Mark Kent | The Future of Scotch Whisky - And Why It’s Under Threat

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0:45Welcome to Jimmy's Jobs of the Future. Today I'm joined by Mark Kent, the Chief Executive of the Scotch Whiskey Association. he has had a fascinating background in government having been ambassador in Thailand, Vietnam and Argentina so it was brilliant to talk to him today about the sheer scale of the Scotch industry how many bottles it's producing, how much tourism and hospitality it provides in Scotland as well it was fascinating talking to him ahead of the budget, the impact of Donald Trump on geopolitics and tariffs and all of his experience as an ambassador before that. Some of you who have been with us for a long time will remember that we went on an expedition three years ago with the Scotch Whiskey Association as well to follow the journey of a Scotch bottle being made.

1:34So if you want to listen to that as well, it's in the show notes listed below. This episode was brought to you in partnership with the Scotch Whiskey Association. Mark, welcome to Jimmy's Jobs of the Future. Can you tell us your name and your job? Thank you very much. My name's Mark Kent. I'm the Chief Executive of the Scotch Whiskey Association. Now, you have just returned from India a couple of times, but one was on the Prime Minister's trade trip to India. And in my research on this, I discovered that one in 30 Scotch bottles get sold in India. Can you just explain to us how that's happened?

2:12So India is the biggest whiskey market in the world, and it's got a big domestic industry, which is in fact twice as big as the scotch whisky industry. So our percentage of the market in India is about 2 % to 3%. So it's very small still, obviously, at the premium end. But there's a big potential for growth there. It's already our biggest market by volume, and those are the figures you refer to. But I think as the middle class grows, as people have more disposable income, the Indian economy grows more generally, we're going to see it get further and further up the value as well as volume. So really the fact that we've got a free trade agreement with India, which has just been signed and we hope it's going to come into force next year, is really a landmark.

2:56So I was out there, first of all, with the Prime Minister's big business delegation, but then I've just come back after a week in India to talk with the trade associations, to talk with government, to talk about the potential of collaboration. So, for example, a lot of Indian whiskey incorporates an element of scotch into it when it's sold. So, really, there's a potential for growth both in the bulk shipment, but also in the premium bottle segment as well. That's interesting. And what was your view of being on one of these trade ships? Because I was obviously on them when advising the Prime Minister, and I always had a bit of a kind of strange role.

3:34You're partly there working with the PM, but you're also looking after the business delegation. So I'd be fascinated to hear how you found being on a prime ministerial trade trip. Very concentrated. So we had like 48 hours in the country, on the plane. I mean, it's a very, very good opportunity to talk with other people in business. We had a number of whiskey companies going with us and also with ministers. And after traveling on a few trips, both in this job and my previous one, you get to know some of the kind of hints and tips for being on one of these planes. So one of the hints and tips is always go towards the back of the plane because there's more spare seats at the back.

4:13So you've got more chance of actually getting to sleep rather than if you go towards the front, which everybody else tends to go. So it was really interesting. It was really important that we should be on the trip because whisky was an important part of the deal which has been agreed. and we were back within a month to ensure that we start to work on some of the issues that we need to do in order to form that strategic partnership for the future. And it really is like an international sort of symbol, Scotch, in some ways, isn't it? The kind of like international footprint of the UK. I remember sort of the British military, British army would often really appreciate mini bottles of Scotch when sort of being visited by various leaders and so on.

4:55Like, what was your impression that you came away from India when it comes to that? Is it growing in importance? Yes, yes. I mean, India is a very well-informed market about scotch and the various types. And what's important, actually, in that respect, is that now we've got the overall external tariff coming down. There's going to be more of our smaller distilleries who previously would have been a little bit cautious about going into a market with such high tariffs. They're now starting to explore the market. So Indian consumers are going to see even more varieties of Scotch in the future. And what's your kind of assessment of, well, firstly, who else joined you on the trip?

5:43Who were the other kind of Scotch companies that were out there? Well, we had some of the bigger players. So, for example, Diageo were there, Glenmorangie, Edrington, whose foremost brand is the Macallan. But also one of our smaller members recently started at the Port of Leith distillery. And they're starting, they're one of these smaller distillers who's looking at the potential for starting to export into the market. And just give us a quick overview. We'll come back to the job specifically, but an overview of the size of Scotch whisky. Because I think some people can still think of it as almost a little bit of a cottage industry.

