Foreign thirst for whisky firing up a £1bn Diageo investment in Scottish distilleries

 

A taste for expensive whisky from rich Chinese businessmen, as well as Latin America, India and Africa's growing middle classes, has helped seal a £1bn investment in Scotland.

The drinks giant Diageo has committed to spending that money on new distilleries and warehouses across Scotland to step up production of the tipple.

Diageo, which makes a number of scotch brands including Johnnie Walker, its best-selling scotch, and Bell's, will seek planning permission for a new distillery at one of three potential sites in Scotland at Teaninich in Ross-shire and Inchgower and Glendullan in Speyside – locations where it already has facilities.

It will expand facilities at nearly half its 28 Scottish locations. It is also looking at a second new distillery in the next two to three years.

Following the investment, production will increase by up to 40 per cent. Paul Walsh, the chief executive of Diageo, said that over the next four years if demand continues it could even look at building a third new distillery.

But the £1bn boost will leave a sour taste in the mouth of former Diageo staff in Kilmarnock.

In 2009 Diageo ended a 192-year history of Johnnie Walker with the Ayrshire town when it announced the closure of a bottling plant.

The facility closed in March with 500 job losses. However, 200 of the Kilmarnock staff have found other employment at Diageo, mostly in Glasgow and Fife. Mr Walsh justified the closure and said Kilmarnock was "not economic" and that redundancy packages were generous. Despite the cuts announced in 2009, the drinks giant, which also owns Smirnoff vodka and Tanqueray gin, said the new investment will create more than 100 jobs and it will hire 100 apprentices and graduate trainees over the next five years.

The £1bn plan follows £40m spent in Roseisle, Moray, in 2010.

Mr Walsh said: "We are seeing attractive growth rates in whisky so we need to invest more for the future – £130 a second in export revenue is generated by scotch."

He said the demand for its "very fine liquid" is from emerging markets, including Colombia, Vietnam and Indonesia, and continued growth in established markets such as France and north America.

Around 85 per cent of Diageo's production in Scotland is sold overseas. In the past five years it has reported 50 per cent growth in net sales of its Scotch brands, with total net sales approaching £3bn this year.

Scotch represented a third of gross profits for the group in the last financial year.

Chris Pitcher, an analyst at Redburn, said that there is huge growth potential in the luxury end of the scotch whisky market globally.

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