New boss of Chivas Brothers addresses key challenges facing Scotch whisky industry

THE new chief executive of Chivas Brothers has declared there has been a positive reaction to the suspension of tariffs on single malt Scotch whisky in the US market, as he played down the impact on sales from calls for wealth redistribution in China.

Jean-Etienne Gourgues was commenting as the Chivas whisky business of Pernod Ricard reported a six per cent rise in organic sales for the year ended June 30.

Chivas, which has a major bottling operation in Dumbarton, said sales in North America had grown by a 19 per cent, driven by The Glenlivet, despite the impact of Covid restrictions and the 25 per cent tariff being in effect for most of the year. The tariff, which had its roots in a trade dispute between the US and European Union over aircraft subsidies, was suspended for five years in March.

Mr Gourgues, who succeeded Jean-Christophe Coutures in July, said the suspension would “boost” the industry’s recovery from the pandemic. But he also made the case for spirits duty to be cut in the next UK Budget, and for the UK Government to press for a reduction in the 150% tariff faced by Scotch whisky exports to India – one of the biggest emerging markets for the industry.

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Asked to comment on the US tariff suspension, Mr Gourgues told The Herald: “The good news is that the reaction in the off-trade in the US has been very, very strong, and it will help to compensate the downside that we could have had with the tariffs.

“The fact the tariff has now been suspended [means there is] visibility for the next five years and gives more confidence to the trade, particularly [for expanding] single malt as a category.”

Chivas hailed its progress in Asia following the easing of coronavirus restrictions, with sales up by 47%, 20% and 46% in China, Taiwan and South Korea respectively. Chinese Premier Xi Jinping has recently called for a redistribution of wealth in the country, leading to suggestions the policy could have an impact on sales of luxury goods.

Mr Gourgues, who was formerly managing director of Pernod Ricard China, played down the potential for this to affect sales of Scotch whisky, noting the situation was different to the crackdown on conspicuous gift giving around a decade ago that had a detrimental effect on distillers.

He said the Scotch whisky industry was now tapping into a much broader range of middle class consumers in the market than it was a decade ago, when sales were concentrated among a smaller group of people. The new middle class were likely to be “immune” from the effects of the new policy and interested in the “whole world” of Scotch whisky, from blends through to single malts.

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“It is a very different conversation to what happened in 2012 when that crackdown on ostentatious consumption hit hard,” Mr Gourgues said. “Now the market is… dramatically different. It doesn’t slow down at all China.”

Meanwhile, Mr Gourgues said Chivas was “not immune” to concerns currently being expressed in the whisky industry over shortages of glass and cardboard, amid ongoing disruption to the supply chain. He said the company took steps to source raw materials as locally as possible.

“The good news is a lot of our supply is local,” he said. “95% of our glass comes either from Scotland or England. The majority of [cardboard] is sourced locally… We try to find local solutions.”

The company reported that sales of Chivas Regal grew by 3% across the globe in a year that saw the introduction of a new bottle design for the whisky. Sales of Ballantine’s were up 1% despite the brand’s exposure to the travel retail market, which has been badly affected by the pandemic.

Mr Gourgues said it had been a “very solid year” for the Chivas whisky business. He said: “It’s clear from these results that we are making a steady return to our pre-Covid momentum, already exceeding this in domestic markets. The breadth of our portfolio is our greatest asset, and we have continued to invest in innovation and creative campaigns despite the challenging year.”

Chivas is targeting net-zero carbon status for its distilling by 2026. Braeval, which makes single malt for Chivas Regal, has become its first zero carbon distillery following a switch to a rapeseed residue-based bio-fuel. The fuel will be rolled out next to the Glentauchers distillery, where mechanical vapour recompression fan technology has been adopted to cut energy use.

The Herald Scotland

The Herald Scotland

The Herald is a Scottish broadsheet newspaper founded in 1783. The Herald is the longest running national newspaper in the world and is the eighth oldest daily paper in the world. The title was simplified from The Glasgow Herald in 1992