Pathfinders to the Parliament

DRINKS AND HOSPITALITY SECTOR PATHFINDER
The Brief
To identify opportunities and problems facing the Scottish drinks and hospitality sector and recommend priority actions which the new Parliament should take to overcome the problems and capitalise on the opportunities.
Composition of the Group - Process
The Drinks & Hospitality Pathfinder Group comprised the following individuals:
Andrew Dewar-Durie	Chairman, Allied Distillers Ltd
Robin Barr	Chairman, A.G. Barr plc
Henry Fairweather	Personnel & Services Director, Scottish & Newcastle plc
Diane Miller	Regional Director, Whitbread (Scotland) plc
Hugh Morison	Director General, The Scotch Whisky Association
Stuart Ross	Chief Executive Belhaven Brewery Company Ltd
William Wood	General Manager, Swallow Hotels, Glasgow
Craig Campbell	Assistant Head of Policy, CBI Scotland
The sector has been defined as spirits, beer and soft drinks manufacturing together with the provision of hospitality via hotels, guest houses, restaurants, public houses and catering.
Discussions were held individually with Group members as well as a whole to gauge issues, opportunities, problems and priorities going forward. Each representative submitted a response from their own company's/association's point of view taking into account the wider issues affecting the industry as a whole. In some cases sub-groups were formed and comment was also taken from a wide range of interested parties across the whole spectrum of the sector, including STUC, SLTA and Compass Group representing the contract catering industry to ensure as wide a representation of the sector as possible was considered.
Meeting collectively, the Group then reached a consensus on the priorities for the sector and our findings are presented in the following pages.
Conclusion
The new Parliament has a major role to play in encouraging all Scots to take pride and passion in what they do and in encouraging all businesses to provide quality products and services. The new Parliament must give a lead in the development of investment in skills and training necessary to deliver a collective image of Scotland which will enhance our nation's prospects.
Business wants to play a role in this and we would encourage Parliament to explore ways of developing an ongoing communication process which will enhance interaction and serve to inform them of the issues facing business. By working together we can create a partnership which will serve to improve Scotland's competitiveness in the global marketplace and achieve the ultimate goal of any economy, that of prosperity through wealth and job creation.
Key Points
Sector
The drinks & hospitality sector is Scotland's largest employer with in excess of 200,000 people employed. The sector generates in excess of £4 billion per annum in sales revenue. The sector is one of the largest areas for smaller business activity particularly in hotels, guest houses, restaurants, licensed retail premises and general retailers. The products and services within our sector are an embodiment of Scotland and Scottish quality to the global marketplace.
Opportunities
The sector has a pivotal role to play in the development of Scotland's tourist industry. Our people are our greatest asset and our greatest opportunity. The potential for exporting Scotland as a brand and collectively promoting the image of all things 'Scottish' is enormous.
Priorities
Learning and skills throughout everyone's life from early schooling onwards needs to be enhanced to raise quality and in turn develop Scotland's standing in terms of productivity and competitiveness within the global marketplace. A level playing field is required with the rest of the UK in respect of taxation. Our licensing laws need modernisation to bring us into line with our European neighbours and also to meet the expectations of both domestic consumers and visitors to Scotland. Our transport network needs to be improved to enable it to accommodate the needs of business, our population and our visitors. The administrative burden of regulation and legislation is great and we need to ensure only necessary and cost effective measures are implemented. The new Parliament should deliver a strong representative voice for Scotland in Westminster and Brussels.
General
The convening of Scotland's Parliament is a historic opportunity for the entire country, its people and its businesses and should be grasped firmly by those in government and in business to ensure that we develop a renewed culture of energy and ambition.
The Key Findings of The Drinks & Hospitality Pathfinder Group
Background to the Sector
The drinks & hospitality sector in Scotland is our major industry both in terms of revenues and employment. Spanning manufacturing, retailing and services it employs approximately 200,000 people and generates sales revenues in excess of £4 billion. The products and services that it encompasses are an embodiment of Scotland and Scottish quality in the eyes of the world. It is therefore a crucial component of our economy.
Many of those employed within the industry are smaller businesses and are therefore important from the point of view of growing entrepreneurism and retaining profits, employment and investment within our shores. This is balanced by larger operators both on the manufacturing and service side which contribute significantly to the overall picture.
Opportunities for the Sector
1. Development of tourism in both new and existing geographical and demographic areas.
2. Our people.
3. Product and service quality and reputation.
4. Potential for exporting our products and services.
5. Increasing leisure time.
6. To create renewed pride and passion in Scotland as a nation and to market Scotland collectively under the leadership of Scotland's Parliament.
