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A complex blend with strong aftertaste

Douglas Fraser | 20:47 UK time, Wednesday, 9 September 2009

So what was the plan - now confirmed as dead - which was put to Diageo for saving the Johnnie Walker bottling plant in Kilmarnock and/or the Port Dundas distillery in Glasgow?

The Scottish Government won't say, unless there is approval for its publication given by the rest of the taskforce. We've heard from ministers today it was detailed and significant, but without any detail about its significance.

That leaves us relying on Diageo to explain why it failed to meet the company's requirements. And the gaps in the offer are striking.

According to David Gosnell, head of global supply, the proposal failed even to address the economics of the industry. It didn't look at developments in the marketplace. And it didn't offer funding for the suggestions it had.

So what did it have? For Port Dundas distillery, there was "no alternative presented, other than us delaying our action... pending a change in market conditions". That falls some way short of sounding compelling.

How much money? Some for training and regeneration, according to Diageo's head of global supply, David Gosnell. Alex Salmond later said in a television interview that the land could have been provided for a new-build plant somewhere around Kilmarnock.

We're now being told by the Scottish Government: "We have always been clear that public funding was a potential part of our alternative proposal. Any specific amount was always a matter for discussion and negotiation with Diageo to ensure that any support maximised the public benefits".

I'm told the amount they had in mind was around £6m to £8m per year they reckon it will cost public services to handle the knock-on costs of so many redundancies.

That's been likened to calculating the cost to the NHS of ill health through smoking tobacco, and then giving that sum to the tobacco industry as payment for not selling its weed in Scotland. It's an odd incentive and not sustainable.

Diageo's chief executive, Paul Walsh, made it clear he wanted specifics about money, and where it was going to come from, as a key condition of any reversal. It doesn't look like that's what he got.

And to add insult to the injury of failing in this campaign, the company told the Scottish Government not only did its rescue plan fail to deliver a model that would be good for Diageo: nor, it said, would it be good for Scotland.

It's worth remembering, in all this, that Diageo had a number of audiences in mind.

Yes, it has to protect the brand value of Johnnie Walker against the risk of reputational damage. It also has to show itself to be a good and responsible corporate citizen, particularly as it draws on Scotland's image to sell one of its principal products.

But from the point of view of the chief executive, his foremost audiences are in and around the London and New York stock markets on which Diageo is listed.

Analysts and traders there are brutal to company bosses who show any sign of weakness in driving efficiency and controlling costs.

To have given in to such a public campaign and kept Kilmarnock open would have sent the markets a sign of weakness.

So while the public campaign made its campaigners feel good about their collective effort, the high profile they adopted probably only increased the chances of its failure.

There are lessons for both industry and government to learn from this one.

It's not just what happens with the next factory closure. It also raises questions about what happens when the squeeze hits public sector jobs.


  • Comment number 1.

    "In working with those people over the coming two years we can have an outcome that is good for the people of Kilmarnock" -- David Gosnell Head of Global Supply.

    No ifs, no buts, no we shall endeavour; let`s hope he delivers. Since he has already likened himself to Moses parting the Red Sea

    [Unsuitable/Broken URL removed by Moderator]

    this should be simple. Next time he visits the factory he should check first that most people are not on holiday as they were on a prior visit.

  • Comment number 2.

    Diageo might have heard the noise in the background! but the decision had probably been taken a very longtime ago, they certainly were not listning. Now when this noise fades into the distance, especially when the X factor redundancy package is thrown onto the table, I'd suggest they don't all rush to the table...........this company has a relative bottomless pit when it comes to do$h. But wait a minute what about Kilnmarnock? oh don't worry the workforce can be retrained aka comment made by a liberal numpty. Just re-trained for what? taxi's, McDonalds,unlike those that work in that ither place in Edinburgh. There ain't any jobs!!

  • Comment number 3.

    Scenarios like this will always be with us as long as companies put, as they must, the interests of shareholders above those of the employees. If we take this to its logical conclusion, all industry will end up in the third world where costs are lowest. Whether governments in the developed world should subsidise companies is open to debate. My first reaction would be to refuse to pay, but surely a subsidy to keep people in work is better then paying social security benefits for them to sit at home? I don't envy them in there descision making.

  • Comment number 4.

    I am truly disappointed at the Scottish Government. There miserable attempt to sway a logical economic decission, by a major international company is frankly laughable. Company like this will always endeavour to find new, innovative, leaner means for production of mass products. Scottish people should read Adam Smith and realise that this is the future and no jumped-up 'First Minister' can do anything about it. Truley a case of posturing in the reflective 'glory' of public opinion. They should have know better.


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