6:18perhaps if they don't drink it and so on like but just give us some of the numbers behind the industry at the moment well i mean we export to 180 different markets around the world um we at any one point uh have around 40 bottles of scotch per second which are being exported uh that's um that will change from from year to year but that gives you a that gives an idea of of how much is is going in there with the uk's biggest food and drink export so it's it's it's scottish but it's global and that's a really important point sometimes you have to make uh that this is an important industry not just for scotland but for the whole of the uk um and well what are the other sort of but just sometimes i think this exporting point can get a little bit lost on people in terms of partly because it sort of goes overseas etc but just give us an example of some of the other things that we export so you're talking there about it being our biggest food and drink export.

7:15What is the next biggest item on that list? Trying to think. If you think about Scotland, for example, at the sort of, a product which often is mentioned in the same breath is salmon. Yes. So, Scotch salmon is exported, but not to the same number of countries. And of course, they have very different challenges because if your whiskey gets stuck in customs, obviously that's not good, but it's still going to be drinkable after a couple of weeks. And that's a different dynamic for my colleagues in the Scottish salmon industry. Completely. I just think it's fascinating when you think about the sheer scale and size of it, because like you say, salmon probably has one of those things where a lot of people have a thin awareness of it, whereas scotch tends to be a much more kind of like sort of deeper understanding if you have it.

8:04It's a really interesting industry coming into it. I've been in this job for coming on for four years now. And when you get there, you realise the kind of the link between Scotch and soft power of Scotland. You can go anywhere you like over the world. And Scotland has almost universal soft power, positive image. And Scotch is part of that. So it's mutually supportive. And then you go into some of the communities because Scotch is produced all over Scotland. And you see how important it is in the communities in terms of jobs, in terms of tourism. and that is something which I think can't be overstated, the importance of it to the Scottish economy.

8:46So we're talking about something which is quintessentially Scottish. It can only be distilled in Scotland, only be produced in Scotland, but it is globally known. And the nearest, and I was talking with somebody the other day, the nearest simile I can think of is England and the Premier League in that you've got something which has to be produced in that place but it's globally known and there's a lot of multi multinational involvement in as well when you think about in terms of the the investment so it really is quite a jewel in the crown and it's a very collaborative industry so we were talking about the trip to India for example and what you'll often see is that the bigger companies will be giving hints and tips to the smaller companies about how you get into a market you know what's what's the best way to go etc and very community based so at the point of production you will often see the various distilleries even if they're from different companies helping each other out now obviously when you get the point of sale there's competition um but it is a uniquely collaborative industry and that's evidenced by the fact that they have the scotch whiskey association which has been formed in in one form or another has been in in place for over 110 years and our purpose is to protect the category protect and promote the category of scotch whiskey yeah and it's interesting on that soft powerpoint as well i hadn't quite thought of it in that sort of way before but absolutely part of it well one of the big things you talk about being uh in the role for almost four years one of the big things that sort of changed back and forth in that time is obviously the return of donald trump as u.s president who has kind of you know uses tariffs in a way like no other president has has done before Talk to us about how that's impacted the Scotch whisky sector over the last year.

10:30Well, first of all, to say we export to about 180 different markets around the world. So we're not new to tariffs and it's something that we deal with. But the difference here is that the US is our biggest market. Something like 20 % of all our exports around a billion pounds a year. And it's disproportionately important for our smaller members because it's often a breakthrough market for them. So that 10 % when you've got very slim margins makes a big difference to the industry. And then if you look at the fact that this comes on top of domestic headwinds as well, we've been hit in the last couple of years, the last couple of budgets by a total of 14 % increase in excise duty.

11:12It's a very difficult time. And we think that we've lost over a thousand direct jobs in the industry. And that is just increasing every week. We hear more stories of closures, including in our supply chains. So it's a very challenging moment. And we talked about India. India is very much a long-term opportunity for the industry. But we've got to get from the here and now to the moment which the production starts coming in. And as you know about the whiskey industry, it's a long-term industry. So you need a minimum of three years to mature your whiskey and then often a lot longer in terms of some of the expressions.

11:56So you have to plan in moments of quite difficult short-term volatility. You have to plan 10, 15, 20 years ahead. And at the moment, we've got to get through the short-term challenges. and that's because in relation you talked about like a couple of months ago sort of a thousand jobs being lost and for context the entire industry employs about 44 000 right so you're looking at sort of almost two percent of the workforce kind of going over the last year over the last couple of budgets as you say like it's not just been a labor thing there's also something brought in by conservatives at the end as well um but what are you thinking might happen because we're also chatting on the day that unemployment has risen to its highest level since COVID as well.

