Ageing whisky: Scotch on the rocks could take on a new meaning if sales in its traditional markets continue to slide. David Bowen finds the glens fighting to win over the young

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THE Glendronach distillery lies in a remote valley near Huntly, in Aberdeenshire. The Dronac burn bubbles between the grey stone buildings, many of which are little changed since they were built in 1826. Water from the burn is used for cooling. A spring close by provides the water for the whisky.

On the low third storey of the malting house, four tons of barley is steeped in water. After being soaked and drained three times in 36 hours, the corn starts to germinate and is poured down to the ground floor. There it is spread out for a week, turned occasionally with a wooden shiel, or spade. By now the root is growing through the grain and the sugar inside is at its maximum. The barley, now malt, is transferred to another room where it is smoked for two days by a kiln that burns a mix of anthracite coal and local peat. The room smells of kippers.

Five hundred and fifty miles south, in a West End office decorated with bright Scottish paintings, Tony Greener is talking about the future of whisky. He is chairman and chief executive of Guinness, which makes 40 per cent of the world's scotch. 'The real issue is how to get young people in,' he says. 'We've got to tell them why it is relevant and how, through mixing, it's a nice drink. The surfeit of heather and kilts isn't necessarily an attractive brand proposition.'

Scotch whisky is one of the biggest foreign exchange earners in Britain. It brings in about pounds 2bn a year and contributes half that to the Treasury's piggy bank in duty. It employs 14,700 people directly; another 56,000 indirectly. Of every 10 bottles of spirits drunk in the world, more than four are scotch.

But Scotch whisky has a challenge: how to mix the old with the new, the shiels with the brand propositions. Sales have been slipping. In 1980, people drank 304 million litres of pure alcohol (the volume measure for scotch); last year the figure was 280 million.

This modest fall disguises a slewing in the market. If you take away the United States and the UK, the two biggest consumers, scotch shipments rose by 13 per cent. Scotch has been highly successful in some markets, notably southern Europe and south-east Asia. But US consumption has fallen by nearly a half to 40 million litres, and UK consumption by 25 per cent to 38 million litres.

While scotch's image in Spain and Greece is young and trendy, in the mature markets it is drunk by mature people. Shunned by the young, it has seen business whisked away by upstart spirits such as vodka and Bacardi, as well as beer and - probably - illegal drugs too. Belatedly, the distillers are trying to give it a new image.

The problem is how to do this without tampering with or disturbing the ancient tradition which has made scotch what it is today. Even as United Distillers (Guinness's spirits offshoot) tries to persuade youngsters to swill Dewar's with Coke in nightclubs, it is also taking part in worldwide junketings for '500 years of Scotch whisky'.

In 1494, Scottish Exchequer Roll Number 305 listed the 'delivery of eight bolls of malt to Friar John Cor wherewith to make aquavitae'. Aqua vitae is water of life, in Gaelic uisgebaugh, whisky. In the 18th century it was driven underground by the excise men, but in 1823 a tolerable tax regime was introduced and hundreds of malt distilleries miraculously appeared in areas where the right combination of barley, peat and water was found. The greatest concentration was on Speyside, between Aberdeen and Inverness.

Shortly after this, Aeneas Coffey developed his Patent Still, which allowed continuous distillation of less intense grain spirit. In the 1860s, Andrew Usher mixed grain and malt whiskies to produce the first blend - a lighter drink that soon became popular around the world. Nineteenth-century entrepreneurs, including the Walkers of Kilmarnock and the Dewars of Perth, embarked on large-scale production of blended scotch: the brands were born.

In 1826, William Allardice founded a distillery on the Dronac burn. He had a notion about brands, too: he added a 'Glen' to the front and an 'h' to the end, to make the product sound more Scottish. The distillery, which now belongs to Allied-Lyons, is not well known; though it does make its own single malt, most of its production is used in Teacher's Highland Cream blend. Despite this, it is one of the most traditional producers in a traditional industry.

Frank Massie, the manager, is hard pressed to think what differences there are between 1826 and now. The heat of the kiln is recycled, there are a handful of electrically driven elevators.

But he adds, 'We couldn't change from coal to gas without changing the product.'

Though only a small proportion of the malting is now done on site, Mr Massie says it is not kept up to please the tourists.

'Our malt distributor doesn't do peating,' he says. 'It's important to get the character and smokiness into the whisky.'

The scotch industry is controlled by a handful of giant companies - between them Guinness, Allied-Lyons, American Brands (Whyte & Mackay) and Seagram own 66 of the 91 malt distilleries and five of the seven grain distilleries. But however itchy their accountants get, they know they tamper with the distilleries at their peril. Strong-tasting single malts, the fastest growing part of the market, must be protected particularly carefully but, Mr Greener acknowledges, it is dangerous even to adjust blends. 'People get very attached to their brands,' he says. 'I suspect they could tell.'

