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Diageo damage

Douglas Fraser | 21:21 UK time, Thursday, 9 July 2009

Bosses at the world's leading drinks company may sell into 180 different markets, but there's one in particular that is causing them a pain in the corporate neck this week, and it's the Scottish one, in a country that gives them several of their biggest brands.

The closure notice slapped on the Kilmarnock plant last has rebounded, with a cross-party, cross-government alliance at a time when the political and news cycle was ready to latch on to an issue that represents widespread fears about future job losses, and in an Ayrshire town that is as badly affected by recession and manufacturing decline as any in Scotland.

The cross-party alliance has, of course, been strained by Labour attacks on Alex Salmond for preferring a TV interview on Tuesday over the short-notice offer of a meeting with chief executive Paul Walsh.

That's unlikely to do lasting damage to the campaign, but it's politically embarrassing for the SNP First Minister, particularly with the Port Dundas distillery closure in the Glasgow North-East constituency where a by-election looms.

Anyway, the president of Diageo Europe and global head of operations were in Edinburgh on Thursday on a mission to explain, promising that minds are still open about the Kilmarnock closures.

They say they've been through the options, including a green-field, new-build plant near Kilmarnock, and none of them stack up compared with closures and new investment to the east. With £20 million of annual savings in the pipeline, the investment of £100m in upgrading plant in Fife and Clackmannanshire seems to them a pretty good deal.

So what could Scottish Enterprise, the Scottish Government or Scotland Office offer? It would have to be a whole lot of incentive to beat the £20 million annual savings, they admit.

What they can offer is reassurance that they appreciate their workforce's loyalty, and say they are looking for "a legacy" for Kilmarnock - other than unemployment, that is. Such as a museum? They're not saying, but they're open to ideas.

I suggested the value they place on loyalty may ring rather hollow in Ayrshire, but the argument is that modernisation and greater efficiency is necessary for the company's health in a price-sensitive competition for drinkers worldwide.

Yes, Johnnie Walker is a premium blended whisky brand, but its competitors include vodka, rum and beer as much as bourbon and Bushmills.

From Finance Secretary John Swinney comes a firm warning to Diageo that this consultation must not be a sham. It's unusually undiplomatic language from a minister:

"In the last week Diageo have provoked some of the most damaging publicity ever encountered by a major company here. That is because there are more than five million people in Scotland who believe the company must understand the social consequences, particularly in Ayrshire, of their financial proposals are not acceptable to the people of Scotland."

Meanwhile, a warning comes from CBI Scotland that so much fuss about a successful company's decision to modernise will do Scotland's international reputation as a business location no favours at all.

Comments

  • Comment number 1.

    "So what could Scottish Enterprise, the Scottish Government or Scotland Office offer? It would have to be a whole lot of incentive to beat the £20 million annual savings, they admit."

    Maybe ask the SoS why the treasury have allowed Scotland's assets to be sold down the watter by the UK.



    "Subsequent UK investigations into Diageo's tactics involved a trip to the Netherlands by an HM Revenue & Customs team, led by Ian Valentine, deputy director of the department's large business service, and supervised by Britain's top taxman, Dave Hartnett, according to Whitehall sources."

  • Comment number 2.

    How is this politically embarrassing to the First Minister?

    It is embarrassing to Murphy who tried to hijack this for his own political ends. Im sure you will be asking him where the new bottling plant on the greenfield site will be, and you are sure to ask him where the money was coming from to pay for what he promised.

    Its also embarrassing to all the media who rushed to print Murphys spin as fact yesterday. Do not bother to check facts, just print the Labour press release verbatim. Journalists, you could not spell it.

  • Comment number 3.

    coming from levenmouth i say regard diageos promises with a large dose of salt this is a company who paid of full timers to employ short term employees in the past they do not have a good track record in our area

  • Comment number 4.

    Hi there,

    "Yes, Johnnie Walker is a premium blended whisky brand, but its competitors include vodka, rum and beer as much as bourbon and Bushmills."

    True. And all those competitors of Johnnie Walker and whisky in general can be found in the Diageo portfolio itself.

    A drinks giant as big as Diageo is competing against itself and the competition lies among the drinks categories the company offers.

    The other thing is that - much too late -suddenly everybody seems to remember that Scotch is the Scottish national drink.

    Historically true but seen from an economic point of view wrong. The time to play the "historical nationalist Scottish card" has long since passed and it should have been played in the 1970s. But nobody did could or seemed to want to in these years.

    It is sad and a tragedy what is happening. And it is with brutal efficiency that Scotts are made aware that Scotch whisky is no longer in Scottish hands. Only about 5% still is.

    So why does everybody wonder that decisions about Scotch whisky and i that case Scottish people are being made outside of Scotland nowadays?

    What does the SNP say to the fact that the Scottish national drink is forreign owned and forreign controlled and - while we are at it - forreign consumed which brings the revenue to British coffers and they are so keen in redirecting to Scottish ones.

    To confuse Scotch with the independence and nationalist issue brings harsh proof that in that respect there is only a slim chance for independence. It shows the economic dependencies that exist.

