Who will buy all this Scotch Whisky?
There’s more than there has ever been. So, who’s it all for?
On every journey South from Glasgow I pass a warehousing complex called Coalburn. It is situated just off the M74 near the village of the same name.
It is rumoured to be housing over 1.5 million casks for Bacardi – owners of John Dewar & Sons. This is in addition to Dewar’s London Road site which can house at least 1 million more casks. Overall bulk stock figures are hard to gauge but at a guess Dewar’s over the past 10-15 years have increased their stockholding by at least a factor of two.
They are just one example of what has been an unprecedented period of building and filling warehouses. Again figures are hard to ascertain but it is believed that Scotch whisky bulk stock-in-bond will exceed five billion litres of pure alcohol (if not already) in 2024. That’s a 25% increase in just seven years. So what is driving this surge in maturing stock? Growth right?
Well the numbers, certainly in the case of John Dewar & Sons, would suggest otherwise. For instance, sales of Dewar’s two main brands (and over 90% of all whisky that they bottle) have actually dropped in the last 10-12 years. In the case of William Lawson’s, their no 2 brand, quite considerably.
So for Dewar’s, sales are down but stock holdings are massively up. That seems odd. Sure their malt sales (Craigellachie, Aberfeldy, Aultmore, Brackla and Glen Deveron) are all up massively over the same period but then when you start with nothing, that’s not hard. And it is worth noting that all of their malt sales combined make up less than 1% of Dewar’s total sales and around 0.5% of all Scotch malt whisky sales – hardly noteworthy.
Let’s look at another example; Macallan. The third best-selling single malt Scotch whisky, it and the two brands placed above in terms of sales - Glenlivet and Glenfiddich - are miles ahead of the rest. In fact the top six single malts (Glenlivet, Glenfiddich, Macallan, Glenmorangie, Singleton and Monkey Shoulder – and yes I know Singleton is three single malts and Monkey Shoulder is a blended malt) sell as much as the next 42 malt brands combined. But, if you look at Macallan’s sales they are relatively stagnant.
Sure, profit has grown exponentially (fuelling the stock hoarding across the board) but six years ago sales were 970,000 cases a year and are now around 900,000. Production capacity however has increased from around 11 million litres to over 18 million in the same period.
When you consider the uber-exclusive positioning of Macallan, what and where are the markets that will be eating into this considerable growth in maturing stock? And when you tie in the Dewar’s example what and where are the markets that will erode this enormous whisky loch?
The US for both? I doubt it. Still the most profitable market by a long way but sales by volume have been stagnant for years. In terms of volume, France is still the biggest market, although sales are also stagnant having peaked in 2011. India is the third largest export market but around 50% of their import is bulk blend (i.e. cheap and low profit). If we look at just malt whisky exports; the US is a flat line (around 6.5 million litres a year); France has grown slightly to around 5.5 million litres; China has witnessed the largest growth from 365,000 litres in 2015 to nearly 3 million litres last year; Germany and Taiwan, numbering fourth and fifth respectively in terms of malt whisky imports, are steady at around 2.8 million litres each. Singapore has dropped from over 3 million litres to around 1.6 million whereas Latvia has almost matched Singapore’s drop in their own growth.
Most of the other markets have maintained sales; some markets like Poland, India and Nigeria have grown exponentially but from a very small base. Other markets like Estonia, Spain & UAE have dropped. Estonia and Latvia one can take an educated guess at (and no doubt Latvia’s sales will be much smaller since the invasion of the Ukraine by its neighbour) but the incredible growth in countries like Poland, Romania and Bulgaria may have surprised some of the marketing departments.
Those countries that have begun, say in the last 20 years or so, to produce their own whisky; either ‘again’ as is the case in New Zealand, or in greater quantities say in Australia. These moves have propelled the sales of single malt Scotch in those markets. Perhaps this is part of the reasoning behind the sudden rush to build mammoth distilleries in China - although I am going to suggest the import tariffs, difficulties with importation and distribution plus the appeal of considerable ad-mixing are the real reasons.
