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Published:  23 July, 2008

Is new product development the way forward for standard blended Scotch, or should the category be looking for clues in its most successful market - Spain? David Williams reports

For those working in the beleaguered UK blended whisky sector, a night out in Spain must be like a night out in a Dal-esque dream world where everything has been turned on its head. The dream goes something like this: wandering through a park on a balmy late evening, you see twenty-somethings chatting over bottles of J&B and Coke. Then, on a hoarding across the road, you see a poster showing a sexy young couple advertising Cutty Sark. Arriving at a crowded nightclub, you find banners announcing the sponsorship of the evening by Ballantine's. Finally, when you get to the club's bar, you have to fight your way through a crowd of students and young professionals clamouring for Dewar's and Coke'. Vodka, white rum and their FAB relations are conspicuous by their absence. What on earth is going on?' you ask yourself. What happened to the idea that young people and Scotch go together like red wine and fish?' But it isn't a dream. Far from it. It's an everyday occurrence in a market which has become blended Scotch whisky's biggest success story. According to the International Wine and Spirit Record' (IWSR), sales of the category in Spain grew once again last year, by 6% - to 9.2 million cases. With malts representing just 250,000 case sales (over half of which are attributed to Cardhu) and de-luxe blends having never really taken off (unlike in Portugal and the US), standard blends have almost single-handedly helped Spain to overtake the US and become Scotch's number one export market. And, just as it is with the FAB phenomenon in the UK, it is younger drinkers in the on-trade who are driving that growth. Eighty per cent of Scotch in Spain is drunk by young people between midnight and four in the morning, in nightclubs or bars, usually with Coke and ice,' says Luke Tegner, who looks after Cutty Sark in Spain as Berry Bros & Rudd's regional brands director. It's the reverse of the situation in the UK, where the off-trade is so important. Even when people are buying whisky from a shop, they are often buying a bottle to share with their friends, and are mixing it with Coke in a park before they go on to a nightclub or what they call a pub - huge bars which take four to five thousand people.' For Tegner, the Spanish success story began with the country's admission to the EU in 1986, and a consequent drop in duty rates. Brandy was the dominant drink for the generation before the one that is currently drinking Scotch,' says Tegner. Whisky was always highly priced and therefore seen as inaccessible. That changed when Spain got into the EU: whisky became accessible, but retained an aspirational quality.' This was particularly true for younger drinkers, who aspired to whisky because it was a new discovery, and without the cultural baggage of brandy. The young generation preferred Scotch to brandy because it wasn't what their parents drunk,' explains Tegner. Also, Scotch has different associations in Spain. On a brand level, it has never been a place where Scottish mist and heather etc have featured in the advertising.' Although, as Tegner says, The Spanish consumer has been geared up for Scotch', the success of the category didn't happen by accident. The Scotch brands, so used to criticism at home, deserve credit for the way they moved in and positioned themselves in Spain, with youth-friendly advertising and, more importantly, promotional work, featuring prominent branding in clubs and bars and at one-off parties and music events. The Scotch brands have met the consumer at the point of purchase, in imaginative and targeted ways,' says Tegner. In Spain it's all about communications and parties: these are the marketing mainstays, backed up by the advertising. You work on the things that young people like to do and talk about, and you make sure your brand has a presence there.' It all adds up to a highly-branded market where consumers look for the brand first and Scotch second. Currently, J&B leads the way with sales of 2.7 million cases, followed by Ballantine's with 1.7 million, Dewar's with 900,000 and Cutty Sark, the fastest growing (at 14%), with 600,000 (IWSR). With the off-trade counting for so few sales, own-label barely gets a look-in, although the Spanish-produced competitor DYCs, with 200,000 case sales, fares particularly well in home drinking. There is no sign of the market slowing, either, a fact which - after 15 years of growth - is surprising even to those, like Tegner, who work in the country. It really is phenomenal,' he says. Each year we are cautious with our predictions, and we tell ourselves that Spain is about to mature as a market, that it is going to level out, but it never does. People are not moving from the on-trade and they are not moving onto more "premium" products such as malts. It continues to beggar belief.' The brands are not resting on their laurels, however. This year has seen a raft of new campaigns for most of the major brands, including - most interestingly - Cutty Sark, which, in its Sin Duda (No Doubt) campaign, has offered prizes of tattoos and body piercings to those who are lucky enough to press the right button on an electronic point-of-sale game board.

Back home Like returning to work after a holiday in the Mediterranean, facing up to standard Scotch's performance in the UK after basking in its success in Spain is a deflating experience. Back home, the blended category remains static, with the long-term picture for blends (including de-luxe) one of steady decline: from 941,000 hectolitres sold in 1992 to 871,000 hectolitres in 1999 (AC Nielsen). The latest figures show little improvement. In the off-trade, standard Scotch is marginally up in volume (1.7%) in the off-trade (AC Nielsen MAT June/July 2001), but, with value rising by just 0.6%, it is clear that any growth has been driven by price promotions. The standard blended market is dominated by short-term gains for brands on promotion,' says Derek Strange, spirits buyer at Waitrose. Consumers have become very promiscuous, and any growth is made by one brand at the expense of the others, not for the gain of the category as a whole. Ultimately, there are just too many brands fighting for too few sales.' With shoppers buying on price, own-label is increasingly important. It occupies 27.7% of the UK standard blends off-trade market, up by 1%, and now has almost as large a share as the combined portfolios of Maxxium (15.6%) and UDV (14.7%), the next nearest competitors (AC Nielsen, MAT June/July 2001). Tertiary brands are increasingly suffering, and buyers such as Strange are consequently seeking to cut back on the number of brands they are offering. We've been in the process of looking at our range for the last 18 months, with the prospect of some rationalisation,' he says. Meanwhile, in the on-trade the story is even worse, with a slump of 1.9% in volume over the same period (AC Nielsen). Nathan Wall, operations director at pub chain JD Wetherspoon, believes that this is because off-trade prices are forcing the standard blended drinker to stay away from pubs. Prices in the on-trade have been going up and up over the years, while they've been going down in the off-trade,' Wall says. The sort of people who drink blends just don't go to the pub anymore. They would rather stay at home with Sky TV and a takeaway and save money. It's very difficult for the pub to compete with that, especially when the multiples are putting such deflationary pressure on the market.' Where blends are being drunk (or not drunk, as the case may be) is something of a side issue for suppliers and producers. The more pressing task for the industry is firstly to understand why blended whisky is a winner in Spain but a runner up in the UK, and then to discover what the domestic market can learn from its soaraway southern counterpart.