    And having thought that there are probably other fields were ideas look well on paper. But only ont paper.


  • Comment number 5.

    I lived in Kilmarnock for many years and one by one saw the town's great industries crumble. Saxone, BMK, Glenfield & Kennedy, Massey-Ferguson all went within a very few years. The one place I always thought would never close would be Johnnie Walker and I can fully appreciate the shock and the actual revulsion of the people of Kilmarnock concerning this. The town and its people were always extremely loyal to whichever company owned Johnnie Walker. They have been betrayed by what can only be described as a very cynical management of a multi-national and it is a clear demonstration to everyone in Scotland - if any more were needed - that if you allow your entire economy to become a branch economy, then your fate hangs upon the whim of people who no little about you and care even less!

  • Comment number 6.

    Why is a business decision dominating the business news? Faced with a declining market share, the only way to keep the product viable is to adjust production costs in relation to volume. The new factory on a greenfield site is ridiculous in relation to current planning strategy. Politicians should focus more on their jobs and stop posturing.

  • Comment number 7.

    A fine example we have in the form of the two Diageo executives stating their company's case (sarcastic comment!) Do they practice in the mirror every morning? If we go on and on developing this type of calibre of captains of industry, I fear for our childrens, childrens future! Crikey I'm surrounded by the very same day to day...........

  • Comment number 8.

    Has anyone any idea how much in rates that Diageo were paying Kilmarnock council?

  • Comment number 9.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 10.

    "That's unlikely to do lasting damage to the campaign, but it's politically embarrassing for the SNP First Minister"

    Nonsense.

  • Comment number 11.

    I've worked for several international beverage businesses all over the world and including Diageo. There is no question in my mind that Diageo is by far the most ruthless in pursuing bottom line profit which of course has the happy result of generating Executive bonuses. The Company makes much of Brand building but this is not pursued as an objective in it's own right it's just a means to make even more profit. So many good brands have virtually disappeared under Diageo's stewardship (remember Haig, Vat 69, Black and White etc.?)not because they were not profitable but because they did not make enough money. Johnnie Walker is, most probably, the single largest contributor to Diageo's profits and it is a disgrace that 200 years of heritage and staff loyalty is being consigned to history in such a disgraceful fashion.

  • Comment number 12.

    Unite's John Quigley complains of the the first minister ignoring diageo workers at Kilmarnock by attending a previously arranged news programme. Why did it take days for Unite full time officials to meet with the workforce in Kilmarnock when the closure was announced? Why does Mr Quigley not name and shame those union sponsored MP's at westminster who do not support the union inspired motion to increase redundancy payments for british workers that have not risen in real terms since 1965 ? Why are the unions and some Labour politicians making party political attacks on the SNP? Are the unionist unions and Labour party using peoples misery to attack the SNP ? We should all be singing the same tune.
    Westminster needs to adjust the favourable duty levied on whisky multinationals who treat their loyal workers with such abandon. Hit the fat cats where it hurts. Their pockets.

  • Comment number 13.

    Diageo will probably make in excess of 3 billion pounds profit in this finacial year which ended in June and is still to be declared.The closure of the Johnnie Walker plant in kilmarnock after 189 years will cost them £100 million pounds with a saving of £20 million per year. This proposal will take 3 years to pay back which hardly seems good business sense in the current finacial climate.
    Diageo produces, packages and exports scotch whisky from Scotland but returns the profits to a Dutch arm of Diageo to avoid paying UK tax.
    How much profit is will Diageo require to treat the people of Kilmarnock with the respect they deserve after all the profits from Johnnie Walker, their biggest and most profitable brand,has built this company

  • Comment number 14.

    So the first minister and his team have been sleeping on the job according to local Kilmarnock MP Mr Des Brown and assorted other labour apparatchiks? Perhaps Des would care to remind us whos responsible for the legislation covering Scotch Whisky? Is it Westminster or Edinburgh? And perhaps he and his other parliamentary chums would care to explain how Scotch was never seen important enough to protect fully, much in the way the French would have done for example with the appellation system? Perhaps he could also explain why it is permissible for Diageo to dodge the column regarding tax with their jolly Dutch wheeze?

    Perhaps also hed explain why we as taxpayers have to pick up the tab for the unemployment, social security benefits and the disintegration of the Kilmarnock community for the benefit of Diageo given, of course that Diageo are dodging tax themselves?

    I wonder if we had laws in place to protect our workforce for example if you want to make people redundant, then the company would be responsible, in addition to the redundancy pay off, for the social security benefits etc., for the next three years? Kinda blows the business case out of the water I would guess? That, and having laws in place that the tax shall be paid in the country of the product rather than any other country the company happens to think off?.

    But heh, I can hear it now, nobody would want to do business with us if we had this Im a dunderheid. Aye maybe, but I know whos been sleeping on the job the weary Westminster willies and their union pals, as usual too dozy or feart to sort out big business and leading us to where are today. Genuine Scotch, bottled in omatingme.

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