If we look at worldwide consumption it is quite clear the Scotch whisky gains have been in the malt whisky sector. Between 2008 and 2021 bottled blend sales dropped from 263 million litres to 256 million. Bottled single malt however jumped from 23 million litres to 44 million (bulk has jumped from 44.7 million litres to 106 million litres) and overall consumption has gone up from 331 million litres to 411 million. Production has adapted to meet this changing landscape and, taking WW2 out of the equation, we are living in a period where malt whisky production is matching grain whisky production for the first time since grain whisky was introduced.
So are we really in a Whisky Loch or does the growth in particular markets such as China and India really have the potential to steadily bleed these warehouses? I have to rely on hearsay and trending to answer this - no marketing/sales department of any multinational would ever open their books and even if they did it still takes time for trends and figures to come through. Instead let’s take a look at what has been discussed and certainly felt within the marketplace.
There can be no escape that certain markets have already returned less than promising results and Diageo’s share price has tanked. From a high of 3,457p in July to a low of 2,740p in December. Chivas in the same period went from 204 to 155. Beam Suntory, well we’ll have to wait for the results on that one but reports are that Latin America, and in particular Brazil have performed badly. Zero or negative growth in North America. Mediocre growth in Africa and difficult trading in Asia. China appears to have tightened up import channels and India appears no closer to changing that all important import tariff on Scotch whisky (150% - compare that to China’s 5% tariff).
The bottled blended market therefore is not going to help clear the warehouses and if the intention, and this is quite evidently the case with some of the scramble for new sites, is to propel the bulk export then frankly the industry will reap what they sow.
History has taught us that this business model is not helpful for Scotch whisky in the long term – rather emerging markets (such as China and India) will look to supplement their own production and thereby undercut and bypass imported Scotch. This has been the case in Japan, South America, Europe and so on. In some cases it took decades to undo the damage of cheap, poor quality local distillate ad-mixed with Scotch and sold as ‘whisky’ (and in some cases ‘Scotch Whisky’ – best of luck to the SWA…).
In Europe the last year has seen the slowest trading for just about as long as anyone can remember. It is by far the most advanced, or mature if you prefer, market, especially the central channel from Italy through Scandinavia. The feedback is fairly consistent on what the issues are: surplus stock and price.
If we concentrate on the niche malt whisky market (as this is where the real profit is), the average drinker feels that they are being squeezed out of purchases. A drink that was something in easy reach perhaps even week to week is now at a price level that hasn’t made the drinker move month to month but ignore it entirely. Drinking and drinkers are faddy – often not prone to brand loyalty but swayed by price, promotion and availability.
The price has gone up, the promotion has become disingenuous and the availability has been exploited. So many releases, be they new distilleries, new age statements or a wood finish etc, have prices that the general whisky-drinking public know have been plucked from thin air.
“How can a company offer a three year old whisky for a higher price than their other distillery’s 10 year old?”
“How can a four year rye whisky be over £100?”
“Why are all of these non-age statement whiskies priced more than double what this excellent 10 year old whisky is?”
“How can a distillery justify a 50% price increase just because the whisky is from a different wood type?”
“Why are there 12 different expressions from this one distillery?”
And so on.
The European drinker, and I don’t believe they are unique, is not brand loyal and is certainly price elastic. Drinkers have noticed that an 18 year old they bought for sub 100€ a few years ago is now double. They also notice when the so-called ‘limited edition’ is limited to so many bottles that there is always surplus. And that ‘Limited’ means expensive.
The apathy has, in my opinion, finally burst the bubble. There is now too much choice and not enough that is interesting at the ‘week to week’ price. New distilleries are killing their own markets with non-stop releases – some of which are simply not good enough. There are too many new distilleries for the average whisky drinker to really care about. The story is no longer unique, the quality not up to snuff and frankly the prices prohibit any prolonged interest.
This is mass generalisation but we are talking market trends not individual cases.
So let’s invent an example:- You build a distillery, the whisky hits three years old and naturally there is enough interest that all of the first release(s) sell out. They are £60/65€ each. The home market gets much of the first release (which does well on the secondary market) so the second release which is now better represented worldwide gets quite a bit of attention from export markets. Then what? A Sherry cask version, a Chinkapin version, a STR, a Port, a Peated cask finish? The customer is already bored.
