Everyday big headaches

Pernod's whisky division, Chivas Brothers, has never displayed much faith in the home market. Indeed former MD Georges Nectoux described it as follows: You must pay big margins to retailers and big excise tax to the Government. What's left for the producer is quite meagre. This means the UK is not a profitable market. The other problem with this market is that Scotch is seen as a drink for old people. It will be years before you can change that.'

As far as margins go, it depends on the brand. In the blended sector margins are clearly under tremendous pressure in an off-trade that is so wedded to price promotion. To maintain some sort of profitability and fund above-the-line campaigns, the market leaders, Bell's and Famous Grouse, have to cling to their shelf price of over 12 when not on offer. Money generated from full-price sales, such as they are, help pay for those deep-cut promotions where the real volumes occur. Whether by default or design, such brand owners have colluded in the old hi-lo pricing regime once favoured by supermarkets like Safeway.

The trouble with the hi-lo approach is that it has merely encouraged rampant promiscuity among punters, as they flip from one tempting deal to the next. The everyday low price (EDLP) alternative pushed by Asda and Tesco and now copied by Sainsbury's and Morrisons would seem a more stable environment in which to build brands. That is assuming the EDLP leaves enough margin to do so. Unfortunately, the big retailers have got us so hooked on special offers that they have begun to realise EDLP is rather boring. Like junkies in search of the next fix, jaded shoppers need the sort of quick hit that only a bit of price slashing can deliver.

The solution among the multiples is to discount off the EDLP. This gives the grocers and their happy shoppers the best of both worlds, but it poses a serious dilemma for suppliers. How whisky brand-owners are expected to fund special offers having funded the EDLP in the first place is unclear. No one at Tesco Towers was available for comment.

Clearly something has to give, and that something is invariably the marketing budget, especially any above-the-line spend. As a result, visible brand-building of Scotch whisky, such as consumer advertising, has shrunk. One suspects retailers are a bit ambivalent about advertising. Yes, it probably helps pull bottles off the shelf,' they might concede with a shrug, but why don't they spend the money with us in-store?' And the truth is most of them do. Teacher's, the third top-selling Scotch blend in the English market, hasn't advertised for years. Through price promotion and a loyal following among older whisky drinkers, the brand has held its market share. Whether it makes any money is another question.

Those brands in the middle, like Whyte and Mackay, must find Britain extremely tough. With less consumer loyalty beyond its heartland in the west of Scotland, Whyte and Mackay must be even more at the whim of fickle, bargain-hunting whisky drinkers. And being closer to the cheapest on display whiskies, which sell for as little as 6.88 in Asda, it must find itself constantly dragged down.

The big retailers talk of wanting to increase value and persuade consumers to trade up, but this is unlikely to happen as long as price remains the only part of the marketing mix that really matters.

There is better news at the premium end. Talking to suppliers, there is a feeling that buyers are beginning to understand that with deluxe brands the expense is part of the allure. This is something that can easily be destroyed by periodically slashing the price, as with mass-market brands.

As to Nectoux's other point about Scotch being an old man's drink - well, yes, that may be true up to a point, but it's not impossible to resolve. As a category Scotch whisky does carry excess baggage, but individual brands needn't feel hidebound by the past. At this year's LIWSF were two stunning examples of brands once thought to be heading for the grave that are now back with a vengeance in the UK. If Blue Nun and Black Tower can do it, so can Bell's and Teacher's.

• Harpers Says...