BQ Newsletter
Mike Keiller

The dramas of a dram man

Monday 18 July 2011 7:00

Scotch runs through Mike Keiller's veins. He’s a global whisky man who has worked at the sharp end of rationalisation. BQ travelled to Springburn in Glasgow to meet him.

Scotch remains our gift to the world. It’s a beverage that binds our nation in culture and our sense of business as one of our biggest export industries. And Mike Keiller is one of the stalwarts of this industry who understands its magic, mystique and how its global business model has evolved to meet changing circumstances. Fifty years ago there was a plethora of Scottish-owned whisky firms gallantly marketing their own brands. But this was never sustainable. Today that has changed.

And many of our familiar whisky brands are owned by larger multinational companies beyond our shores. And while this is a sad fact of life that ownership has moved beyond Scotland, there is no other place on Earth that can produce and bottle Scotch. So beady-eyed commuters on the Edinburgh to Glasgow line might have spotted the headquarters of one of Scotland’s smaller whisky companies. Before the tunnel which takes you into Queen Street, you pass on the right a large dark warehouse and bottling plant with the hogshead barrels stacked on top of each other. Once Springburn was world famous for the steam locomotives it produced; today North Glasgow has to deal with its own demons of unemployment and deprivation, but one of the jewels is Morrison Bowmore Distillers.

More recently, another whisky icon, Drambuie liqueur, has moved to be mixed and bottled at Springburn, with the special recipe of herbs and spices kept under wraps. Mike Keiller is the chief executive of Morrison Bowmore Distillers who produce the famous Bowmore Islay Malt, Auchentoshan Lowland Malt, Glen Garioch Highland Malt, and McClellands, the number four malt in the US. He’s a suave and decidedly-trim fiftysomething, dressed in chinos and a RalphLauren open-necked shirt.

He’s a globetrotter who has survived the turmoil and the transformation of the whisky industry. Born in Perth and educated at Perth Academy, he qualified in his home city as a chartered accountant in 1977 with a local firm. “I always wanted to go into industry,” he says. “That was the purpose of the qualification, to have a back-up. I joined the whisky industry via Bell’s in Perth. Guinness took us over and soon after that they acquired the Distillers Company Limited (DCL). That’s when my career evolved.” The convulsions of Scotland’s whisky industry dominated the business news pages in Scotland in the 1980s. In 1987, United Distillers was created by combining Arthur Bell and Sons of Perth with the DCL, now both part of the Guinness empire.

“Clearly, when you have two big take-overs into a major group, your life is going to change,” he recalls. And it did for Mike Keiller – in no small way. “I got the chance to get the senior position as finance director in United Distillers UK, which was based in Cherrybank in Perth,” he says. While some will look back on this as a traumatic time for the whisky industry, and subsequent upheavals of the Guinness share scandal involving Ernest Saunders, for Keiller – then in his early thirties – this was a magnificent chance.

“Being a finance guy in a bigger operation presented more opportunities,” he says. “There were new systems and lots to learn. There was a different approach. It was a massive period of change. It was also a chance for me to stamp my own mark on the systems and information requirements for a brandnew business.” The transformation from Bell’s Scotch Whisky group, which included the ownership of Gleneagles Hotel and the North British (now the Balmoral Hotel), the Canning Town Glass Company and Towmaster Transport distribution business, was huge.

The whisky business was quickly being turned into a gigantic sales and marketing machine for United Distillers. “The information system for a multi-national sales and marketing unit is very different from what was a group of integrated Scotch whisky companies,” says Keiller. But a lot of what I learned then has held me in good stead for my job here at Bowmore in the last 11 years.” Mike Keiller immersed himself in strict financial management. Global drinks companies on the stock market require a detailed understanding of their potential future markets, especially when it comes to Scotch. “My experience then was that you have to have available inventory in terms of whisky stock to meet future unknown sales forecasts,” he says. “If you have too little, you can’t grow.

If you don’t have the stock you can’t make future profits.” Keiller says that many people underestimated the scale of the capital required in the industry to produce, and then store, liquor for up to 25 years. He picks up a pen and sketches a wave-like graph showing the cycle of whisky distilling. It involves the investment by the industry, then how supply and demand has traditionally impacted on prices. In the last 30 years when there has been excess whisky capacity, this has been sold off more cheaply.

“It’s an added challenge that no other industry has, except perhaps the cognac industry,” he says. It requires, he says, a long-term business mind set to protect a company’s future legacy. Arthur Bell was run by the renowned Scottish business figure, Raymond Miquel, who had become managing director of the firm in 1968 aged 37.

His management style was uncompromising but highly effective. “He was a very single-minded individual,” recalls Keiller. “He was charismatic but an autocratic leader. He was obsessed with the longer-term approach. He would not compromise on pricing for the sake of short-term results.” Keiller acknowledges the importance of long-term pricing as one of the key business nuggets that he picked up from his spell with Miquel.

“He was greatly criticised at the time. But people have forgotten his strengths and what he achieved. I think my focus on long-term value came from his obsession about the longer term.” In 1990, Mike Keiller was promoted to European finance director within United Distillers and given the task of developing and strengthening business control within its drinks subsidiaries and joint ventures.

At one stage there was a “forest” of 360 small independent distributors with their own ways of working that needed to be chopped down, and Keiller became the axeman. The 360 eventually became approximately 20 over a very short period.

