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SUBMISSION from the EDRINGTON GROUP Key Facts at A SUBMISSION FROM THE EDRINGTON GROUP Key facts at a glance • Scotland’s leading international premium spirits company • Key brands: The Famous Grouse; Cutty Sark; The Macallan; Highland Park; Brugal • Headquarters – Glasgow • Employs 839 people (Scotch whisky operations) • Turnover £291.5million • Products sold in over 100 countries 1. The name Edrington has long been synonymous with premium iconic Scotch whisky brands, market leaders in their field, which are valued and treasured by connoisseurs. 2. The Famous Grouse is the best selling whisky in Scotland and has held that distinction for the last 27 years. 3. The Macallan single malt is the world's "most precious whisky" while its stable- mate, Highland Park, has been named "best spirit in the world." 4. Cutty Sark was the first light coloured whisky of exceptional quality and today is a leading brand in southern Europe. 5. This illustrious collection of authentic brands has now been enhanced by Brugal, one of the largest international golden rum brands and the market leader in its home market, the Dominican Republic. In February 2008, Edrington acquired a majority shareholding in Brugal & Co., C. por A. 6. This agreement diversifies the Group's drinks portfolio beyond Scotch whisky for the first time and gives it access to one of the fastest growing spirit categories globally. It is also seen as a natural fit as the Group continues to develop its core brands through premiumisation, innovation and by targeting markets with stronger growth potential. 7. The origins of the Group, based in Glasgow and today one of Scotland's largest commercial companies, stretch back to the 1850's when W.A. Robertson began business in the city. 8. Today, Edrington employs 839 people at five distilleries and five other sites across Scotland while Brugal family members continue a 120-year tradition by playing a major role in operating their business, which employs 1,100 people at its various sites across the Dominican Republic. 9. Edrington is a Scottish company controlled by The Robertson Trust, a charitable trust funded mainly by dividend income from the Group. The Trust gave a record £8.4 million last year to a wide variety of charitable causes. Edrington and the Chinese market General Overview 10. China is one of the most exciting, emerging markets in the world and holds tremendous promise for future sales of Scotland's national drink. Scotch is seen as a quality fashionable product and is regarded by Chinese consumers as trendy, aspirational and upmarket and it very much epitomises a premium Western product. 11. Sales in the country are booming and the equivalent of 17 million bottles of Scotch was shipped to China in 2007 (source: Scotch Whisky Association). The Scotch whisky industry is now working with a range of government bodies, including the Chinese Government and the British Embassy in Beijing, on a range of measures to assist future growth. 12. Edrington was the first Scotch whisky company to establish a physical presence in China - in Shanghai in June 2003 - and this acts as a “representative office” whose remit is to supervise the marketing plans of the Group’s key brands in the Asia Pacific region. Edrington has committed major resources to growing sales of its premium single malt whisky, The Macallan, both in China and Asia Pacific in general. Edrington’s local operation now employs nine people in Shanghai, many of them Chinese nationals. The Group has doubled sales in the five years since it has been operating in the country. Most of the Group’s sales are in the on-trade in major cities such as Shanghai and Beijing, where customers often share a bottle of whisky with friends and work colleagues. 13. Edrington, like many distillers, continues to watch market developments carefully but the trends remain positive, with the Chinese market performing well, and Scotch whisky growing on a sustainable basis. The Group has high hopes of growing sales of The Macallan and its other brands even more in the future, especially as the company is about to take a 50 per cent stake in a new sales- and-distribution alliance in China, which employs some 200 people. What has worked well since Edrington set up a base in China? 14. Having a physical on-the-ground presence, and daily interaction with a wide range of business partners, other organisations and customers in China, is critical. The ability to manage relationships in ‘real time’ is a big advantage for the company: it helps to overcome problems caused by time zone and cultural differences. 15. Being based in-market allows the Edrington Shanghai team to better manage a number of critical regional networking and business relationships and to forge closer working relationships i.e.: o China-based distribution companies. o Regional distribution companies (joint ventures and third parties). o Sales agents. o Direct customer/importer engagement. o Media and public relations agencies. o Government agencies (legal, tax authorities, provincial government). o Oversee China representative agencies (e.g. Scottish Development International, British Chamber of Commerce, Global Scots). o Trade bodies (Scotch Whisky Association etc). 