New innovation opportunities for Scotch whisky
Cross-category inspiration, transparency and the growing need to capture a fickle millennial audience is creating a fascinating new landscape in Scotch whisky.
Despite strict regulations, there are ample opportunities for innovation in Scotch whisky*This feature was first published in the March 2015 issue of The Spirits Business magazine
The established canon of Scotch whisky has been infiltrated. While this tightly regulated, heritage-driven sector once judged innovation by barrel type, age, abv and packaging, a new wave of brands and brand extensions are coming to the fore, disrupting the norm and offering consumers a more diverse ladder of products than ever before. In terms of both production and marketing, the industry has stepped boldly out of its comfort zone.
This new era of Scotch whisky owes its genesis, in no small part, to the rapidly growing popularity of world whisky brands. Ask most whisky makers in Scotland and they will tell you that it is no longer enough for distilleries to rest on their laurels as competition for consumer interest stretches outside category boundaries. Indeed, the sector has been chastised for failing to have a competitive global outlook by whisky expert Jim Murray, who has refused to give any Scotch brand a top five place in his famous list of the world’s best whiskies for the past two years. “Some [brands] have taken their eye off the ball and not taken into account the changes which have altered the face of whisky,” he said in 2014. “They began to believe their own PR hype and brands started standing still or going backwards.”
But Scotch producers, both fledgling and established, are now fighting back to prove their worth in the innovation stakes. “There is no room for complacency in Scotch as we see growth in American and New World whiskies,” David Gates, global head of premium core spirits at Diageo, said at an investors’ conference in New York last year. At the same time, he unveiled what many have seen as the group’s most disruptive play in Scotch whisky to date – Whiskey Union.
‘Unorthodox’ whisky
Described as “unorthodox, weird and wonderful”, the range was created to “push the boundaries of blending”. It consists of variants labeled as either spirit drinks or Scotch whiskies, depending on whether they meet industry standards. Three bottlings have so far been unveiled under the “experimental craft whisky” arm: Smoky Goat, a “smoky, sweet” blended Scotch whisky; Boxing Hares, a ‘spirit drink’ made by infusing Scotch whisky with hops; and Huxley, a blend of Scotch, Canadian and American whisky. “[W]e know that these Whiskey Union products may well be quite polarising, and that’s just fine,” says Gates. “Some of them will fail, and that’s just fine.”
Due to the strict production and marketing regulations in the industry, it is unusual for both Scotch whisky and spirit drinks to be released under the same umbrella brand. According to Kirianne Green, global whisky innovation marketing manager at Diageo: “Whiskey Union is about creating the best and most experimental liquid. We would never decide not to do something just because we couldn’t call it something in particular. We are very careful to make sure that everything is very honest and meets regulations.”
Whiskey Union represents a broader move by producers to launch standalone brands that allow them to test new ground in the industry, without compromising the position of some of their more established labels. However, according to Stephen Rennekleiv, analyst at Rabobank, these brands have lost market share as a result of their reluctance to innovate. “In the US, one of the few spirit categories in decline is blended Scotch and that’s a reflection of the older brands not responding quickly enough to changes in the market, and changes to consumer demographic and preference. But now I think we are in a different position from even one year ago with regards to action brands have taken.
“There are opportunities for blended Scotch and big brands should absolutely innovate, but the real success stories are brands that target new audiences. These millennial consumers are looking for new brands, they don’t want to drink what their grandfathers used to drink.”
Compass Box is shedding a light on transparency issues in Scotch‘Accessible’ taste profile
One quirky new brand attempting to capitalise on such opportunities is Pernod Ricard’s Barrelhound. This no-age-statement expression is described having a “sweet, more accessible taste profile”, thus “bridging the Bourbon and Scotch worlds”.
Laurent Lacassagne, CEO of Pernod Ricard’s whisky arm Chivas Brothers, says: “We are exploring taste through our innovations, and Barrelhound is one of these. It is something that plays into other categories and it is also a younger proposition. The whisky is unpretentious in both its taste and positioning.” It is one of a number of new variants that aims to capture millennial drinkers with a sweeter flavour. In 2015, Chivas replaced The Glenlivet 12 Year Old with “accessible” NAS The Glenlivet Founder’s Reserve, while Edrington added “subtly sweet” Mellow Gold to The Famous Grouse range.