“Additionally we had to prioritise what our marketing budget should be spent upon,” he says. “New systems had to be set up. What was interesting was learning how brands are built and evolve. “I spent four years as the finance director but the product range of United Distillers was not yielding sufficient growth. The bias of the portfolio was towards gin and whisky and, in Europe, those categories were ex-growth.” Throughout this time, all the major drinks companies were beginning to prioritise their global brands, learning to concentrate the marketing firepower on the mega brands such as Guinness, Johnnie Walker, Smirnoff, Gordon’s Gin and Bailey’s Irish Cream.

In 1994, Keiller came up with the concept and business case for change in Project Reagan. He says: “We decided that we would create a single back office including logistics and customer service to serve the whole of Europe. We were one of the first companies to attempt this. The aim was to get one system serving all the thousands of customers acrossEurope. There wasn’t the internet then but there was improving telecoms technology and computers which made this possible.” By taking away the work of the back office, the local sales and marketing teams could be left to focus on developing the brands.

“To survive all this and take it forward was very interesting,” says Keille. “It’s all to do with learning quickly, sound training and excellent communications. If you don’t like change, then you really need to find another job.” In May 1997, Guinness merged with Grand Metropolitan, creating United Distillers & Vintners, which became Diageo. Keiller was given a major role in preparing the merger planning for Europe in Diageo.

“Once we went live I worked with the new managing director of UDV UK to select a new management team, sales force, head office for the new business,” he says. “It was a giant project with not far off half the people having to go. It all had to be professionally and sensitively managed – and ruthlessly, if you like. Having already made the decision to leave after the merger I found the role a positive experience on which to exit.

“I now had major experience of mergers. The key learning is to ensure a very strong, change management process that is fair. If the process is transparent, then people will understand and support change. However transparency and honesty has to be backed up by a good planning process.” Ironically, he was involved in the final decision to shut down Cherrybank in Perth, where he started his career.

“I knew all the people but it was the right thing for the business at the time,” he says. “It wouldn’t have been the right thing for Bell’s. But everything had moved on. It was a different beast.” So, at 44, he moved on for a spell with British Telecom as a director of financial planning and control in the UK. But he was lured back into the whisky industry when he was offered a role with Morrison Bowmore Distillers, a stand-alone business and originally a whisky brokerage created in 1951 by Stanley Morrison, but a part of the Japanese drinks giant Suntory. Suntory is a family-run company with a strong ethical connection to health and the environment – indeed, one of its major brands is bottled water. Whisky production in Japan was started by Shinjiro Torii and Masataka Taketsuru who travelled to Glasgow to learn the art of distilling. The first distillery set up by Torii, was Yamazaki, between Osaka and Kyoto, which later became Suntory. “I could see a way forward with this job,” says Keiller.

“Suntory had bought the business in 1994 but hadn’t changed anything. It was a very friendly acquisition. This was essentially to secure a foothold in the market and support the business in Japan. Traditionally, they were large purchasers of whisky which they blended for the local market.” Suntory had been a great ally to the Morrison family prior to this. Whisky is still a cyclical industry with periods of oversupply and undersupply, which impacts on the pricing. Keiller says: “I was brought in because the business had not been changed since Suntory acquired it. The previous managing director Jim Forbes was retiring at 65. The original rationale for buying Morrison Bowmore had changed because the domestic whisky market in Japan was in steep decline and the business had to be set up to exist on its own.” Mike Keiller says there was limited focus on single malt brands at the time, especially the flagship Bowmore from Islay.

“The key to the business in 2000 was value-for-money blends in South America, such as Clan Roy and Rob Roy. We were the market leaders in Venezuela at one time. The priority was bulk trading whisky and blends. Then there were the single malts. “We were left alone to run the business. In 2003, we incurred a trading loss. The South American business wasn’t making money and declined because of Venezuelan currency issues. There were joint ventures in Uruguay, Chile and Spain which were loss-making.” Mike Keiller had to sort it all out – along with a massive pension deficit which peaked at an estimated £30m.

“From 2004, it’s been about sorting out all of these challenges,” he says. “We had huge surplus whisky assets from the blended whisky days and we were helped by a whisky market cyclical upturn. So, instead of our whisky being worth £9m, it was worth £27-30m in the market. This helped sort out the pension problem. Single malt is now the focus. In 2000, it was 12% of the business, today it is 100%. Last year the company turned a profit of £5m, which Keiller says is down to the teamwork and focus at Morrison Bowmore.

The HQ site is being refurbished with £5.5m for new bottling plants and storage. The annual turnover is now £40m and the company employs 200 in total, with 150 at Springburn. Mike Keiller is proud of MBD’s success and the repositioning of the brands, including Auchentoshan, a triple-distilled lighter malt hitting a market for the new whisky drinker. He has recently expanded the sales and marketing team with new appointments, including such people as Phil Nickson, Paul Goodwin, Claire Keene, Joe Hughes, and Iain McCallum, who has been appointed master of the malts.

He joined from school and became distillery manager at Auchentoshan, aged 33, the youngest in the distillery’s 185-year history. “We’ve got a much better business model,” says Mike Keiller. “Our focus on the single malt category has done a great job for us. We’re now a niche-branded goods company. We want to build the strength of the brands and that will take years. We have the knowledge, passion, skills and backing to succeed” It seems there is no rush when it comes to Scotch whisky.