Honourable retreat?

This is a set-back, but we’ve learned that we can produce vatted malts with singular character and we will pursue this course aggressively

INCREDULITY. It’s the only word that can begin to articulate the reaction to Diageo’s decision to withdraw Cardhu Pure Malt (CPM) from the market by the end of the year, and replace it with Cardhu single malt.

Normally loquacious hacks were reduced to slack-jawed silence when we were told about the  climb-down (or "change of mind" as Diageo put it).  Afterwards we met up in darkened corners, one hand holding a dram the other scratching our heads.

"Why?" was the word on everyone’s lips.  It would appear that not only will Diageo need to search for a large flannel to wipe the egg off its face, it has also taken a serious dent to its credibility and a serious financial hit.

So then, a humiliating defeat? Well, actually, no.  The longer you look at this decision the stranger and more complex it becomes.  There’s certainly more to this than meets the eye.

After all, Diageo had either won the argument over CPM, or had at the very least forced an honourable draw. CPM had its new green label and the Scottish Whisky Association (SWA) had formed a committee that was charged with looking at the labelling definitions.

Theoretically, Diageo was totaly in the clear. So why this unexpected volte-face? It is partly down to the way in which the definitions committee (which Diageo sits on) is moving.  "We’ll always welcome greater clarity around any potential ambiguities in definitions," says Diageo’s Dr Nick Morgan.

"Remember that CPM is simply the top of a very large iceberg."  He went on to say that it appears as if the committee is likely to conclude that a distillery name can be used only for single malts.

But hang on a minute. Diageo had already changed the name of the distillery back to Cardow. So yet again, the firm is still in the clear, surely? Maybe it just didn’t want the issue hanging  round like a bad smell.

As Morgan put it, CPM is the white elephant in that committee room.  Nobody talks about it, but it’s there.  By extricating this blanched pachyderm the committee can work more easily. How very altruistic you might think.  And yet, it still doesn’t add up.

Though CPM might have become an irritant, surely the biggest drinks firm in the world can cope with some flak? After all, sales of Cardhu in Europe have not been affected by the switch from single to vatted.

It would appear that the worst of the storm had already passed.  It is worth remembering, however, that the proposed launch of CPM into the US market by Christmas 2003 never happened.

Selling the brand into "emerging" whisky markets is one thing, the battle in the mature, malt-literate US would have been that much tougher.  Could it be that Diageo decided it couldn’t afford to see its reputation called into question in such a vital arena?Diageo categorically denies this, but it’s an angle that many in the industry believe has some credibility.

The withdrawal involves the firm taking a huge commercial hit.  CPM was created because the Cardhu distillery could not supply the volumes required to satisfy growing demand for its single malt.

Diageo is now back to square one and having to restrict sales of what was to be its new global whisky brand to Spain, Portugal, Greece and France.  Its rivals must be jumping for joy.

In my opinion, those who think this means Diageo will skulk off and give up on vatted malts are very wrong indeed.  Every distiller is realising that the whisky category cannot grow upon the back of single malt. Distilleries are small production units.

There will always be constraints on supply.  If sales of blended Scotch are falling and the world wants malt then there’s two solutions.  Build (or expand) distilleries or create a new vatted category.

It is unlikely anyone will take the risky former option.  "This is a set-back," admits Morgan. "But it doesn’t mean we are pulling back from innovation in whisky.  We’ve learned that we can produce vatted malts with singular character and we will pursue this course aggressively."

Now we’re getting closer. Might it be a better (and easier) long-term strategy for Diageo to help take vatted malts to a new commercial level with a new product rather than with a controversial one? It might just be better to lose round one only to come out stronger in the next. It’s rope-a-dope tactics but potentially very effective.

If true, that means we can expect increased activity behind Johnnie Walker Green Label and should anticipate the launch of a new vatted malt as soon as the new definitions are in place.

This would be free of any controversy and would, in additon, allow Diageo to target aggressively its rivals in malt’s mid-market. For all of Dr Morgan’s apologies, I don’t believe Diageo has taken this decision out of the goodness of its heart.

I believe it’s done it to gain long-term advantage over the firms which employed gutter-press tactics to make their case against CPM.  Peace may seem to have broken out, but a long-term industry like this has long-term memories. The bell has sounded.

Ding, ding, Round two!