Just the Answer - Diageo Global Malts
The Scotch whisky category is booming globally thanks to demand in Asia and the BRIC countries, particularly for blends, but mature markets in Europe are proving more sluggish. In this month's Just the Answer interview, Diageo's global malts director Nick Morgan spoke with Kate Ennis about the future of the malt category and Diageo's innovative focus on food and whisky pairing as a means to drive growth in the single malt market.
just-drinks: Diageo's recently released figures suggested you were being held back by your performance in Europe. What is the outlook for single malts in the region?
Morgan: Single malt whisky is performing far better across Europe than blended Scotch and although malts have, generally speaking, been static in markets like the UK, there's still opportunity for growth, particularly in the premium sector.
Looking at the single malt market as a whole, it's divided clearly into price points - value, mainstream, premium and super-premium - and we see that it's the mainstream segment being most heavily squeezed by pressure from both above and below. Some consumers are making a price decision and trading down to value own-label, supermarket malts, while other consumers are choosing quality and trading up to premium brands so those in the middle are struggling.
j-d: So does the sector need more innovation to grow?
Morgan: Innovation in Scotch is very difficult because producers and, for that matter, consumers have a very strict rule book in their head about what Scotch whisky can and cannot be, particularly with malts. Believe me, we've probed the consumers and it's interesting how conservative they are. The paradox is that those same consumers perceive a lot of barriers to entering the category based around complexity and confusion in knowing what to choose from a proliferation of brands. They want real malt whisky, made with authenticity, integrity, provenance and heritage but also want signposts to make things simpler.
In the last ten to 15 years, malt whisky producers, in mainstream and premium sectors, have spent a lot of time shovelling complexity onto their products. Much innovation has also been built around complexity because it has been directed at knowledgeable and discerning drinkers already within the category, rather than new drinkers.
In terms of innovative approach, what we've done over the past year with the Singleton in Europe and Asia is very much an innovation aimed at trying to bring in new drinkers with its rounded, accessible flavour profile and name as a signpost for people interested in malt but who have difficulty navigating the Scotch category.
j-d: Will a move away from age statements help at all?
Morgan: In many markets, they are a price of entry. If you don't have a ten- or 12-year-old, you can't compete. Clearly there is a holy grail for whisky producers to sell single malt whisky without an age statement because that releases you from a whole range of constraints - but to do that in a way that presents a taste profile acceptable to consumers used to drinking 12-year-old spirits is fraught with difficulties. There's a risk of alienating core consumers if you innovate too radically and that gets back to the rule book.
j-d: So why do you think food and whisky pairing is the best approach?
Morgan: Food and whisky isn't solely aimed at bringing new drinkers into the category. It's also about increasing consumption, which is hampered by occasionality. For many people, the time for malt whisky is at the very end of evening and often based around solace drinking. In terms of building incremental volume, you're never going to set the world on fire if that's your consumption model.
Nick Morgan, Global malts director at Diageo
We believe there's a huge opportunity to bring the malt whisky consumption moment forward by bringing whisky to the table earlier, as an aperitif with nibbles and appetisers or with cheese or chocolate desserts as a wine substitute.
j-d: It's never going to catch on like wine and food pairing though, surely?
Morgan: We're not aiming for failure here. That's why we're putting such effort in. The reality is we know most consumers find it difficult to drink whisky throughout a meal, particularly European and North American cultures, so that's where we are working hard with this programme. There's still a lot to be done - we've got to win the hearts and minds of food producers, restaurateurs, chefs and food writers, which we have been doing over the past two years with great success. Consumers aren't going to move unless they see the message coming from a wide variety of sources.
j-d: In terms of new markets for malts, India must look promising now after recent changes to the prohibitive import taxes?
Morgan: In India the tax situation remains somewhat opaque, with state-imposed, ad valorem taxes so it's still fiscally penal to do any serious business in the domestic market. Everyone thinks it will be a little while before the situation is resolved. However, India is the largest whisky market in the world and there is a huge and residual knowledge and interest in Scotch whisky there. It's my belief that once the regulatory issues are resolved, India will become the largest Scotch whisky market in the world and malts will have an ample share of that business.
Other new markets showing significant potential include Latin America and Asian countries like Korea, which may not see the same pace of dynamic growth witnessed in Taiwan, but there's certainly a growing interest in single malts amongst opinion-leading consumers, which will trickle down and then you see some significant and sustainable growth.
j-d: Will Diageo's new investment at Roseisle help to meet future rising demand for single malts?
Morgan: Roseisle will support the blended business, which might free up stock that can be used for single malts but our most rapidly growing malts are from distilleries where almost all of production goes into single malt bottlings anyway, so our single malt business isn't contingent on Roseisle.
With Lagavulin and Oban we've already had to address inventory problems and we're always going to have availability issues in periods of unanticipated growth. Single malts are a finite product by their very nature.
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