Crisps maker Tyrrells Potato Chips is to invest a £5m prize in advertising and a factory that will make vodka from potatoes and apples.

The company scooped the investment, in the form of an interest-free loan, when it won the Midlands heat of the Bank of Scotland Corporate £25m Entrepreneur Challenge.

Founder and MD William Chase said half the cash would be spent on fast-tracking the construction of a new vodka distillery with the capacity to product 100,000 750ml bottles a year.

The company intends to launch vodka made from potatoes in premium food halls in time for Christmas, with a national launch and wider distribution to follow next summer.

The company is also working on an apple vodka, made by turning apples into cider, which is then distilled into a spirit.

Chase said the brand values of the vodka would match those for the company's crisps by playing on the provenance of the product. The distillery is situated on the same Herefordshire farm from where Tyrrells currently operates.

The remainder of the prize money will be spent on advertising to build awareness of the brand. Ads will feature the company's crisps and its vodka, although there are no plans for them to appear together.

Tyrrells now goes on to fight it out with other regional winners in the Bank of Scotland Challenge. They will be competing to have Arcadia boss Sir Philip Green in their boardroom for four days.

Meanwhile, Chase has ruled out any immediate likelihood of Tyrrells crisps being sold again in Tesco.

Last month The Grocer reported the company had agreed to sell its products through Sainsbury's, suggesting it had softened its stance towards big supermarket chains. In 2006 Tyrrells ordered Tesco to stop selling its products after the retailer sourced them from a third party.

Chase said Sainsbury's had only been permitted to list its products because it agreed to buy them at Tyrrells' list price and sell them at its recommended retail price to guarantee a decent return for farmers.

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