Blend fury

A NEW row threatens to split the whisky industry as small distilleries accuse the big boys of confusing consumers and undermining single malts, writes William Lyons.

A SHORT drive from Dufftown, high above the River Spey, lies Cardhu single malt distillery. The jewel in Diageo's crown has been out of the public eye since the infamous "pure malt" controversy threatened to split the industry. But this week, as the six stills rumble away to produce the main spirit for Johnnie Walker, echoes of the dispute are being heard once again in a new row over the future of Scotch.

It's been four years since the £2.5bn industry almost ripped itself apart over the Cardhu affair when the Grant family, owner of Glenfiddich, one of Speyside's most powerful brands, roused the industry into forcing Diageo to withdraw the pure malt blend.

As the last cases were removed from the European market an uneasy calm settled over the whisky industry. As one insider said at the time: "The tanks are on the lawn but for now we have turned the engines off."

Those engines are about to be turned back on, albeit from a different source. This time it is the small distilleries that are leading the fight. With talk of the big distillers throwing their weight around, the Scotch Whisky Association (SWA) steam-rolling through unpopular measures, and deals being "conducted among an old boys' network", the atmosphere has once again turned sour. As one prominent distiller remarked to this newspaper: "The Cardhu debacle which everyone thought had gone away, has not. Nothing has changed."

The vortex of this latest row is the new category "blended malt whisky", ironically the definition created to placate those who objected so strongly to Diageo's inflammatory invention.

The new term is included in proposals put forward by the SWA in the wake of the Cardhu debacle. It hopes that the new regulations on Scotch categories will enshrine in law once and for all strict legal definitions of Scotch whisky, helping to protect the consumer from counterfeiters and preventing a repeat of the Cardhu affair. These guidelines have now passed onto the Department for the Environment, Food and Rural Affairs (Defra). The consultation period on the proposals has closed, but already many smaller distillers are complaining that their voice has not been heard.

In one corner stand the industry's heavyweights: Diageo, Pernod Ricard and William Grant, who together make up more than a third of total Scotch whisky production and dominate the SWA's ruling council. They broadly agree with the definition, preferring it to the discredited "pure malt whisky" and the traditional terms for a blend of single malts "vatted malt whisky".

Blocking their way stands a handful of small, independent distillers, retailers and aficionados. Led by the "maverick" Bruichladdich distiller Mark Reynier, they claim the larger firms will undermine the credibility of single malt whisky purely for commercial gain. By creating a new category of blended malts, his group claims the giants will have the capability to create mega brands that will dumb down the single malt category, creating a standardised product. They point to a doomsday scenario where whisky follows the route of the sherry, cognac and brewing industries by becoming a homogenised sector dominated by a few brands.

The small distillers say the word "blend," in relation to Scotch whisky, is associated with "bad" or "inferior" in the minds of too many people around the world. It is seen as confusing and not understood by the average spirit drinker.

"Essentially this move is bad for business," says John Glaser, director of specialist Scotch whisky maker Compass Box. "My main concern with this is about consumer confusion and the potential dampening of sales to products forced to carry the term blended malt Scotch whisky.

"It is bad for business and now we are hearing out of Taiwan that there is evidence that brands that are going to put blended malt Scotch whisky on their labels are having to lower their price to the price of blends in order for them to sell because consumers don't understand."

Glaser has drawn up a petition that he will present to Defra next month. Titled "Say no to Blended Malt Scotch Whisky!" it already features nearly 500 names.

"The SWA is like a shopkeeper that has been caught with its fingers in the till. They thought they could slip this through and nobody would notice," says Reynier. "Anyone who actually has to sell whisky or buy it does not agree with this term at all.

"The term visually is a confusion. In Taipei or Bangalore when a consumer is faced with three whiskies, he sees a blended Scotch whisky, a blended malt Scotch whisky and single malt Scotch whisky they are not going to have a bloody clue what is going on. It is going to be deliberately used to confuse and undermine the credibility of single malt whisky purely for commercial gain by big whisky companies."

Reynier by his own admission is often discredited as a publicity-seeker who is fond of a bandwagon and quick to churn out a press release. But on this issue he is not alone. Privately, many in the industry working for big and small companies have misgivings.

"When anyone disagrees with the SWA they immediately get discredited and dismissed as mad," says Reynier. "But we are not just a bunch of disgruntled old farts looking for self publicity. We can see the extremely serious nature this has and the implications for the whole whisky industry."

