The Blends

Although
low end, bottled in the US Scotch sales appear to be ebbing,
in the premium and higher segments, a two percent yearly
growth in dollar sales and a 1.2 percent growth of foreign
bottled scotch volume are certainly cause for optimism. Some
insiders are even predicting that brown spirits will become
the “new white” for distillers.

Estimates of the category’s
current and future health run a wide gamut, but Diageo and
Bacardi believe a brighter future is coming because each has
announced plans to invest heavily in their flagship brands.
Bacardi will spend $25O million over the next decade to
expand its Dewar’s production and Diageo will invest more
than $2OO million to build a new malt distillery in
Scotland. Pernod-Ricard also spent several million dollars
to expand its Chivas bottling operations in
Scotland.

“When customers find out
that single malts are not the original Scotch, they’re
interested,” says Harold Joyce, a sales representative for
WyattZier, which imports Compass Box, a blended whiskey
company started in 2OOO by John Glaser, a former Global
Marketing Director for Johnnie Walker. “The redundancy of
the Scotch market has really brought out the interest in
Compass Box. People are just seeing the same old products
from the other companies,” he observes. Before the brand
launched a few years ago, “there really wasn’t a lot of
experimentation with bringing out something new. Those
familiar with Scotch paid attention,” he says, adding: “The
great thing about Scotch drinkers, much like Indie music
fans, is that they want to discover the newest thing.
They’re more like that than drinkers in almost any other
category. They like the fact that only around 75,OOO bottles
of Compass Box are made each year. This is like Johnnie
Walker when he was alive blending Scotch at his general
store.” Education is the biggest hurdle and distributors
need it the most, he notes. “We’re based on grassroots
fundamentals. We don’t shy away from being out on the street
talking to people. We love hanging out with bartenders. So
many people bring them crap every day trying to trade on the
confidence they have with their customers. Bartenders are
the equivalent of people who know about great bands a year
before a hit. When they speak, it’s the truth and that’s
it,” he says. As for huge ad campaigns, “We could care
less,” he exclaims, explaining, “These brands that go out
and advertise before bartenders really know about your
brand? You’re not telling them first. Why should they care
about it?”

“I think the declines in
the mid to lower priced segments have been going on for
years. The premium brands are going very nicely,” declares
Larry Neuringer, Brand Director for Chivas Regal with Pernod
Ricard USA. “Consumers are very interested in
premiumization. We live our lives trying to stay afloat in
the stream. Everyone wants to have a little island to jump
to that’s real and authentic. Nothing is more real and
authentic than Scotch,” he says, noting that Chivas and
similar brands have equity, as opposed to being a flash in
the pan. “Everyone wants to know about something no one else
knows about. Chivas is consumed by everybody. We call them
social achievers. They view themselves as in the know. They
want the good life and surround themselves with badge brands
that communicate they’ve arrived,” he continues.
Ballantine’s is another leading blended Scotch brand the
company owns, but Neuringer says it’s “not a big piece of
business here in the US.”

For Chivas, there are new
users, Neuringer adds, stressing that for future category
growth, it’s critical to attract Gen X and Gen Y, who he
says are gravitating toward Scotch at earlier ages than in
the past. More women, too, are drinking Scotch, he says,
recalling that when he met his future wife on a blind date
she was drinking Scotch. Like some other high end brands,
Chivas has a traveling education/entertainment program, in
this case named Chivas Studio. It visits all the major
markets offering samples, music and education about Scotch –
and Chivas. Brand ambassadors also play an important part by
visiting on premise accounts, where, he says, staff turnover
is rapid enough that efforts there need to be repeated
fairly often. “I think premium Scotches – both blends and
single malts – are going to continue to grow, largely
because of these consumer trends,” Neuringer
concludes.

An executive at a major
Massachusetts distributor who asked not to be named adds: “I
do think heritage and history in a brand are very important.
I think the difference in single malt versus blended may not
be the consumer, but more the occasion. The blended Scotch
consumer may trade up to single malt when they are out at
night, and stick with blended when at home. Compared with
our expectations, the blended Scotch category is doing well.
However, I wouldn’t classify it as ‘very’ well,” he
says.

“The category has been
pretty flat over the past few years. Blends have always been
in the market and single malts have risen to prominence,”
says Lana Pattinson, Brand Manager for The Famous Grouse at
Remy Cointreau USA. Despite the category’s general
situation, Famous Grouse’s overall sales grew eight percent
in 2OO6, she says. “We’ve really started to pick up steam
lately. Single malts are growing, but they are still a very
small segment of global Scotch whiskey sales,” she comments.
“Consumers are definitely willing to try different things.
That’s definitely new. The younger crowds, especially, are
opening up to different categories, not just vodka. I think
it’s good for the industry in general,” she notes. “We have
bars making labor-intensive artisanal [retro]
drinks. We’ve noticed many bartenders using Grouse,”
mentions Pattinson, continuing: “We really weren’t going
after that market. One reason this is occurring is because
Grouse is so smooth.”

