At Highland Park, brand manager Jason Craig finds Germany not quite as polarised or aggressive as France, but he clearly prefers Scandinavia where the brand is among the top 10 malts. Coming from Orkney with plenty of shared Nordic heritage undoubtedly helps, but, as with all spirits, demand is dampened by extremely high duty rates. However, market forces in the form of booming cross-border shopping, may yet force the Swedish and Norwegian governments to bring duty rates much closer into line with their southern neighbours.

By contrast the low-tax regime of Italy should be a haven for Scotch. Yet, according to Nigel Brown, the ex-United Distillers manager now running Food from Britain in Bologna, there’s no real indigenous taste for spirits in Italy apart from grappa in the northeast. Curiously the top brand, Glen Grant 5 Year Old, is a malt, though you wouldn’t know this from its price and positioning as it competes directly with Ballantine’s and J&B. Blends have been declining for some time and even single malts are struggling with the possible exception of Islay.

Greek tragedy

Across the Adriatic there is no issue over taste in Greece which boasts the highest per capita consumption of Scotch on the planet, leaving aside Paraguay. According to Jeremy Parsons, who looks after the country’s number two brand, Cutty Sark, whisky accounts for 38% of spirits drunk. But therein lies the problem – how to maintain such high levels? “Defending 38% is a tough call,” says Parsons, who points out that the spirit’s share of the UK market is less than half that amount. Judging by the latest Impact figures Greece – the world’s fifth most valuable whisky market, is already in trouble with a 17% crash in value to £85.7m last year despite depletions dropping just 1%. Yet anecdotally things may be less depressing. Parsons estimates the premium category is “up at least 7%” and says that Cutty Sark 15 Year Old, launched last October, is a big success.

At Pernod, Paul Godfrey calls Greece “a land of opportunity” with sales of Chivas Regal up 10% in the first half of this year.

Sales of standard blends have undoubtedly fallen. Johnnie Walker Red Label is the most popular Scotch and, according to the IWSR, sales dropped 2% to 820,000 cases last year (though it is unclear whether this includes Black Label). Meanwhile, Cutty Sark fell 8% to 318,000 cases. The country’s sluggish economy has not helped, with the hangover from the 2004 Athens Olympics still causing concern. Instead of the promised boost in tourism, visitor numbers actually fell 8% last year.

Competing with vodka

Also vodka, led by Absolut, has been growing at the expense of Scotch. The one standard blend bucking the trend is Famous Grouse. Perceived as a younger, more urban brand, it has shot from 180,000 to 275,000 cases in the last five years.

Finally, to Eastern Europe where Scotch has been chipping away at the native spirit, vodka, as disposable income rises. Burn Stewart’s Scottish Leader built an early presence in Estonia and Latvia and now claims to be the top-selling blend there. And, with booming cross-border sales to the north, the brand is rapidly establishing a foothold in Finland. db