Subscriber login Close [x]
remember me
You are not logged in.

Dominic Walsh: Diageo has right to run its own business

Published:  04 September, 2009

It is not often I feel sorry for a giant multinational corporation, but there's a first time for everything. The outfit in question is Diageo, the world's biggest drinks company, owner of such iconic brands as Guinness and Smirnoff, a constituent of the blue chip FTSE 100 index of leading stocks - and not generally on most people's list of objects of sympathy.

The reason I've gone soft on Diageo boss Paul Walsh (and in case you were wondering, there is no family connection) and his corporate cohorts is over the furore created by the group's decision to close a bottling plant in Kilmarnock with the loss of 700 jobs as part of a wider £40m cost-rationalisation of its Scottish operations.

While the loss of so many jobs is understandably hard to bear for the folk of Kilmarnock, with UK unemployment heading rapidly towards the 3m mark it is sadly par for the course in the current climate. On the plus side, the decision to cut the number of plants from three to two will see the site at Leven, Fife, expanded with the addition of 400 jobs.

But the creation of these new jobs has cut little ice with the people of Kilmarnock, where Johnnie Walker Scotch whisky has been bottled for almost two centuries. Typical of the local view is that of Wyllie Brown, a pensioner who worked for the business for 44 years. "Diageo are the biggest bunch of rogues under the sun. It's just pure and utter greed that will mean desolation for Kilmarnock."

The pressure on Walsh to change his mind has been immense. Thousands marched through the streets of Kilmarnock to protest at the move, while drinkers have been urged to boycott Diageo products. The Scottish gobernment has stuck its oar in, pressing Walsh to do a U-turn, while Scottish Enterprise has drawn up an alternative plan that would involve the retention of a smaller bottling plant in the Ayrshire town. Even Robert Carlyle, the Scottish film star, was approached by campaigners to become involved, for Heaven's sake!

What has got the Scots breathing fire and brimstone is that the Scotch whisky has remained robust throughout the global economic downturn. Exports topped £3bn for the first time last year, despite a 5% drop in export volumes, and the whisky industry - not least Diageo - is investing an estimated £500m in adding, expanding or otherwise improving production capacity to cope with the long-term prospects of international demand.

But what people do not understand is Diageo's need to remain competitive on the international stage. Efficiency is crucial to achieving that aim, particularly in the current tough economic climate, and the ability to save £40m in costs is not to be sneezed at, even for a corporate behemoth like Diageo. Its handling of the process could probably have been a little better, but unless campaigners can devise an alternative strategy that allows the company to keep Kilmarnock open while still saving £40m, they should accept the inevitable, I'm afraid.

While local politicians have understandably joined the assault on Diageo, the actions of the Scottish government in piling pressure on the company to go back on its plans strike me as ill-judged. How best to run its business as efficiently as possible for long-term benefit should be the decision of Diageo - and Diageo alone.

Dominic Walsh covers the drinks and hospitality sectors for The Times