Whisky producers are delighted that their art has so far resisted all attempts to turn it into a science. 'Scientists found they could identify 400 different ingredients,' says Frank Newlands at Macallan. 'Then they discovered some of them were created by the measuring process.'

After the malted barley has been smoked and dried, it is poured into a 70-year-old crushing machine. The resulting grist is fed into the mash tun, a round cast- iron container, and is covered with water. It is left to stew for an hour, like tea, before the water - now called wort - is drained off, cooled, and piped into a square wooden tank called a washback. The mash tun is refilled with water and another infusion collected.

Yeast is added to the wort in the washback, and the mix bubbles away for 48 hours. Now it is 'wash', 8 per cent alcohol and, Mr Massie says, 'like strong sweet beer, without the hops'.

Mr Greener believes the whisky industry has itself to blame for the decline in its traditional markets. Scotch had a good time for 30 years after the Second World War, and its producers grew lazy. It was dominated by Distillers Company (DCL), an ill-disciplined empire that allowed its brand salesmen to squabble over the same markets.

Thirty years ago, this did not matter. The first whisky was a rite of passage. 'Son, have a drink,' father would say - and the son would continue to drink scotch. Because of production cut-backs in the war, there was also a shortage of maturing whisky. The industry did not need marketing.

Then came a change. Children revolted against their parents, and rejected scotch precisely because their fathers drank it.

'There was remarkably little done by the industry to persuade them otherwise,' Mr Greener says. It just watched as manufacturers of less challenging drinks targeted the younger market: vodka and Bacardi mixed easily, Mexican and 'lite' beers tasted of nothing at all.

From Glendronach's washbacks, the liquid is pumped to the still house, a giant chemistry set of round-bottomed, swan-necked gleaming copper containers. Every distillery has differently shaped pot stills, each producing a subtly different taste. The wash goes first into the two outer stills, which hold 9,100 litres each. They are heated by coal-fired furnaces below, and take an hour and a quarter to boil. The alcohol evaporates up the neck and down the other side into a condenser, where it turns back into liquid. These are the low wines, and are 19 or 20 per cent alcohol. Then they travel into two middle stills for final distillation.

As the clear liquid condenses again, it pours through the Number One Spirit Safe, which is padlocked against a thirsty stillman. Its density is measured, and the stillman uses a handle to direct the middle part of the run on its journey, returning the rest for redistillation. The spirit is now a high- smelling colourless potion, about 70 per cent alcohol. A sample is sent to Allied's blenders, another is kept to make sure of no variation. The rest goes to the barrels.

The scotch industry was finally stirred into action in the early 1980s, when the 'whisky loch' arose - or, rather, overflowed: the nature of the industry is that there is always a whisky loch.

Scotch works on a 'three to 60 years' time' production system, because it is matured for so long. Alan Gray, the scotch analyst for Sutherland & Partners in Edinburgh, reckons the industry's stock financing costs are pounds 250m a year.

This also makes it impossible to balance supply with demand accurately. 'I had a meeting with fund managers who said, 'we see the industry's got its forecasts wrong again',' said Willie Phillips, managing director of Macallan- Glenlivet. 'I said, 'you tell me what the Footsie index is going to be in 10 years' time'.' Nevertheless, the alarming swelling of the whisky loch was a sign that stocks were not being drawn down fast enough. DCL led the industry in mass closures: 28 malt and three grain distilleries were shut between 1983 and 1985, leaving 90.

Distillers also cut prices, laying itself open to assault. In 1986, Ernest Saunders - the Guinness chief executive who had already bought Bell's - laid siege to the company and, with the help of a raft of illegal share operations, managed to capture it.

Since then, the industry has been trying to make up for past mismanagement, particularly on the marketing side. Everyone agreed that the key was to appeal to young people. The question was, how? Armies of market researchers were sent out around the world and told to find out.

Most of the effort has gone into opening up new markets, rather than slowing decline in the old. Where scotch is untainted by an oldie image, a young one is much easier to establish.

Greece has shown how it can be done. Before joining the EC, it limited imports by quota. These were relaxed in 1987, and the newly aggressive distillers went straight for the youthful jugular. United Distillers has 80 sales staff visiting clubs and bars, and aims its advertising at the wealthy young; put it in a tall glass with ice, it says, or mix it with Coke. To stop its brands damaging each other, the market is divided: Dewar's is targeted at trendy young nightclubbers in bouzouki bars; Johnny Walker is sold to slightly older clubbers and the take-home market. The brand is all in Greece: as the waiter comes to your table, it is essential everyone can see what you are drinking. Dimple does better than Johnny Walker Black Label, because its unusual shape stands out.

Southern Europe, south-east Asia and parts of Latin America have been rich seams for scotch marketers. India and China are now being eyed up and one day, the industry believes, the traditional spirits drinkers of Eastern Europe will be ready for a drop.

