Compass Box founder: M&A is just ‘business Darwinism’

Acquisitive behaviour in the spirits sector is “just nature”, according to John Glaser, founder of Scotch blender Compass Box, who highlights US distributor consolidation as cause for concern among smaller companies.

*This feature was first published in the December 2016 edition of The Spirits Business

John Glaser doesn’t like the word ‘barrier’. The founder of independent Scotch whisky blender Compass Box, who comes across as philosophical as he is assured, prefers the term ‘hurdle’. In his transatlantic inflection – he hails from the US, just don’t ask him about Donald Trump – he is purposeful and precise, and one gets the impression he is as intentional in his language as he is unwavering in his self- proclaimed mission to make Scotch whisky more relevant to more people. ‘Barrier’ conveys a stopped, stationary, denied way of being; excel at hurdling and you could find yourself on top of an Olympic podium.

We speak on the phone the month after the press materials for Three Year Old Deluxe – one of his company’s blended malts made from 0.4% three-year-old malt, 90.3% “considerably older” from the same distillery, and 9.3% peaty malt from Skye – cross my desk. There’s nothing serendipitous in that it is an expression of this name that rings in the discovery of a legal loophole that essentially allows the bottler to circumvent the EU legislation it has very publically been fighting over the past 15 months.

The accidental purist

But before the battle came the blender, and it’s a surprise to learn that Glaser’s clear fervour for Scotch came about almost accidentally. “I wanted to be a winemaker originally,” he admits. “Eventually I was offered a job on the business side of Scotch whisky – I took the job, not knowing much about Scotch whisky at the time, but because the company also sold wine.” He was sent to visit Scotland a number of times and “that’s where I fell in love with whisky”. Eventually the company moved him to the UK where “I was offered a job for a small whisky brand called Johnnie Walker” – and his eyes were opened to the challenges faced by the wider industry.

“Scotch was not doing well back then. Single malts were growing but, as they are today, they were small. People thought single malts were all about high- handedness and rules, and they weren’t terribly relevant to a large portion of the drinking populous. So I thought the world needed a new push for Scotch whisky and I founded Compass Box.”

That was in 2000 – today, Compass Box employs 14 people and its blended malts, grains and Scotches are available in 30 countries. The point of difference seems threefold: the liquids, developed by Glaser and his team, are unapologetically flavour-led; the intricate, charming pack designs provide a striking departure from the ‘norms’ of Scotch; and the drinking occasions targeted are diverse, from sipping to mixing – more on cocktails later. It’s been a battle but the tide is turning in the way consumers view ‘blended’ whiskies – “we stand a good chance of helping to be a sort of mouse that roared in terms of trying to influence the way people think about Scotch,” says Glaser.

Criticism

But Compass Box hasn’t had it all its way. Its desire to “make a difference” has drawn criticism, and even opposition, as evidenced quite publically last year when an unnamed party reported the company to the Scotch Whisky Association (SWA) for illegally disclosing the age statements of the component parts of some of its blends.

“It’s something we’d been doing forever,” Glaser says, despite it being the October 2015 releases This is Not a Luxury Whisky and Flaming Heart that elicited the complaint. “And the Scotch Whisky Association was doing its job, they made us aware that we were breaching a law. Our reaction was that this law no longer makes sense.”
The law in question is Regulation 12.3 of the Spirit Drinks Regulation No 110/2008, which forbids any spirits producer in Europe from disclosing anything other than the age of the youngest component part of a spirit.

“From our point of view, any spirits producer, any Scotch whisky producer, should have the freedom – but not necessarily the obligation – to be completely open and transparent with consumers,” Glaser says. The campaign Compass Box started calling for that “freedom” following the incident now has around 10,000 signed-up supporters.

Glaser says he doesn’t know who filed the complaint, but does speculate that it came from a business that “wants to be protected by this law”. Fast-forward to the Three Year Old Deluxe release, and Compass Box seems to have found a working solution – for now.

“We don’t call it a ‘loophole’; we’re interpreting the law as it stands,” Glaser explains. “There’s nothing in the law that says if someone asks us what’s in our products that we can’t respond.” There is now a function through the company’s website where interested parties can enquire about the age statement of the component parts in a given recipe and they will be sent the details, for them, as an individual. “That’s really the advice our lawyers have given us,” he continues, adding that the SWA has been notified but that he has yet to receive a response.

Given that this particular ‘hurdle’ is set at European Union level and Compass Box is a UK company, does Glaser see the inevitable dismantling and re-writing of legislature following Brexit as an opportunity for change? He laughs at the suggestion.

“I don’t know what’s going to happen with Brexit. My response is the same as everyone else’s: we have no idea what’s going to happen.” He is clear that there are far bigger issues than his transparency drive for Scotch and the nation, but he does believe “common sense will prevail”. But the unknown is the common theme: “Look what happened in the wake of Brexit; the chief executive of the SWA [which strongly backed the Remain campaign] was hired by Boris [Johnson, a staunch Leave supporter and now foreign secretary] to be an advisor. So who knows?”