16. The ability to have representatives of the business available on the ground and in the same time zone, in order to identify/discuss/resolve important business issues, is a major advantage as is the capability to handle “easy access” visits. This has resulted in strong business performance within the region and a growing reputation for being a “centre of excellence” within the drinks industry and to which other producers aspire. 17. Edrington enhanced its business capability in China in 2006 when it established both a dedicated purchasing/sourcing function and a finance department, based within the Shanghai operation. This decision has proven to be highly successful and has strengthened the company’s professional presence in-market. It allows: o Direct management of category suppliers in China. o Ability to manage full procurement process within supply chain, both inter-regional and back to corporate headquarters in Scotland. o Full quality control and supplier audit capability thus ensuring that suppliers fully comply with the company’s corporate social responsibility (CSR) policies. o Global supply chain benchmarking process for the business. o Capability for ‘in market ‘reworking of product (if required). o Working with other international and Scottish companies to exchange ideas and best practice solutions. o Finance capability has enabled Edrington to manage local agencies more effectively (CPA companies, legal, taxation agencies). 18. Employment of local Chinese staff, and their integration and training into the Edrington business model. o Currently the Group employs four office-based local employees. o Full company induction and team integration. o Builds new international business management competencies for the Group and provides opportunities to share new ideas/best practice back at HQ. o Enables Edrington management team to integrate into local environment and assists in managing complex Chinese relationships and protocols. 19. Business delivery: o Being locally based has enabled the company to make more effective and timely business decisions. This has facilitated Edrington’s business model in Asia to deliver a business performance well ahead of plan and expectations. o This ‘local model’ has been replicated, refined and implemented within the Group in other territories around the globe identified for future growth. o In-market empowered team structures ensure that the management of critical Asian relationships can be consistent and driven for the long term benefit of the business. This has again given the business a ‘competitive advantage’ in the international arena. What have we learned and how would we improve? 20. Maintaining strong relationships with HQ, and providing meaningful dialogue/market insight to colleagues several thousand miles away, always remains a challenge for overseas-based offices. This requires heightened management disciplines and good system support. It is important to note that the quality and efficiency of support mechanisms (IT maintenance, facility management etc) are less effective in emerging markets. 21. The need to regularly engage and instruct head office/employees on cultural awareness/education has been effective for both parties, but, once again, requires additional management time. Time zone differences also impact. What areas of improvement would assist in relation to the Scottish Government China Plan? 22. The ability of companies like Edrington to better understand the remit of the various China-focused Government agencies: o What is the remit of SDI verses Scottish Enterprise and British Chamber/British Embassy/China British Business Council? There are many points of contact, however it is not immediately clear to the outside the points of distinction between these various organisations and how best to interface and get the best from them. o There is an opportunity to build “like minded” communication forums and communities; This could be achieved via email lists for sharing business insight and learnings i.e. identifying best practice, common problems and pitfalls, how best to succeed. Global Scots has achieved this to a degree, but it is not routinely used. One question: Should SDI host/organize email networks and forums to assist new companies better understand how to operate in the Chinese marketplace and therefore to be better placed to succeed? o Can Scottish businesses based in China be encouraged more to engage in the network process in order to share their expertise and experience? One practical idea: How about creating a central database, shared by SDI? Whilst SDI has a high priority to encourage inward investment to Scotland, this network could assist and facilitate achieving this objective but also help to generate other business ideas/opportunities of benefit. Emrys Inker Director of Corporate Affairs The Edrington Group .
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