Threats to the Sector
1. Differential taxation and changes to UBR.
2. Global competitiveness and barriers to trade.
3. Education and skills complacency.
4. Inadequate transport network.
5. Poor product and service quality and reputation.
6. Impact of strength of sterling.
7. Inappropriate and unnecessary regulation and legislation.
Our Response to the Brief - Six Key Priorities for the Scottish Parliament
People
We see the advent of the new Parliament as a huge opportunity to drive forward a revolution in learning, skills and qualifications in Scotland. This would encompass the whole spectrum from early schooling onwards throughout secondary education, further education and into the lifespan of everyone's careers.
In manufacturing within our sector there needs to be considerable upskilling from the very basics of literacy and numeracy through to 'core skills' and beyond.
We would advocate a promotion of qualification within our sector with assistance provided to achieve this. For example, registration of owners of licensed premises or hotels and guest houses would come hand in hand with a pre-achieved industry qualification covering a wide band of skills but with particular emphasis on continuous development of employed staff especially in personal and social skills. This would raise the barometer not only of the people who represent a wide component of the employers in our sector but also and perhaps more importantly instil a culture of ongoing training and development of their staff to ensure that productivity and competitiveness in Scotland is at the upper end of the global league table.
School education needs to be enhanced and become more relevant to business needs. This will enable our young people to make a greater impact at an earlier stage in their careers rather than waiting until the employer has remoulded them at considerable expense for their purposes. Similarly greater emphasis on business issues at school will if correctly applied re-encourage entrepreneurial qualities within our population at a younger age and emphasise the importance of customer care from cradle to grave. Within our sector we certainly see a need for this to be business led and facilitated.
On a more general basis we would advocate on-going support to be given to small firms to help them with marketing, personnel and other functions which small businesses have historically found difficult to master. Further investment and resource needs to be allocated for the training of small business staff, encouraging entrepreneurs and smaller businesses to invest in people, continuing the good work already done by LECs.
Fiscal
There should be no moves towards a differing income tax rate in Scotland from that in the rest of the UK. The administrative burden placed on business to accommodate collection of taxation at a varied rate to the remainder of the UK would be significant in relation to any benefits derived from additional monies accrued into the fiscal pot or alternatively into Scottish consumers pockets as a result of a reduction.
Differences in the tax rate would also place Scottish business at a competitive disadvantage from the rest of the UK and could result in a migration of headquarters to more advantageous environments. It would also create an uncertainty about Scotland which amongst other things might lead to difficulties in attracting inward investment.
Likewise we would not wish to see any movement in the current UBR structure nor should there be any moves towards other similar new taxes. This is twofold. Firstly no change to the present charging arrangements and secondly no differences to the rate in Scotland from that in the remainder of the UK.
Licensing
In the interests of encouraging a more 'open' and tourist friendly approach akin to our continental neighbours we would advocate various initiatives be taken with customer service and business competitiveness in mind.
Our licensing laws need to be urgently reviewed to bring us more into line with our European competitors. Licensing boards should be more responsive to extended hours applications and the boards should also be more consistent in their decisions across Scotland. Parliament should look to provide guidance to the boards particularly in relation to what is meant by a 'fit and proper person'. Unnecessary restrictions should be removed to simplify the law and we would like to see a more relaxed attitude towards non-traditional opening times. This applies to bars, restaurants, off-licenses and supermarkets. At the same time we also recognise the need to protect standards of management and public order and clearly better communication between the retail trade and the local authorities is required to progress matters to both sides benefit. The Parliament should also consider the criteria against which licences should be granted, taking into account the interests of licensees, consumers and the community.
Transport
This is a key area from two standpoints. Firstly, to ensure better distribution of our goods and raw materials both into and out of the country. Secondly, to enhance mobility into and within Scotland of visitors to our country and also those resident here.
Our road network particularly linking Scotland and England needs to be urgently improved. The Al, A74 and the central Scotland motorway arteries are the crucial focal points. Road congestion and the subsequent environmental impact of this around our main towns and cities is a real problem and with good, modern, fast and competitively priced alternative modes of transport currently not in existence it is difficult to see how this can be tackled. The most obvious way would be for the 'public transport' providers entering into collaboration with the local and national governments to properly address ways to implement an 'integrated policy'. This is no mean task.
However, if we are to cater for those visiting our country without cars and keep them here for longer, and indeed for those resident here, then we need governments, planners and businesses to work actively together. This is of paramount importance to our sector in Scotland which has a significant number of peripheral routes away from major populated centres which from a stand alone commercial transport standpoint are clearly not viable from the point of view of ongoing trading nor capital investment.
Regulation
Business has suffered immensely in the past few years from an over-provision of new legislation and regulation. Looking forward, the new Parliament when considering new legislation, including the implementation of EU directives, must avoid making dis-proportionate demands on scarce business resources. This applies over the whole field of regulation and includes for example, environment, product labelling and product standards, safety and liability. Each of these are of course of prime importance in our sector.
