The sacking of Whyte & Mackay's chief executive carries profound implications for a suffering industry. Falling victim to weak spirits

business as usual. At the start of the week, he visited Vinexpo in

Bordeaux, a rare personal appearance at a major wine and spirits trade

show for a man thought by some in the industry to be somewhat aloof. ''I

didn't think it was his scene,'' said one.

By Thursday, Mr Lunn was part of a mob-handed contingent from the

Scotch Whisky Association listening to MPs Mr Jack Cunningham and Mr

George Robertson at Labour's launch of its Scottish Industry Forum in

Edinburgh. The SWA, with only the SNP so far on its side, was

unashamedly lobbying on the issue which has obsessed it for years -- tax

harmony with other alcoholic drinks, here and abroad.

However, by yesterday morning, Mr Lunn certainly was not engaged in

business as usual. In his sumptuous Dalmore House headquarters on the

north approaches to the Kingston Bridge, he was closeted with lawyers

and advisers, working out the details of a rapid exit deal for himself.

Out of a clear blue sky, after 17 years with the company, he had just

been fired by Whyte & Mackay's owners, American Brands, and replaced by

an Australian, Mr Ken Hitchcock, who has made his name within American

Brands selling Jim Beam bourbon and some of Whyte & Mackay's own Scotch

brands to antipodeans. Mr Hitchcock was already in town to take over the

reins from Mr Lunn, 53.

As in all such exits, Mr Lunn, until yesterday scheduled to become the

next chairman of the Glasgow Development Agency, is euphemistically

leaving ''to pursue other opportunities''. Because of contractual

negotiations, he cannot talk publicly about the circumstances of his

going. But it is clear he was fired.

It is equally clear that his going marks a significant change of

strategy for one of the five biggest companies in the Scotch industry.

His masters clearly decided that Mr Lunn was not the best person to

carry that change through. But that new direction could carry profound

implications for the entire whisky sector, which is enduring perplexing

times.

American Brands, through its Gallaher subsidiary, bought Whyte &

Mackay in 1990 for #160m. It followed that up in 1993 by swallowing

Invergordon Distillers at the second attempt for #350m. Invergordon had

been the subject of an earlier, successful management buy-out in 1988

and had gone on to achieve a Stock Market listing in 1990.

In all, American has invested the best part of #600m in its Scotch

capacity. At best, it is getting erratic returns. In terms of profits,

perhaps as little as #20m a year at present. ''Not nearly enough to

justify the spend,'' said one shrewd observer.

The root problem is weak demand and the poor prices which Scotch

whisky, particularly secondary and buyer's own label (BOB) brands, is

getting in the domestic market place. Invergordon was the leading

supplier of BOB brands to supermarkets like Tesco. When Whyte & Mackay

first bid for it, unsuccessfully, in 1991, such whisky was getting up to

#16 a case.

Now the price has slumped to between #8 and #10 a case. Similar price

erosion is affecting brands at every price point throughout the range.

And Whyte & Mackay, as overall leader in the UK marketplace with a 25%

share, is taking that painfully on the chin.

Given Whyte & Mackay's domestic exposure -- its Claymore and Whyte &

Mackay Special blends are both in the UK top six -- others in the

industry have been looking to it to put more pressure on customers to

accept better margin pricing. But, if the new strategy being imported

from Australia is, as is hinted, more short-term, the approach may now

be to accept even slimmer margins in search of even higher volumes. That

could prove very bad news for the industry as a whole.

The other short-term palliative facing Mr Lunn's successor is major

cost reduction. Whyte & Mackay has already mothballed three distilleries

in recent months, all part of its inheritance from Invergordon. But

Invergordon continues to run as a separate company from its Leith base

where, apart from administration, it has its own bottling capacity.

Invergordon is run by Mr Charles Shaw, Mr Lunn's long-time right-hand

man.

Whyte & Mackay's own bottling capacity is across the road from

Invergordon at William Muir Bond 9, an earlier Lunn acquisition. Whyte &

Mackay's main Glasgow presence is purely administrative, in a stylish

office block at the top of St Vincent Street.

If part of Mr Hitchcock's agenda is to rationalise and merge the two

operations, the Glasgow presence would seem to be the most likely

casualty, since it is relatively high-cost and removed from the bottling

operations. Even if Mr Lunn retains the chairmanship of the GDA he is

due to take up next month, he could yet be overseeing the departure of

another Glasgow corporate headquarters.

Mr Lunn took some stick for extinguishing the independence of a

recently floated Scottish company when he first bid for Invergordon in

1991. But the departing Whyte & Mackay chairman was no stranger to

corporate wheeling and dealing in his 17 years with Whyte & Mackay. He

joined not long after the company had been bought by Lonrho as part of

Scottish and Universal Investments.

In 1986, as the highly contentious Guinness bid for industry leader

Distillers unravelled, Mr Lunn and Lonrho's chairman, Mr Tiny Rowland,

made a highly opportunistic offer to buy various brands and stocks from

Distillers to reduce the danger of the agreed Guinness bid being

referred to the Monopolies and Mergers Commission.

Mr Lunn made various attempts to mount a management buy-out from

Lonrho but eventually in 1989, after he had masterminded the purchase of

William Muir, Mr Lunn saw the business sold from under his nose with

little warning to casino and leisure group Brent Walker.

Brent Walker quickly slid into financial difficulties of its own and

Mr Lunn renewed his interest in a buy-out. For a time, he was persuaded

to tie up with the management buy-in team at another distiller, Burn

Stewart, to mount a joint bid for Whyte & Mackay. But the approach broke

up in great acrimony in late 1989 with Burn Stewart's chairman, Mr Bill

Thornton, and Mr Lunn both alleging dirty tricks and double dealing by

the other side.

In the end, in February 1990, Mr Lunn gave up his hopes of doing his

own deal and oversaw the whisky group's sale to American Brands, through

its Gallaher operating subsidiary.

The following year, Mr Lunn, backed by the deep pockets of his new

parent, was on the trail of Invergordon with a hostile #286m bid.

Invergordon fought a feisty defence and left Whyte & Mackay with a large

minority stake and heavy carrying costs. Whyte & Mackay lost nearly #8m

in 1992 and only got back into the black the following year when

Invergordon finally fell to an improved #350m offer.

However, by then the price rot at the bargain end of the market had

well and truly set in. The commercial logic of the bid -- to build a

broader portfolio of brands and bring grain distilling capacity into the

enlarged group -- may have seemed impeccable on paper back in 1991. But,

like the spirit in the cask, it was evaporating by 1993. The market

pressures since, coupled with the Chancellor's December 1994 decision to

raise spirit taxes yet again to make good the shortfall from the

abandoned VAT on domestic fuel, have done nothing to relieve Whyte &

Mackay's agony.

Some in the industry believed it was only a matter of time before his

American masters started cracking the whip over Mr Lunn. ''I thought he

was regarded as a good pair of hands by his lords and masters,'' said

one rival. ''But the crazy prices we are now enduring must have

undermined that.''

Another, Mr Geoffrey Maddrell, chairman of Macdonald Martin, echoed

that. ''I have to confess maybe it was something that was anticipated if

you look at their level of profitability,'' he said.

The big question now is what the new Whyte & Mackay management will do

to improve returns on that massive initial investment in a troubled

industry. If Mr Hitchcock ushers in a new era of price cutting in a bid

to build volume, a collective groan will run round the industry. If that

happens, there are likely to be more distillery closures, more

rationalisation, and more undermining of the image of Scotch as a

quality product and a premium drink.