“We have people who drink
Johnnie Walker and are real loyal. The blended Scotches are
smoother and easier drinking, but probably don’t have the
complexity single malts have,” says Charles Pedersen, owner
of Charles Street Liquors in Boston. “People who drink the
lower-priced Scotches have been drinking them for a long
time and I don’t see a lot of new drinkers,” he remarks,
adding, “The growth of wine is hurting the growth of
liquor.”

“The category is now on an
upswing. Conditions are right to bring in new and higher end
products,” says Bill Topf, Vice President at Diageo who
oversees the Johnnie Walker and Buchanan’s lines. Overall,
he says, “Brown spirits in general have seen a bit of a
resurgence in the past five years. The vast majority of all
Scotch sold is blended, so that drives everything.” With
what he says is a shift toward brown spirits comes a “shift
to things that have more substance and heritage,” Topf
continues. Johnnie Walker and Buchanan’s have been doing so
well because both have been around for a very long time, are
steeped in heritage and are known for their quality, he
notes. “The 25- to 35-year-olds are trading up and
considering Scotch as an alternative. They’re growing out of
the beer and party mindset and are interested in anything
super premium. This rejuvenates the category. Scotch isn’t
your father’s drink. It can also tap into the cocktail
segment. Scotch is what cocktails were made with before
vodka or gin,” he observes.

“Of all the products in the
Johnnie Walker portfolio, Johnnie Walker Black Label is the
company’s best-seller in the US with Red a close second”,
says Topf. “Johnnie Walker Green, Gold and Blue play in the
super and ultra premium segments where prices are much
higher,” he notes. Such ultra luxe products are seeing
double digit growth. “There isn’t much competition among
them as we see. They really stretch across different
occasions and consumers. They really drink the range. ‘I’m
celebrating, I’m at home, I’m going to splurge and have Blue
label.’ All have slightly different tastes. The Gold is
honeyed, Red is made for blending, Black has its signature
smoky flavor. There’s no problem as long as we keep the
differences clear,” he comments. Also, a rise in consumption
from the Hispanic and Asian markets will continue to be an
important piece of the marketing milieu, he declares.
“Scotch plays a big role in these countries. As the
population grows here they bring their favorite brands with
them. They don’t have the traditional image of Scotch and
aren’t consuming as wide a product group as other
ethnicities,” Topf says.

Buchanan’s, too, is growing
“very steadily” in the US, and is almost solely consumed by
Hispanic consumers, he says, adding, “It’s taken off here
because it’s so large in their home countries. It’s a brand
they can relate to – they’re comfortable and familiar with
it.”

“What’s interesting is that
young consumers who have not considered Scotch in the past
consider it now because of character. The same consumers of
strong beers and red wines drink Scotch – the 25- to
34-year-olds. It’s still an aspirational point of maturity
for many young adults,” says Gonzalo de la Pezuela, Vice
President/Marketing Director for Bacardi USA, which imports
Dewar’s White Label. “Overall, the rate of growth is higher
for the more exclusive and prestige marques. People are
gravitating toward Scotch because of its authenticity. It
can also be consumed as a mixed cocktail. It’s something we
want to promote – but in drinks that have some integrity
that can mix well with Scotch,” de la Pezuela says, pointing
out that Scotch and Ginger is gaining popularity. “The bulk
of our efforts are directed to store managers and
bartenders,” he says, adding that Boston is a key market for
Dewar’s. This is how the two Dewar’s brand ambassadors spend
much of their time,

he explains, also
mentioning the traveling Dewar’s Academy of Whiskey, a venue
where consumers and the trade can learn about Scotch in
general and Dewar’s in particular. The concept launched last
August in China and remains at each location for several
weeks. “Even though we recognize that Scotch had its heyday
in the 198Os, the category is growing in value, and has held
its volume for the last four to five years. I am optimistic
that it will continue growing and gain market penetration,”
he says.

Certainly, not all brands
have had the success of Dewar’s and Johnny Walker. Times may
have been lean in recent years for many blends but
perseverance is slowly paying off. “I see the standard
blended market as relatively flat. US value is declining,
while the deluxe area of 12-year-old and above seem to be
doing pretty well,” says James Bruton, Brand Manager for
Cutty Sark at Skyy Spirits. “Cutty Sark is relatively flat
to slow growth, which is good. A repackaging last year was a
real premium upgrade for us,” he continues, noting, “The
brown spirits category is less dynamic than the total
spirits category.” Blended Scotch drinkers are “less
repertoire drinkers than the single malt crowd. They’re a
little bit more loyal and have their favorites that they
generally stick with,” he says. For the most part, “most
companies have a strategy for off-premise with blended
whiskey and win on-premise with single malt. Off-premise is
where we’re going to win that battle. We have a tremendous
amount of history and a very loyal customer base. We
consider ourselves to be the best merchandised Scotch,” he
comments.