To this end we welcome the Report of the Consultative Steering Group on Parliamentary Procedures into legislation introduced by the new Parliament. In particular the proposals that new legislation should be accompanied by a memorandum explaining costs, benefits and financial implication and we consider that this should also include business cost compliance.
We also expect that business will be fully consulted on proposed legislation and regulation at an early stage and endorse the proposals of the Steering Group for this process. We would be looking for an early endorsement of these by Parliament.
Finally we would not expect the Parliament to introduce any legislation or regulation which places Scottish business at a disadvantage to the rest of the UK. Current areas of concern are with product labelling, food standards and environmental law.
Representation of Scottish interests
It will be a critical task for the whole structure of the Scottish Parliament to ensure that the 'Scottish Voice' continues to be heard in Westminster (and where relevant, in Brussels) in relation to those matters which have not been devolved. Two examples of areas which are currently important are:
The competitiveness of producers and retailers of alcoholic drinks in Scotland (as well as elsewhere in the UK) is damaged by increasing levels of illegal imports from continental Europe due to unfair tax competition and by a structure of drinks taxation, both in the UK and in the EU, which distorts competition. The Group accordingly hopes that the Parliament will press the UK government to initiate a full review of excise duties on alcoholic drinks, and will urge both the UK government and the European Commission to secure reform of the EU structure.
Manufacturers using agriculture commodities in Scotland (and elsewhere in the UK/EU) have been paying for many years the high prices resulting from the Common Agricultural Policy. The case for reform of the CAP has long been unanswerable but politically unpalatable. The desire to expand the EU by admitting new members from Eastern Europe has now made reform of the CAP a political imperative and we would hope that Parliament will press forward the Scottish business case at UK and European level.
The Appendix that follow gives further details about the respective opportunities, threats and priorities for the soft drinks, hospitality, whisky and other spirits, and brewing and licensed retailing parts of this sector.
APPENDIX
Soft Drinks
Background
The soft drinks industry is bereft of statistics in the public domain which define its scope in Scotland. A small number of regional companies do operate solely in Scotland but all the major players conduct business on a UK basis. The soft drinks industry is defined as a combination of:
1. Carbonated soft drinks.
2. Concentrated soft drinks.
3. Water.
4. Fruit juice.
5. Still fruit drinks, sports and energy drinks.
UK wide the total litreage of the above for 1998 was 10,600 million litres with carbonated soft drinks accounting for 50% of this total. The per capita consumption of soft drinks is markedly higher in Scotland than in the rest of the UK with Scottish consumption estimated at approximately 17.5% of UK litreage despite the country only representing 8.7% of UK population.
Direct employment in the industry in Scotland is estimated at over 2,000 but this ignores third party contracted distribution and of course those at the retail end.
Opportunities
1. To create a thriving economic environment relative to the remainder of the UK.
Threats
1. Decline of the small retail sector.
2. Difficulties and costs faced in Scotland through having to operate an extra tier of government.
Priorities
1. Create an environment where smaller retailers can remain economically viable, thereby continuing to serve the needs of local communities.
2. Keep bureaucracy to a minimum and avoid unnecessary Edinburgh/London argument.
3. Tighten the criteria under which money is given to incoming foreign investors and reallocate to prime local innovation and entrepreneurship.
4. Better and relevant education.
5. Improved roads infrastructure.
6. Encourage tourism.
7. Avoid Scotland/UK differences in relation to areas such as Food Standards Agency, Producer Responsibility for Waste Regulations and Income Tax.
8. Fiercer lobbying in Europe to achieve CAP price reform and consequential reductions in agriculture commodity prices (e.g. sugar).
Hospitality
Background
The industry (including tourism and leisure) is the most successful and dynamic sector of Scotland's economy. It thrives on innovation and entrepreneurship and is a knowledge based industry with the added dimension of incorporating people skills. It is growing and will continue to grow if given the right environment.
Opportunities
1. Development of tourism in both existing and new geographical and demographic areas.
2. Extension of tourist season.
3. Project OSSIAN - STB led internet booking initiative.
4. All operators of business to be licensed.
5. Extended tourist board classification & grading scheme to all food outlets.
6. Enhance industry image as fun, knowledge based employer, incorporating people skills.
7. Emphasise 'green' tourism business scheme.
8. Improved pre-legislative consultation on emerging directives and proposals.
9. Wholesale review of liquor licensing.
10. Review delivery mechanism for tourism both domestically and internationally.
Threats
1. Globalisation.
2. Skills complacency and low hopes and ambitions for learning enhancement.
3. Price competition in accommodation and meals.
4. Introduction of tourist 'bed' tax.
5. Objective 1 funding ceasing in Highlands.
6. Domination of small businesses on area tourist boards.
7. Airline taxes.
8. Inability to attract and develop sufficient staff at all levels to sustain industry growth.
Priorities
1. Establish a single strategic body for hospitality.
2. Establish a single consent mechanism pulling together all elements of granting planning permission, licensing granting and passing building regulations (to include compulsory registration of premises).