At £60/65€ for each release (and sometimes a lot more) they can head back to tried and trusted 10 year old whiskies for half the price. The story will not carry the product. The price is prohibiting further purchases and before you’ve released your Sherry cask version there is another new three year old release from a different distillery.
You can blanket the market of course but this is extremely expensive and can’t be maintained or the product will have to go up in cost. You can rely on excellent importers but then get fed up that there is little or no growth as they battle with every other importer (some working directly to the consumer) who also have new distilleries on their books. This may sound a bit glum and pessimistic but bear in mind that there are something like 40 new distilleries set to release new products from just Scotland and Ireland in the next 12-24 months. Almost one every other week.
Most I have talked to in the industry believe that we will see the first of the major problems for some of these new distilleries arising in 2024. Consumers are swamped with special releases. Importers have stock sitting in warehouses and retailers have run out of shelf space and desire to continually work hard in order to sell these overpriced and too frequent expressions. More importantly, and more affecting, is that consumers can sit back and watch all of these releases drop in value on the secondary market. They don’t even have to go to the auction websites anymore as there are companies releasing periodical stats on how the secondary market is doing.
As was posted on Dramface recently the next whisky loch might not (just) be casks but could be in the form of a ‘Glass Loch’. We have just witnessed what I believe to be the worst and most cynical dumping of stock by a UK online retailer which I am sure will have some serious ramifications going forward.
It reminds me that I was once labelled a dinosaur for still believing in bricks and mortar retailing and therefore the tried and tested channels of producer, importer/distributor/wholesaler and retailer. I have always railed against direct to consumer business models and I believe these are now becoming a problem for the producers.
Look at Ardbeg whose latest releases have more or less gone straight to auction only to then lose money. Their business model has never embraced independent whisky specialists (and don’t get me started on the whole ‘Ardbeg Ambassador’ stupidity). Rightfully, certain IBs have found that relying on direct to consumers sales can be troublesome when the consumer cannot be convinced by reputation alone on pricy whisky. Again, how do you get to market other than blanket advertising or just being as cheap as possible (and that won’t work if the UK market is not swallowing all of the releases).
If there is this surplus of stock, and everything is pointing towards that, then who is going to shift it? If the producers want the large multiples (e.g. supermarkets) to clear their lines they are in a for a massive pricing shake-up. If they want the independent stores to take the stock then their attitude to wholesale, bottlings and most importantly, pricing has to change. Consumers are becoming disillusioned with release after release being priced on some arbitrary notion of grandeur. New distilleries that are pricing their releases over the £50/55€ mark have only themselves to blame. One newish distiller bemoaned consumers not wishing to part with £100 for their new releases – it is not the consumers fault that the distiller did not properly crunch the production numbers before embarking. This is no longer ‘The Field of Dreams’ and I believe we are no longer in a period of customer FOMO or demand exceeding supply.
It will take some time before we really see the sales numbers from this year - everything takes time in this industry - but it is clear that all is not rosy and there will have to be changes made.
As a consumer I want to see a return to more sensible pricing; a slowing down of releases; a return to in-house blending instead of constant stand-alone finishes and a removal of the nonsense and pithy marketing (please call your whisky after your distillery – you don’t need to invent names and backstories) highlighting that the product is Scotch Whisky.
It is definitely time to rein-in the, at times, ridiculous packaging. Bottle most of your whisky at 46% not in the high 50s or low 60s (the occasional one is ok) and get back to a price that every wholesaler, importer, distributor, ambassador, bar and retailer can hand-on-heart state ‘that is great value for money’.
Only that way can we ensure the next generation of Scotch whisky drinker.
FF
1: all of the figures in this article are estimates as definitive numbers are no longer requested or published by the SWA.
2: all bulk including blended malt, malt and grain.
3: this is on bottled whisky being imported – hence why bulk imports are so high. This was the case in Japan before an over-stocking in the 1990s. Bulk exports are trending up again.
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