In the on-premise arena,
“We’ve had the most success with traditional old school
cocktails. In the Scotch category some of the classics are
coming back,” Bruton says. “We probably get the most volume
from 4O- to 6O-year-old consumers. We also have a lot of
appeal with younger consumers, whom we’re not necessarily
targeting. Some consumers just gravitate toward traditional
brands,” he says, explaining how “there is a lot of
historical love for Cutty Sark in the trade.” He continues,
“We have had a heavy trade push for the last couple of years
and will continue to do that.” Bruton also points out that
an add-on pack launched lat year with two decks of cards and
poker chips was highly successful, owing to the current
popularity of poker. Also, he notes that Skyy Spirits spends
more on point of sale materials than anyone else. “That’s a
strategy we feel has proven pretty successful and are going
to stick with it,” he says. A heavy print advertising
campaign is another approach the company will continue to
use, he remarks.

“It’s an exciting time in
the category industry-wide, but we’re not doing a lot with
blended Scotch,” says Jackson Cannon, Bar Manager at
Boston’s Eastern Standard, noting he does a lot more
business with American bourbon and rye whiskies, and that
blended Scotch, “is not getting a lot of interest off the
street. Blends are a tough sell.” One bright exception
Cannon cites is Compass Box. “I’m able to do two things with
it. One, take an American Whiskey drinker and show them the
refinement of blended Scotch. Another is to occasionally
bring the devout single malt drinker to try something
different,” he says, adding that Compass Box, “really shows
the artisanal routes of Scotch blending.” Blending is
misunderstood, he continues, and “it won’t take long before
people realize there’s more to the whiskey-making process.
It’s not just about strong flavor.” Despite blended Scotch’s
general fate at Eastern Standard, Cannon says Johnnie Walker
Black “just sells itself,” and that he orders a case of
Dewar’s White Label every other week. “That’s the one I
reach for for cocktails,” he says.

Michael Brody, Vice
President of General Sales at M.S. Walker states, “As far as
the retail trade in Massachusetts, the interest in blended
Scotches is thought of as yesterday’s news.” He adds, “The
blended Scotch consumer is older and has developed the taste
for the product over many years. Today’s younger drinker
wants more mixable spirits. They want to mix everything from
Red Bull to juices with their white spirits. It is very hard
to mix these with Scotch,” he states. “The only growth I see
is happening with the higher end premium and super premium
single malts.”

Brody says, “We are
fortunate to sell Clan MacGregor, the largest selling
bottled-in-US Scotch. The brand is holding its own and
taking market share from other brands in its category. We
also have Cluny, another value brand in the blended Scotch
category, and it is steady but has not grown here in the
past few years. The other bottled-in-US Scotches we carry
are declining. The bottled in Scotland brands like Cutty and
Grants are also having a hard time holding their sales.
Grants is doing a little better, as it contains the most
amount of malt,” he says. Brody does see some potential for
the upcoming year if: “The major bottled in Scotland brands
can attract a younger consumer with either a new Scotch
drink that comes into style or an advertising campaign that
catches the eye of the younger consumers.”

To this point, Diageo’s
Topf says, “We definitely need to reach out to consumers.
The younger generation of drinkers may have heard of Johnnie
Walker, but not necessarily have tasted it. We do a lot of
on-premise and store events. I think premiumization is going
to increase toward luxury. A number of products play in the
limited edition range,” he says, pointing to the new Johnnie
Walker Blue King George V edition, which retails for $6OO.
“The category is on an upswing,” Topf declares. “Conditions
are right to bring in new and higher end products. Brands
are looking to provide anything extra special to their
consumers to enhance their image,” he says, adding:
“Consumers want it because their friends aren’t going to
have it. We’ll continue to look at ways to give consumers
more specialized experiences to make it more on to one,” he
notes. Among this outreach is Johnnie Walker’s Striding Man
Society, a club for the brand’s enthusiasts to learn about
the various Walker products. Once registered, members are
notified if the Johnnie Walker Journey visits their city.
This is somewhat similar to the Dewar’s Academy, in that
participants learn about Scotch and the Johnnie Walker
brand. Diageo also has taken out advertisements on cable
television.

“It’s a category that has
suffered with the popularity of single malts and bourbons. I
also see more movement toward Irish whiskies. All that has
taken its toll,” comments John Stepanski, Manager at Bauer
Wine & Spirits in Boston. “Blended Scotch is perceived
as something from the old days. People don’t seem willing to
explore it. Johnnie Walker Blue is an item he always stocks
because many customers buy it to give as gifts. “That’s one
thing they immediately reach for because it has status and
recognition,” he says. But, “The budget items are
suffering,” he continues. “They just don’t move as fast as
they used to. We’re replenishing our shelves, but sales are
just pretty flat. It seems to me that younger drinkers are
looking at the single malts.”

The blended Scotch category
is far more challenging to gauge than vodka, tequila and
other current market icons. Just as micro-climates can
affect how well crops thrive, “micro-markets” can apparently
influence the success of blended Scotch at any given
account. With the right mix of brands, consumers and product
education, the better-known higher quality Scotch brands
appear to have a very bright future.