Adam on...Diageo's purchase of Bushmills

Drinks reporter Adam Withrington looks at how Diageo's purchase of Bushmills will shake up the Irish whiskey sector.

The potential sale of Allied Domecq to Pernod Ricard took an interesting turn earlier this month when Diageo signed a £200m deal with Pernod Ricard to buy Irish whiskey brand Bushmills.

But what will all this mean? First of all it's good news for Irish whiskey in the UK. Pernod Ricard pretty much had a monopoly on that sector, owning not only Bushmills and Jameson but also distributing Paddy and Powers Gold Label Irish whiskies.

And this was probably keeping the sector down, as Sikhender Singh, from London's Whisky Exchange, explains. "The problem has been that as far as Pernod Ricard is concerned Irish whiskey has just been Jameson, Jameson, Jameson," he says. "There will be a lot more focus on Bushmills now - which can only be a good thing as it's a fantastic brand. Having two big Irish whiskey brands up against each other in one company wasn't working."

And until now Diageo hadn't owned an Irish whiskey, so there is little doubt that a lot more will be seen of the brand and the sector. But should licensees really care about Irish whiskey? What can it give your drinks offer that Scotch can't?

"Irish whiskey has really got its own following. It's very easy going and very mixable which is perfect for pubs and bars," says Sikhender. "Scotch maybe has more of a stuck-up image. So Diageo really has got something to play with now. It's a fantastic deal for the company."

However, as with anything in big business there is more to this than meets the eye. Through this deal Diageo has cosied itself into a very nice position with Pernod Ricard.

Even with the brands that are going to American company Fortune Brands as part of the deal (which include Courvoisier, Canadian Club whisky and Sauza tequila), it is very unlikely that the competition authorities at the European Commission will let Pernod Ricard have the rest of Allied's portfolio and this is where Diageo could come in.

"I'm sure this is not the end of it," says Sikhender. "By buying Bushmills Diageo has strengthened its ties with Pernod Ricard and may get first refusal on any brands that Pernod is forced to sell off if it buys Allied."

Perhaps one brand it might be sniffing around is Stolichnaya. While Allied does not own the brand it has the lucrative distribution rights outside of Russia. The SPI Group, which owns the brand, could see a potential distribution link-up with the world's biggest drinks company as an ideal platform for future growth, rather than shifting any distribution deal onto Pernod Ricard, which already owns one big premium vodka brand in Wyborowa.

So what would be in it for Diageo? Well, the bottom line is that Stolichnaya is the third most valuable spirits brand in the world.

Added to that Diageo does not really possess a vodka that is truly beloved in top-end style bars. The vodka division at Diageo may protest, following the recent innovation of Smirnoff Penka and the Ciroc brand, but Stolichnaya is a bartender's favourite.

There are a number of other brands that Diageo could be interested in. It is unlikely these will include any more wine brands, however, given the agreement, which was part of the Bushmills sale, for Diageo to take over part of Allied's Montana wine business, if the Pernod Allied deal goes through.

But in a way the whole business angle is just a sideshow. No one knows yet what will really happen. But the one thing we do know from the Bushmills deal is that there will be a revival in Irish whiskey. A company like Diageo does not just buy a major brand like Bushmills only to leave it alone. They intend to take on Jameson and pubs can only benefit.

More mixable than scotch, Irish whiskey will give licensees a great opportunity to increase their margins and simply add variety to a sector that could be accused of going a bit stale."