Sir David Attenborough would enjoy the life cycle of a whisky barrel. Like a butterfly, it starts off as one thing then becomes another. Whisky has been stored in used sherry barrels for years: originally, that was simply because they were available after their journey from Spain. In time, though, the influence of the sherry became an integral part of the taste and colour.

By law, scotch must be matured in oak barrels, and in practice they are normally used ones: new wood would overpower the drink. This century there has been been a shift from ex-sherry to ex- bourbon casks. Under US law, whiskey barrels can be used only once, so they are an obvious source of pre-seasoned oak for scotch producers.

Even though new barrels are not made in Scotland, the coopering industry is kept alive by repairing and remaking them. At the Speyside Cooperage, which has recently expanded into new premises, one of the main jobs is to cannibalise bourbon barrels and turn them into larger hogsheads. The techniques have remained unchanged for years: there is only one machine, which is used to press metal bands into place around the barrels.

Macallan, producer of one of the best known single malts, sticks to oloroso sherry casks. It buys the barrels new in Jerez, to make sure the specifications are right, then takes delivery three years later. Some are recycled again, to be used for Drambuie, while most go into retirement at the age of about 40, as garden pots or furniture.

Number four warehouse at Glendronach is dank, thanks to its earthen floors: row upon row of barrels are lined up, their years stamped on the end. The warehouse smells of scotch and mould.

So does the warehouse at Macallan, even though it is only three years old. From the outside it looks like any modern warehouse; inside it is cold and wet. 'That mould is excellent,' says Mr Newlands, tapping the wall. 'We want everything you would hate to have in your house.' That is why whisky must always be matured at the distillery: 'The mould growth and air is unique to the site. In some island malts, you even get the taste of seaweed.'

The scotch producers gradually regained their confidence in the late 1980s and some distilleries even reopened. By 1991, there were 104. Then came the recession, and talk of another loch returned. United Distillers mothballed three malt and closed one grain distillery last year. There are now the 91 malt and seven grain operations: the vast majority are in the Highlands, clustered near the Spey.

The industry believes this downturn will be nothing like as serious as that in the early 1980s. 'This year is going to be difficult, but 1995 may be better and the next year a bit better still,' said Mr Phillips. There are plenty of worries, though. In a perverse bit of reverse nationalism, the British government taxes scotch more heavily than wine, and there are concerns that the European Commission could harmonise rates at the high UK level. Some foreign governments, notably the Japanese, discriminate against scotch in favour of their own spirits. The health lobby could start to concentrate its fire on liquor. And, Mr Phillips believes, the image of scotch is being damaged by low- grade products that could put drinkers off for life.

Whisky marketers are starting to tackle the American and British problem. But will it be possible to persuade youngsters that scotch is, after all, way past cool?

'Whether we can actually turn America from a declining to a growth market I don't know,' Mr Greener says, 'but I am confident we can slow the rate of decline.'

United Distillers has just started its campaign to win back America. As in Greece, the market is being divided between brands. Dewar's is aimed at trendy youngsters, and a series of self-consciously young advertisements is being run. The message is the same as the old and rejected one: Now you are grown up, show it by drinking scotch. But it is presented in a different way: Now you are grown up and want to impress the girls/boys, do it by drinking scotch, probably with Coke because it's not so disgusting then.

Backing this up is a range of Dewar's products such as T-shirts and baseball caps.

The difference from Greece, though, is that a more sophisticated young market that appreciates scotch for its taste, rather than its image, must also be created. Here, UD is pushing its Johnny Walker blends. 'Our research shows there is increasing interest in being able to tell the difference between scotches,' Mr Greener says. Whisky tastings are held in New York, while Scottish scotch experts have been flown over to conduct 'mentoring' sessions.

Single malts, whose popularity has been increasing faster than any other type of whisky, will be an increasingly important part of this process, with the big companies moving on to a patch successfully cultivated by Glenfiddich and Macallan-Glenlivet.

Whether this approach succeeds or not will depend largely on whether strong tastes come back into fashion. If the recent shift to blandness - to vodka, Bacardi, Mexican beers - is a temporary phenomenon, there must be hope. Mr Phillips believes there is. 'I see the trend reversing already in the US,' he says.

After three years, the spirit in the barrels at Glendronach is legally scotch. A blender at Teacher's will order barrels of a certain year. They will be mixed with up to 50 other malts and one or more grain whiskies.

All the blenders except UD swap malts with each other. 'In the high street, they would kill for market share,' an industry observer says. 'But at the production end they need each other.'

Some of the scotch stays in the barrels and continues to improve. The four tons of barley now steeping could become 5,760 bottles of single malt any time from 2002 to 2054. The barrels may rot and be patched, but they will at least be rotted by Glendronach organisms.

What would 'troubleshooter' Sir John Harvey-Jones do with this little bit of unchanging Scotland? 'Close us down probably,' says Mr Massie.

(Photograph omitted)