12:41This is pressures that are being faced right across the kind of business industry. But specifically, what has been the impact of excise in the last two budgets? Well, what we tend to see is that there is not a kind of, there's not a correlation between the rate of tax that you put and the increase in receipts. And quite the opposite. Every time we've seen a freeze, we've seen the income to the exchequer go up. And every time that there's an increase, the receipts have fallen short. The OBR estimates have been consistently wrong over the past few years. And we've also got to think about the wider effect of excise duty increases on the economy in that when this happens, the money which companies were going to be investing in jobs, in new plants, etc., is not coming.

13:39So that's a knock-on effect throughout our supply chain, right from hospitality. We've seen the job losses in hospitality are really eye-watering on tourism, right the way back through the chain, through the maltings and the farmers. So I was out at a farm just a month or so ago, and they were asking me, look, what's happening with tariffs? What's happening with excise duty? What's happening with India? Because all of these are factors about how much they should be planting in terms of barley, because over 90 % of our barley comes from Scotland. So all of this has a knock-on effect on the wider economy.

14:20And you're right, we're over 40 ,000 jobs in Scotland, but over 60 ,000 in the wider UK. So this does have an effect. And so it's interesting in terms of excise being increased by 14 % over the last two budgets. But that leaving tax receipts basically static or even just slightly lower, right? Falling, that's right. I mean, this is the real challenge. And, you know, part of the laugh occurred in action. Yeah, this is the laugh occurred. Exactly. But part of our problem has been our success. OK, so we are seen as, you know, a very resilient industry. We've got a fantastic product. So it's assumed we're always going to be be doing well.

15:05And the industry just tends to get on with it, buckle down and keep on producing. And I think now is the time for us to say, look, this is really a moment of crisis for many, many people in the industry. We cannot just assume that you keep on shaking the tree and the apples fall off, because if they're not in the right conditions to grow in the first place, you're not going to get the harvest. So we just have to keep on explaining. And sometimes that's a challenge when we're dealing with government. I mean, government of any sort is that there isn't always that understanding of the dynamics of the industry.

15:41When I visited a number of distilleries for you guys a couple of years ago, I was quite struck by the sort of long-term planning that has to go on for this. Like, you know, if you want to start a business, you might not be making revenue for, you know, a decade at least. How do you go about sort of like planning that in terms of the sort of advocacy efforts that you're doing? Well, you have to keep on coming back to the fact that this is a very resilient industry and it will take decisions in moments of short-term volatility, which are then going to have an effect sort of 10, 15, 20 years in advance.

16:16But also, and this is a point which is relevant to the debate which we're having on excise duty, is that industry thrives on certainty and stability. And what we've seen under both Labour and Conservative governments have been long periods of duty freezes. And that's why we're asking for a duty freeze over the course of this next parliament, which enables business to plan and to invest with more certainty. um because what there's been for the last if you take the tax history of scotch for the last hundred years there's been four cuts but the longest freeze was delivered by gordon brown that's right that's right by gordon brown who put up the rate uh during his first budget and never and never touched it again during the the rest of his time as chancellor but this is it right so i was speaking to a few friends kind of in the whiskey trade before this and one of the other stats always jumps out at me is that there's over two million people visit whiskey distilleries right like that is again there's all these sort of secondary impacts of it as well that is a huge kind of like tourism driver but they were saying that people now from Germany and Japan that come and visit will not end up buying the scotch there because the excise is so high in the UK that it is cheaper for them to buy it in Germany or Japan and that's crazy so it's like 12 pounds on a bottle of scotch now in the UK whereas in Germany and Japan it's sort of five and three pounds.

17:48That's absolutely right so we have the highest excise duty in the in the G7 if you take us as part of the the wider European scene we're the fourth highest so this does have an effect and you're absolutely right because I was in a distillery the other day and I said how's it going they said well you know visitors it's steady but they say exactly that we're not going to pay for a bottle here from the distillery because it's cheaper for me to go and get it back home uh and that when you have your other figure is absolutely right over two million visitors and that's about two out of every three visitors to scotland visit a whiskey distillery that has an effect on the wider economy yeah and going back to the point that we were we were talking about the soft power and the and the drivers like the Premier League, you get a lot of people who have a favourite whisky and they will come and they want to go to their distillery because whisky is linked very much to place.