Does Scotch risk criticism for relinquishing its identity in order to mirror its American cousin? For Nick Morgan, head of whisky outreach at Diageo, the cross-category mimicry is the other way around. “There’s a narrative out there about the ‘Bourbonisation’ of Scotch, but I think it’s the wrong narrative, because what we see is the ‘Scotchification’ of Bourbon. US producers are trying to mirror the diversity of Scotch whisky, which they will never manage.”
Strict regulations
As consumers continue to experiment across categories, some have questioned whether Scotch whisky could be put at a disadvantage by its watertight regulations. However, according to Diageo’s Green, such parameters can in fact spur creativity. “I think when you have strict regulations, it makes the skill of the innovator even greater. Some people say there’s nothing more creative than a very tight brief. It protects Scotch from some of the gimmickiness in other categories.”
Damien Heary, planning and innovation director for William Grant & Sons, warns that Scotch producers should avoid innovating as a knee jerk reaction to the threat of other categories. “If you are in a category that’s growing fast, then the obvious thing to do is try and maintain interest by innovating,” he says. “So despite the growth of world whiskies, Scotch should be doing this anyway. My hope from a marketing perspective is that this innovation isn’t just a reaction, but looks at where we want to take the category, by doing the right things for the right brands.”
Another area where some claim Scotch is at a disadvantage to international competitors is in terms of transparency. Earlier this year, Scotch whisky blender and bottler Compass Box launched the Scotch Whisky Transparency campaign, calling for a ‘full disclosure’ option in Scotch whisky labelling laws that would give producers “the freedom but not the obligation” to reveal the age of all component parts included in their whiskies. According to Compass Box founder John Glaser, such an option would bring Scotch producers “in line with the vast majority of other industries where total transparency is not only permitted but encouraged”.
Ballantine’s Brasil is one example of Scotch brands playing in the flavoured ‘spirit drink’ category‘Kill the BS’
Discussions around transparency in Scotch have also been spurred by the topic’s prevalence in today’s broader spirits industry, particularly with the influx of so-called ‘craft’ brands. According to David Gates, there is a need to “kill the BS” in Scotch whisky. “People’s trust in big institutions is being eroded [and] this is not just a millennial phenomenon,” he claims. “They are putting their trust in human scale endorsement, authenticity, transparency, and brands that share their values and contribute to their communities.
“These are all important implications for what we do and how we communicate; we need to be more personal, more human, more open and kill any BS.” The transparency debate may have started with gin and American whiskey, but looks set to impact trends in Scotch whisky, too.
While innovation certainly satiates demand among consumers for newness, some will question whether such projects run the risk of turning into a box ticking exercise. Do innovation launches actually make a significant difference to total group sales? Taking the example of Ballantine’s Brasil – a spirit drink made from Scotch whisky infused with lime flavours – Lacassagne suggests they do. “We will soon reach 80,000 cases in 20 markets around the world, and launches are happening on a regular basis,” he claims. “This demonstrates that Ballantine’s Brasil is a sustainable offering.” Meanwhile, Morgan states that Diageo’s “remarkable” rate of innovation is “really making a difference” to its business.
Risk of cannibalisation
Scotch producers are right to tread carefully when it comes to disruptive launches. As has been abundantly witnessed in vodka, innovations can have a cannibalising effect on the mother brand and lead to long-term sales losses. Diageo and Pernod Ricard have both suffered from a surplus of flavoured releases under their leading Smirnoff and Absolut labels, and have taken away valuable lessons for Scotch whisky. “This is something we are monitoring closely and we try to make sure that we will never cannibalise our brands in a negative way,” says Lacassagne.
But for producers that release the right innovations for the right brands, the benefits are clear. Just take Jack Daniel’s; the American whiskey’s Tennessee Honey and Tennessee Fire flavoured variants are growing at a rate of knots, but its total family of brands also continues to report solid gains. According to Rabobank’s Rennekleiv, innovation shouldn’t be expected to turn around a failing brand’s fortunes, but can significantly boost a label that is already performing well. “The underlying message is these innovations can create renewed interest in brands that are fundamentally healthy,” he says. “I think it’s very possible this can happen in Scotch.”
