This months just the Answer is with the CEO of Morrison Bowmore, Mike Keiller

This month's just the Answer is with the CEO of Morrison Bowmore, Mike Keiller

In this month's just the Answer, Olly Wehring met up with the CEO of Morrison Bowmore Distillers, Mike Keiller, to discuss the past, the future and the East.

just-drinks: Could you detail the relationship between Morrison Bowmore and Suntory?

Mike Keiller: Morrison Bowmore is a subsidiary company of Suntory's international liquor division. Suntory itself is a family-owned group, which operates in alcoholic beverages, soft drinks and other companies, such as the Suntory Flowers division. Among the international liquor brands are Mozart Distilleries in Austria, which they own 50% of, French firm Lejay Lagoute which they own 35% of, and full control of Louis Royer – also in France – and Suntory Mexicana in Mexico.

The relationship goes back to the Mexico Olympics of 1964 when Mr Morrison met Mr Tori. In those days, Morrison Bowmore was a bulk supplier of whisky, and it started supplying bulk Scotch to Suntory. That continued until 1989, when Suntory acquired 35% of Morrison Bowmore with a put option, which was exercised in 1994. They didn't do a whole lot with it until 2000, when Suntory decided to focus on developing Morrison Bowmore as a standalone business. That's when I came on board.

Since then, we've been focusing more on single malts, which is what we are now about.

j-d: What prompted the move away from being a bulk whisky provider?

MK: If you go back to 2000, the main profit earners for us were bulk - shipping bulk whisky to local, regional producers who would add it to their product and sell it as 'add-mix' - and blended – that was UK own-label and South America. We've progressively got out of that over the last six years.

When you don't own brands, you're only really in a commodity business, which means that you're completely exposed to market fluctuations. Scotch has always been cyclical – when there's oversupply, prices drop and when there's undersupply, prices go up.

In 2003, the market was on a decline, so the margins on own-label and the South American business went down. At the same time, in Venezuela, Hugo Chavez came in and cut off currency – our distributors there weren't able to spend foreign currency on buying whisky. So, we were pushed into a loss-making position, and we concluded that there's no future in this. That's when we decided to focus on our single malt distillery brands and cut our cost base, which we did by 30%.

Mike Keiller

Mike Keiller, chief executive of Morrison Bowmore Distillers

j-d: Has the economic downturn not led you to feel that exiting bulk whisky and focusing on premium single malt were not wise moves?

MK: I think there's an argument there, if you can make sufficient return. But, to supply any form of Scotch, you need  to have a minimum of three years of stock – that's a big cash drain. If it's not making a good return for you in the short- to mid-term, that's quite an expensive cost to hold. We stripped back to what we felt had a long-term future.

There are arguments that, now the market has stabilised, we could re-enter that. But these are low-return areas and we're making very good progress in what we're doing by being focused.

j-d: In the meantime, however, the total single malt category has declined. Recent data showed a 5% contraction for single malt in 2009.

MK: When we made the move to focus on single malts in 2003-2004, the category was firmly in growth. Up to 2007, that growth continued. Then 2008 was flat. But within that, because we're focused - with three of our four brands operating in single malt – we're still making progress. We've got three of only five or six brands in the top 20 that are growing.

In duty free, we made huge volume progress in 2008 and 2009 because we offer focused support to certain key customers.

But, I see last year's slide as short-term, brought on by economic reality. Europe and the US have historically been the category's big markets – as the economies in these markets get back to some kind of comfortable growth level and consumer confidence comes back, we fundamentally believe that consumers are very interested in whisky and in single malts in particular.

In Europe, we also represent Suntory's Japanese whiskies and there's growing interest in that segment. So, both Suntory and Morrison Bowmore are very positive about the long-term evolution of whisky as a category.

j-d: How likely is Morrison Bowmore's growth expected to come from the east going forward?

MK: Suntory's distribution in Japan is number one, they're the most powerful player. It should be no surprise, then, that Bowmore is the number four malt. Distribution power does produce results, then. Elsewhere, we're developing Morrison Bowmore by choosing the best distributor market by market. In Asia Pacific, Suntory has some distribution units of their own, but we're not solely with them. In Taiwan, for example, we're with three distributors. So, we're running ourselves independently.

Nearly all of our key markets have been in what would be seen as unattractive markets – we're very strong in Europe, particularly France, as well as in Duty Free, which delivered substantial double-digit growth for us in 2009.

Consumers in these markets are looking for something different – Bowmore, which is an Islay whisky, and Auchentoshan, which is a Lowland, provide that point of difference.

We only went into India in September last year, we're tiny in China and in Russia we've gone with a local distributor. We're not in South America at all, but I can see single malts emerging there over the next ten years.

j-d: How is the Drambuie partnership going?

MK: Drambuie needed to find a new home when Glenmorangie decided to exit blends and streamline production and back-office facilities. That signalled the end of the partnership between the two, which had been running for around 20 years. We had surplus capacity from the days of our blended business, so we could offer them a dedicated production line.

It's got off to a seamless start so far: we've fulfilled 100% of their requirements, on time and in full. It's working for them and it's working for us.