One prominent whisky writer, who preferred to remain anonymous, said: "I don't know what they (the SWA] were thinking of when they came up with this ludicrous term blended malt whisky. There is a growing groundswell of opinion forming that they should drop it altogether."

Underpinning the debate is market share, and the big companies face a quandary. Traditionally, they have built their markets and budgets around blended whisky. Despite the recent success of single malt, particularly in the UK, it is the big blends such as Johnnie Walker, Chivas Regal and Famous Grouse which have pioneered the category.

The growth in single malt sales is encouraging for the industry, but growth poses a production problem. Cardhu was a case in point. It saw its case sales rise from 9,000 in 1990 to more than 200,000 in 2003, but the distiller is always facing challenges to meet this surge in demand due to limited capacity. The easiest way to get round a supply problem is to make more whisky, even better to invent a category which means blending in malts from less fashionable distilleries.

Reynier argues that under the new proposals the industry could end up with a situation where a 'blended single malt' of Lagavulin could really be any other whisky with a only dash of Lagavulin thrown in. It would retain its association with Lagavulin "as long as it is clear that not all the whisky was distilled at that distillery." Consumers could be fooled into thinking they were getting a Lagavulin single malt, when in fact it would be a blend.

The SWA strongly refutes this point and all suggestions that the industry wasn't consulted. It claims that more than 80 non-member companies/organisations with an interest in the whisky trade were consulted by the SWA in 2005. "The overwhelming majority of the industry is supportive of the Government's proposals for new Scotch Whisky Regulations," says SWA spokesman David Williamson. "It is a broad package of proposals and SWA members strongly support the legislation. Our members believe the measures will ensure consumers worldwide receive clear, consistent and accurate product information about what they are buying. The aim is to tackle deceptive practices that could undermine consumer confidence in Scotch whisky.

"The regulations will also introduce even stronger protection for Scotch whisky from unfair competition. For example, for the first time, this will include formal legal protection for the term 'Islay' and other regional names traditionally associated with Scotch whisky production, as well as introduce rules to prevent the misleading marketing of single malts."

What is emerging is a picture of an industry irretrievably split over this issue. Earlier this year, Paul Walsh, the chief executive of Diageo, took over the chairmanship of the SWA. The irony of that appointment has been noted. The boss of a small distiller, who asked not to be named but agreed that the term blended whisky was wrong, said the SWA was acting like a "lobbying department of the two or three biggest players."

He said: "The SWA lowered the entry fee to smaller companies a few years ago to include as many companies as possible, but it doesn't seem to have affected what is going on beyond closed doors. They are fantastic in helping us with figures and barriers to entry into new markets. But what they seem to be rather worryingly becoming is a lobbying department of the two or three biggest players."

Campbell Evans, director of government affairs at the SWA, who was there throughout the Cardhu debacle, disagrees.

"Nobody can say they didn't know what was happening. This has been in the public domain for years. We have held written consultations and an open day. Everybody was consulted even before it got to the Government. Nobody is coming up with a better solution and nobody is coming up with justifying their alternatives, none of which stack up.

"Quite frankly, this is about protecting the industry going forward, this is not about a big versus small company issue. That is absolute nonsense."

The Cardhu 'pure malt' affair

Diageo, which produces 30% of the world's whisky, outraged the Scotch whisky industry in the summer of 2003 when they created a new category pure malt. Diageo had been unable to keep up with demand from its southern European consumers for one of its Speyside single malts Cardhu.

To get round this problem they started selling malt whisky derived from two distilleries in the same bottle with almost the same label as it had previously used for a single malt from a single distillery. It had been called Cardhu single malt. The new spirit was called Cardhu pure malt.

Although not sold in Britain, rival distillers claimed that by changing the ingredients and calling it a "pure malt" but retaining the distinctive bottle shape and packaging, the company was misleading customers and undermining single malts, which traditionally come from only one distillery and are among the most expensive in the world.

After five months the gloves came off and Speyside's distillers united against Diageo. In October 2003 this newspaper was the first to report unease within the industry. The next two months saw a barrage of media coverage against Diageo. Every member of the Scottish Parliament was written to and Tony Blair was even asked about the Cardhu affair at Prime Minister's Questions. By December Diageo was forced to back down. The category was scrapped and every bottle was withdrawn from the European market.