18:43So the distillery is where their favourite whisky is produced. They know it. They want to know the story. They want to have the experience. They want to fill a bottle. All of that brings people to Scotland. So it's not just the fact we are exporting a fantastic product. we're also bringing in businesses to the country. So why do you think the government does sit there and think, well, I'll tell you what, because we know the government's under pressure to find more money, every government always is. I mean, it does seem particularly acute this time. But why do you think they look at the Scots industry as being something easy to go after them?

19:19Well, I mean, I think, yeah, I think you're right. Look, everybody recognises it's a very challenging situation for the government. But they have to take a wider view. I think the officials have to take a wider view about how you get growth in the economy. So it's not simply taxing more and more and more because you're going to have a law of diminishing returns. I think sometimes it's just inertia, that that's what we've always done, that's what we're going to do, and not thinking long term about how you can support an industry which was then going to keep on investing and growing the economy over the long term.

19:58because, as I said before, we expect over the long term the growth of Scotch to continue as we see more and more growth around the world in markets where Scotch has got a natural consumer base. But it's difficult to imagine the sort of French treating the wine industry like this or the Russians treating the vodka industry like this. Like, it's kind of... It is interesting on that. Again, it perhaps comes to that, It's sort of being a very kind of like deep industry and sector that doesn't have as much kind of breadth to it sometimes. Yeah. And I think I think that's right. I think you also need a cross government to have a joined up narrative and a joined up view of the of the industry.

20:41So, you know, on the one hand, we're promoting it as an iconic export and, you know, getting trade deals, which is all very welcome. But you have to recognize that, you know, to keep on being successful abroad, you need support for the home base. Yeah. And at the moment, the production side of things is very challenging. It's not just exercise duty. We're getting more regulation coming in. We get hit with some of the some of the general business challenges which businesses are facing across Scotland. And I think that's recognised in the wider industry. Just over the past few weeks, we've had a letter of 12 Scottish business organisations ranging from the NFU to the chambers of commerce to the hospitality industry, writing to the Chancellor saying, please, please don't put up excise anymore because the consequences for the Scottish economy and for us in our particular sectors are going to be very serious.

21:38And similarly, the GMB. So I think there is an understanding, but what we want the government to be doing is taking a strategic view of the importance of this industry to their long-term growth agenda. And how...

21:55One of the things that was interesting, that sort of had one of the weird benefits of the 2017 general election, on my reflections during that time, was that it ended up being sort of... We ended up with a few Scottish Conservative MPs, which have been quite a sort of rarity at the time. One of the interesting things is because the Labour Party has sort of struggled somewhat in north of the border for the last few years, but has now got more MPs there, just who are the sort of like power players that are making the kind of like making the case for that, I guess, in the thing? Because, of course, under the previous Labour government, the Chancellor or the Prime Minister was Scottish.

22:32Well, I mean, we do have a lot of Scottish MPs in the government now. So we hope that they will be making the case. I mean, we're in constant contact with the Secretary of State for Scotland, with MPs and MSPs of all parties across Scotland, because they see the importance in their constituencies of the industry. So we're going to keep on making that point in Scotland, but also down here in Westminster, which is why I'm here to meet with the Treasury. We just have to keep on explaining the consequences and the importance of the industry and how actually we're not asking for help as such for a benefit.

23:13It's also going to benefit the wider economy over the long run. So talk to us about your job and so on, because it would be fascinating to understand how many people the Scotch Whiskey Association employs directly itself, but also a bit more about how those sort of 44 ,000, 40 ,000 plus, let's say, jobs kind of break down as well. So my job is absolutely fascinating. One of the things that's interesting about the Scotch whisky industry and the Scotch Whisky Association, which is a trade association first and foremost, is the breadth of issues it covers and the breadth of stakeholders. So we deal with everybody from local authorities on things like planning permission, the Scottish government on things like infrastructure, alcohol marketing, issues of devolved competence and then with the UK government on things like trade deals excise duty and then you deal with the with the with the foreign governments in in you know in your international markets where we're talking about increasing increasing trade so the the width of stakeholders is is really very uh very wide uh but also you've got a wide range of of issues from our legal people who are protecting the intellectual property of scotch whiskey so So because it's successful, because it's a premium product, you will find across the piece in most markets a temptation to have counterfeit or smuggling.