Spanish lessons For many, the instant answer to the first conundrum can be found in the internationalisation' of drinking habits. As James Espey, founding father of the Keepers of the Quaich, says: On the East Coast of the United States it used to be that it was all Scotch, and you couldn't find wine for love nor money. Now, wine is really popular. And in France, it used to be all wine and no beer, and now that's changing. People's drinking habits have become much more eclectic.' This is usually followed by a reference to what might be called the parental' problem: the idea that, as Maxxium UK senior marketing manager Chris Anderson explains, you don't want to be seen drinking what your dad's drinking; you want to be seen expressing your own personality'. The problem with these responses is that while they may help explain why blends can be at once hip in Spain and square in the UK, they also sound uncomfortably like excuses. They suggest that the reason blends have got into the state they have in the UK is due to world historical forces beyond the whisky companies' control. They imply, too, that all that needs to be done is to wait until, as Tegner says, the children of the current vodka-drinking generation in the UK start drinking whisky'. What's more, there are blended brands which have managed to fly in the face of both those pieces of received whisky wisdom, albeit not from Scotland. The most obvious of these is Jameson, a brand which is currently up 13% in the UK off-trade (AC Nielsen MAT May/June 2001) and competing in a similar price category to brands such as The Famous Grouse and Bell's eight-year-old. Hailing from Ireland, Jameson could hardly be considered exotic. And there are plenty of young people in the current generation who drink it despite the fact their dads do too. When asked about the Jameson anomaly, Tegner suggests: Consumers are quite intelligent, and they realise that Ireland has much more positive connotations than Scotland. It's managed to escape all the baggage that Scotch has and fits into a completely different category.' Whether that is true is debatable, however. Is it really the case that the Scotland of Trainspotting is less cool than the Ireland of U2? It seems unlikely. Rather than any cultural favouritism, Jameson's current buoyancy probably has more to do with applying similar marketing ideas in the UK to those that the Scotch blends are applying in Spain - emphasising mixability and targeting youth in their What's the Rush?' ads. Learning those Spanish lessons is something which the Scotch blends seem reluctant to do in the UK. They seem hamstrung by their desire to cling on to their older drinkers. As Anderson explains: We must recognise, in all our efforts, that we have a core loyal consumer for our brand that we don't want to alienate. Going forward, they are our bread and butter. We're not going to change overnight.' Anderson and Maxxium are instead trying to walk the marketing tightrope between attracting the youth who currently stay away from the sector in droves, and retaining the 50-plus dads' who actually buy the product. You can see this in the ongoing The Famous Grouse campaign, which takes the bird from the traditional Grouse packaging and animates it in quirkily modern TV ads. Bell's, with its use of Jools Holland (a figure who appeals to a broad age range, thanks to his association with the BBC music show, Later), has tried a similar trick in its TV ads, albeit with a more traditional Let the good times roll' presentation. You can see the balancing act again, in Grouse's approach to New Product Development. The brand has shelved its plans to move into the FAB market with Grouse Rush after trialling the whisky-based energy drink in Scottish nightclubs. According to Anderson, the response from the trade was enthusiastic; likewise from young consumers when it came to taste. It was only when those image-obsessed consumers realised that it was Scotch they were drinking that they turned off the idea. Bloodied but unbowed, the company has instead gone through with a different launch - The Famous Grouse Special Wood Finishes (see Harpers, 12 October), which Anderson hopes will appeal to both young malt drinkers and Grouse's core constituency. The range of two executions features the standard Grouse blend, which is finished' for six weeks in Port Pipes and Islay casks. The move forms part of a mini-trend in the industry, alongside William Grant's new release. The family-owned company pipped Grouse to the post with the launch of its Sherry and Ale Cask Special Reserve Finishes in August, a release which Alec Guthrie, brand manager at First Drinks Brands, says is specifically targeting younger drinkers', with advertising featuring Geoff Hurst scoring the winning goal against West Germany in the 1966 World Cup Final, and other historical incidents with a finish' theme. It is highly unlikely that finishes will single-handedly save the category. But after a ten-year period during which, as Anderson says, no whisky brand has come up with any new developments', they have so far been welcomed by the trade, at least in principle. Anything which brings innovation to the category and adds a premium has to be welcomed,' says Wall. I think it's a laudable and interesting development, although I have found the products a little disappointing in delivery so far,' adds Strange. If, as so many in the Scotch industry believe, the surreal Spanish market really is too different from the UK for British brand managers to learn something from, at the very least working on those finishes gives the industry something to do while it waits for vodka drinkers to have children. And for those children to mature into whisky drinkers.