3. Licensing Law Review.
4. Raise standards of education and training to improve readiness of potential employees for the world of work.
5. Improvement to transport infrastructure and pricing competitiveness.
Whisky & Other Spirits
Background
Scotch Whisky is Scotland's largest net exporter and a product which is an icon of Scottish quality. It employs, within Scotland, 11,900 people and supports a further 47,600 among suppliers of raw material, goods and services. Since 1993 exports of Scotch Whisky have exceeded £2 billion each year. 90% of Scotch is exported to over 200 markets world wide.
There is substantial and increasing production of gin and vodka in Scotland. In 1998, 45% of gin and vodka was produced and/or bottled in Scotland. By the end of 2000, this figure will have increased to approximately 78% as a result of planned movement of white spirits production to Scotland. In 1997, exports of gin and vodka accounted for £212 million. Some 80% of gin and vodka is exported, to over 180 countries.
Opportunities
1. Grow markets where trade barriers and discriminatory tax regimes restrict access and provide a competitive advantage for other alcoholic drinks.
Threats
1. Tax and trade barriers.
2. Strong pound.
3. Increased costs of production through inappropriate regulation.
4. Possible increased costs of production if the Uniform Business Rate is abandoned.
5. Restrictions on marketing and distribution by the application of inappropriate health and social policies.
Priorities
1. Ensuring that legislation and regulation and applying EU directives into domestic law are appropriate and do not impose disproportionate cost on the industry (e.g. environment, product labelling and product standards, safety and liability).
2. Continuation of UBR and a level playing field with England and Wales on fiscal matters.
3. Recognition that, as regards health and social aspects, restrictive policies (e.g. restricting access through licensing laws and onerous labelling requirements) do not work.
4. Standardised product labelling throughout the UK.
5. Making representations to Westminster and Brussels regarding discriminatory excise duty regime on spirits, international trade barriers and inappropriate EU regulation and directives.
6. Transport improvements to meet the needs of industry.
7. A world class education and training system meeting the needs of industry
Brewing & Licensed Retailing
Background
The brewing and licensed retailing industry employs some 100,000 people in Scotland. The production, marketing and distribution of beer principally involves major national companies such as Scottish & Newcastle, Bass and Carlsberg Tetley together with smaller regional companies such as Belhaven, McClays and Caledonian. This is in contrast to the on-licence retail trade (pubs, hotels, restaurants etc) which is dominated by independent businessmen who control around 85% of outlets in number. However major multiple retailers such as Scottish & Newcastle, Bass, Allied Domecq and Whitbread, along with 'newcomers' such as Wetherspoon and Yates, are at the forefront of much of the substantial investment which has been made in improving Scotland's pubs over the last 10 years or so. Total sales through licensed retail outlets in Scotland amount to about £1.2 billion per annum. Beer production in Scotland generates some £250 million of duty.
Opportunities
1. Improvement in retail standards through better training and coaching of staff.
2. Reputation of Scottish beers and lagers outwith the UK.
3. Potential for direct export or overseas production under licence.
4. Increasing demand for family activity/entertainment.
5. Increasing consumer spending on leisure activities.
6. Expansion of pub retailing businesses.
7. Increasing opportunities from growth in tourism.
Threats
1. Increasing illegal imports from Europe due to unfair tax structure.
2. Industry consolidation and concentration of production into fewer centres.
3. Cost pressures arising from National Minimum Wage and Working Time Directive.
4. Increased regulation relating to health, safety and hygiene.
5. Some outlets at risk from possible reduction in drink driving limit.
6. Weakening of the property tie which is currently being reviewed by EU.
7. Proliferation of licences in a currently declining market.
Priorities
1. Encourage lifelong learning with emphasis on development of personal and social skills and the importance of customer care.
2. Focus on investment and development of small businesses to improve general business skills in particular marketing and personnel functions.
3. Create pride and passion within the Scottish licensed retailing sector which will drive the growing reputation of Scottish hospitality.
4. Maintain income tax parity with the rest of the UK.
5. Ensure UBR is maintained.
6. Review licensing laws and licensing control to bring consistency throughout Scotland.
7. Avoid any action which is disadvantageous to Scottish Business in comparison with businesses based elsewhere in the UK.
8. Transport improvement, in particular roads and rail.