24:38And that is something that we are very, very firm in defending the Scotch whisky industry and its reputation. So we're dealing with that in external markets. We're dealing with sustainability, which is very important. If you look at some of the challenges we're getting from climate change. So we're dealing with not just emissions and missions in distilleries, but across the supply chain, but also things like water. So increasingly, during the summer months, we have a problem with water now in Scotland. And several of our distilleries had to stop producing over the summer months because the water supply was not there.

25:16So all of this we have to work on. And it's about sustainability in its widest context as well. So it's sustainability of the land that we use, but it's also sustainability of the communities. If you're talking about, for example, island communities where the distillery can be the biggest employer on the island, how do we keep that going? How do we have the infrastructure, for example, to support the industry, to support the tourism which goes there? You know, issues which range from ferries to roads to ports, accommodation, et cetera, et cetera, et cetera. So all of this around the industry and the domestic side, so issues like recycling, all of these, we have people who deal with this.

26:03And our role in the industry is also to facilitate policymaking. So we have experts within the Scotch Whiskey Association, but also we need to tap into the expertise which is throughout the industry, throughout our over 90 members who are there. And then you look at the external markets, the international markets, how we deal with international trade, how we promote responsible consumption, which is really an important part of our task. And then how do we explain the industry and communicate the industry, which after all is an industry which has got a very high degree of storytelling and very good at communicating itself.

26:45How do we communicate that to government, to MPs, so people understand about the industry, understand about the contribution which Scotch makes to the economy and to society? So all of that is part of the remit of the Scotch Whiskey Association. To reflect that, we have our main offices in Edinburgh, but we also have a small office in London, which is dedicated mainly to contact and liaison with the UK government in London and for example, embassies which are all based in the capital. And let's come back to the sort of difference between communication and influence in a second, But just pick up, I'd be interested in understanding more about this story of the distilleries running out of water and what happened, etc.

27:35That's just very interesting. Well, I think we're seeing this as a direct result of climate change. That not only is there less rainfall at certain times of the year, but it's less predictable. And when it comes, it doesn't come in the ways it used to. So you can get a period of drought and then you get a sudden flash flood and the water doesn't go down the usual courses, which means that you've still got a lack of water, even with more rainfall. So we work closely with the Scottish Environmental Protection Agency on this, but obviously it's not just us who are affected. You see some of the best fishing rivers in Scotland which are affected, the Spey, for example.

28:20You hear stories about that. So we really have to take action as part of the wider community to preserve these absolutely iconic parts of Scotland, these iconic rivers, and the industries which they support, whether that be agriculture, fishing, or Scotch production. And let's move a bit on to the influence versus communication. And it's kind of worth saying here your previous background, which I want to get into later as well, but I think it adds kind of context for it here as kind of like a former ambassador in both Argentina and Thailand. Like, I'd just be interested in terms of now you're sort of in a much more kind of like direct role, I suppose, of what the difference is between sort of communication and influence and how it's changed even into kind of four years that you've been doing the role.

29:14I think what we've seen, certainly over the time I've been doing the role and in my previous job as well, is the ability to communicate to a mass audience through social media. And we will also see changes, I'm sure, with artificial intelligence. That'll affect the way that we communicate with each other. The difference between communicating and influencing, I mean, sometimes it can be the same thing. But I think there's one thing to explain the opportunities and the challenges that we have. But I think you also, to influence, you need to explain to other people, how this is going to help them.

29:52And this is the kind of thing that we're doing at this time of the year with the Treasury. We just go back to the points about excise duty. But also, when I was in India, you point out about how a decrease in external tariffs is going to help Indian industry, Indian tourism, the Indian exchequer. So it's really about sitting down with somebody and you look at a situation and say, okay, what's your interest? What's our interest? And how can we work together to get a better outcome for us both? And that I think is influencing. And influencing has to be authentic. So if I'm giving you a proposition which actually doesn't stack up, you're not going to want to have a long-term relationship with me.

30:34And whether you're talking about diplomacy and sort of links between countries, or you're talking about important industries, you've got to take a long-term relationship-based approach. And the Scotch whiskey industry, if you go up to Scotland, and you'll see it's all about relationships and trust. And that's essential whether you're dealing with government, whether you're dealing with industry, or whether you're dealing with diplomacy. So all of this, I think, is quite a transferable skill from the world of diplomacy to the world of Scotch whisky. What made you want to get into diplomacy in the first...