Another law Glaser has been a vocal opponent of is The Scotch Whisky Regulations 2009 Act that codifies the five types of Scotch: single grain, blended grain, single malt, blended malt and blended Scotch. “The objective of the legislation back then was to help clarify for consumers the different types of Scotch whisky, and it’s worked in the exact opposite way,” he says.

“The problem is that many people just see the word ‘blend’ and assume ‘oh, it’s that cheap stuff I don’t buy, I only buy something that has “single” in front of it’. So yeah, it’s a hurdle.” Does this signal the start of another campaign taking on the industry? He laughs again: “We’re still a bit fatigued by the transparency campaign so I’m not going to commit to that right now, but you never know. It’s certainly in the back of our minds.”

There is, however, a campaign in the pipeline for 2017, and instead of legislation it will focus on cocktails – a sector of the industry Glaser says Compass Box has been part of since its formation. “Scotch whisky has a lot of work to do and a tremendous opportunity for getting more consumers and more people in the trade to realise that Scotch whisky isn’t just something you drink neat at the end of a meal,” he opens. “Scotch has been incorporated into cocktails going back to the latter part of the 18th century. It’s historically something that Scotch whisky has always been a part of – but people don’t realise that to a great extent today, and that’s something we’re helping to change in our own small way.”

That push for change will involve persuading the on-trade that every great bar should have at least one Scotch whisky cocktail on its list. “It’s around education about the history and relevance of Scotch whisky cocktails. There’s a generic piece, but at the end of the day we’re trying to get people not just to understand how enjoyable Scotch whisky can be in cocktails, but also to use our brands.”

After all, Compass Box has its own place in cocktail history – the Penicillin, developed 11 years ago by Sam Ross in New York bar Milk & Honey, was first made with Glaser’s Peat Monster for the smoky top, and Asyla as the blended Scotch. “We’re proud of that.”

Powerful player

Before its campaign work, Compass Box hit the trade press headlines two years ago when Bacardi Limited, the world’s largest privately held spirits company, bought a stake in the business. What sort of effect did the arrival of such a powerful player have on Compass Box?

“It hasn’t changed a thing,” Glaser is unequivocal. The deal came about when a long-term shareholder sold up, which “provided us with an opportunity to create a long-term supply contract with another Scotch whisky-distilling company”. Before that, the only major long-term agreement was with Diageo, Glaser’s former employer. “The mission, the ambition, the operation of the business hasn’t changed one bit.

There are lots of examples in this business of smaller companies taking on bigger companies as shareholders, investors and strategic partners that can help them achieve their long-term mission.” Does Glaser anticipate Bacardi taking a larger share at any point? “We don’t know.” He reiterates the importance of having the ability to source from a wide variety of distilleries. “Supply is the most critical thing.”

Given the recent uptick in acquisitive behaviour by the big producers, is he concerned about a period of heightened consolidation coming to Scotch? Recent examples include Sazerac snapping up The Last Drop Distillers and Brown-Forman’s bid for The BenRiach Distillery Company’s trio of brands. “Those are small plays – I don’t see that being an issue, that’s just nature – that’s business Darwinism,” he says, remaining sanguine. But he adds: “If we’re talking about distributor consolidation in America, that’s a different thing.”

The largest of these deals saw Southern Wine & Spirits of America and Glazer’s merge, forming Southern Glazer’s – the largest wine-and-spirits- distribution company in North America. The US is Compass Box’s largest export market, so the concern is not unfounded. “In the US, distributor consolidation makes it more difficult for small brands to gain traction in the market. But there’s no more entrepreneurial country in the world, as far as I’m concerned, than the US; people will begin to see an opportunity to do things in a different way.”

That could look like bigger distributors setting up dedicated divisions for smaller brands, or medium-sized ones stepping up to find new ways to help brands get to market, he says. “Certainly, Amazon is looking very closely in terms of how it can gain access to the US alcoholic beverage market and it’s already here in the UK,” he notes. “All whisky retailers, especially the online ones, really need to be paying attention and figure out how they are doing to differentiate themselves.”

With this blistering pace of change, how does the future of Compass Box stack up? What gets John Glaser out of bed in the morning? “I see we are so much closer to achieving our vision,” he says. “We’ve got a track record of more than 15 years now, we’ve got great strategic partners, we’ve got access to whisky, people seem to respect what we do, and we’re going to make a difference.”

At what point will he know the goal is reached? There’s a long pause. “It’ll be before I stop working.” Then he laughs: “That’s going to be a long time, by the way!” He has both quantitative and qualitative three- and 15-year goals for Compass Box.

“I love what I do,” he continues. “It takes a long time to create this stuff, shape it and prepare it for bottling and share it with the world. We have so many experiments going on around things like maturation. We have so many ideas about how we can make Scotch whisky more compelling to more people. There’s just so much left to do that I’m not… I got a long way to go.”