The Scotch whisky industry and its sales have seen many ups and downs over its history. The last two decades have certainly been on the “up”. However, there are some signs around that the tide might be turning, and perhaps there’s a “down” looming on the horizon. Let’s take a look at some of these signs and whether the industry should be worried….
In many forms of pop culture and entertainment at the moment, there’s a fine yet increasingly blurry line between nostalgia and recycling. Witness the recent Top Gun sequel: Many have argued (correctly) that it borrows far too heavily from the original. Was this lazy, uninspired thinking by the producers – or a calculated ploy to cash in on the public’s fondness and nostalgia for the original? (One suspects a combination of both!) The same could be said for so many other big screen and little screen productions – it’s a seemingly endless line of sequels or spin-offs. I assume it’s only a matter of time until the Fast & Furious is somehow worked into the MCU? And when reality TV shows have to rely on getting previous contestants and winners to come back for a “fresh” season, you KNOW there’s a serious dearth of new ideas.
Whisky, it seems, is not much different. The names of certain branded expressions or releases that were retired many years ago are back in service again. (For example, Macallan’s “Gran Reserva” and Exceptional Special Cask labels, or Diageo’s “Singleton” appellation, etc). Other buzzwords are being re-applied to countless expressions and releases that are actually just the same product that’s always been on the shelves, merely dressed up in new clothing. (You can play whisky word bingo with the following: “Reserve”, “Harvest”, “Choice”, “Vintage”, “Barley”, “Vault”, “Sherry”, “Warehouse”, “Loch”, “Rare”, “Wood”, and “Cask”). Oh, for the days when brands just had a 12yo, a 15yo, and an 18yo!!!
But how effective is all this recycled – even “upcycled” – marketing? Can the industry really afford to be re-dressing old ideas?
There’s a not-so-secret dirty secret in the Scotch whisky industry at the moment, namely that sales of Scotch whisky (by volume) are in decline#. They’ve been on the slide some time now. However, this reality is being masked or buoyed by the fact that, in some markets, sales by value are steady or increasing. In other words, brands are selling less bottles, but the revenue they’re earning from their reduced sales is either steady or growing. The rise of uber-premium releases with gargantuan price tags goes some way to explaining this: Selling just 250 bottles of a rare 50yo for $30,000 a pop will cover the fact you sold 100,000 less bottles of your $75 NAS expression.
#The trend of falling sales was consistent up until 2020. Latest figures from the Scotch Whisky Association released for the first quarter of 2022 show a turnaround occurred in many markets in 2021 over their 2020 figures, although it’s not yet clear to what extent COVID played a role in this, and whether a return to upward sales will be sustained.
One questions if the sales and marketing teams behind the various Scotch brands are pulling the right levers to address the worrying trends? Some of the levers being pulled – to this observer, at least – seem to be either missing the mark or exacerbating the problem. For example, some brands seem to think that having a wider core-range is the answer. Does having four different NAS expressions of Glen X on the shelf at your local liquor store draw you to the brand, or will you opt for the less confronting, less confusing Glen Y, which is sitting next to Glen X on the shelf, and is being represented by just two expressions – say, a NAS, and a 12yo? Or, as Whisky & Wisdom has explored previously, is the current diversity of whisky bringing overall quality down? As numerous sales and psychological studies have shown, the presentation of too much exotic choice for a consumer often results in them purchasing something safe and simple instead.
Is the sudden gush of so many generic NAS releases from within the same stables an outcome of having excess 7-10 year old spirit because predictions made in the 2010’s didn’t quite work out? We’ll explore this in just a moment….
Scotch whisky is, by inherent but unfortunate design, tied to the past. The sales and marketing teams have to work with production decisions that were made ten to twenty years prior. You can’t market a 10yo sherried release today if the distillery owner 10 years ago was filling spirit exclusively into ex-bourbon casks. Similarly, a single malt brand can’t sell an 18yo expression today if it was strapped for cash 18-20 years ago and sold all its new fillings to blenders at that time.
The Scotch whisky industry cannot afford to be complacent, or to arrogantly assume its position, traditions, and branding will insulate it from consumers changing their buying and spending habits. Australia is a textbook case study: Until recently, Scotch had little to fear from Australian whisky…the local industry’s low volumes and high price points meant it wasn’t even a contest. However, with an increasingly large number of local, bigger distilleries coming onstream and now releasing quality whisky at competitive prices, the Scotch brands should justifiably be wary of the new kids on the block. To be clear, no one is suggesting that Ned or Starward’s Two-Fold is going to put a dent in Johnnie Walker. However, for the consumer who’s comfortable spending, say, $120 on a bottle of single malt every month, there’s a good reason why many Aussies are choosing to spend it on a local, richly-flavoured product, rather than on an uninspiring, insipid, NAS single malt Scotch that struggles to differentiate itself from its many competing stablemates.
The same can be said in other countries, and also with other competing spirits: The massive resurgence in Irish whiskey cannot be ignored, nor can the second wave of larger scale USA malt whisky distilleries that are rising off the back of that country’s craft movement. The chronic undersupply and resulting high prices that have blighted Japanese whisky will also correct itself in time, thus returning Japanese whisky as a viable, affordable alternative for Scotch drinkers. Consider the excellent whiskies now coming out of India and Taiwan. Witness also the increasing number of rum stands that now feature at whisky shows and festivals. And all of that is before we even think about the skyrocketing sales of gin, tequila, and Cognac being experienced in many markets (growth of between 15-30% reported for these three categories in 2021). Will the Scotch industry be guilty of standing still while the rest of the spirits world overtakes it?
Ten years ago, the Scotch whisky industry had its sights set firmly on the so-called BRIC markets (Brazil, Russia, India, and China) and the assumption that previous barriers to expansion in these areas would be removed. Both Diageo and Pernod Ricard – collectively accounting for nearly half of Scotland’s distilleries, and certainly the biggest selling blends – embarked on huge and costly expansion programs at their distilleries to increase production (i.e. more efficient mashtuns, extra washbacks, extra stills, etc); and many distilleries increased working and production hours to produce more spirit. A decade later, they’re still trying to crack those markets, but the playing field and strategy has changed tack. The UK government’s ongoing attempts to reduce India’s 150% import tariff was reset again at the start of this year, while – rather than trying to export Scotch to China – Diageo have decided to make the stuff locally there instead: In November 2021, they announced plans for a huge US$75M malt whisky distillery in China’s Yunnan province. What does this mean for all the extra spirit distilled in Scotland from 2014-2019 that may not have the market(s) it was originally intended for?
In fairness to the Scotch whisky industry, the last two years have made things difficult to read. The global pandemic and two years of almost zero international travel and tourism have impacted niche corners of the category: Travel retail at airports took a MASSIVE hit, and whatever revenue the industry was bringing in from whisky tourism (distillery visitor centres, tours, cellardoor sales, etc) was also near non-existent. These dented sectors will clearly recover, but how quickly and to what extent? Whilst it’s generally true that many consumers stayed home and rode out COVID lockdowns by buying alcohol online – almost every alcohol category experiencing spikes in sales, from wine to sake – consumer preferences shifted. And all of this took place against the backdrop of Scotch whisky being affected by the far-reaching impacts of Brexit, supply chain issues, and blips like the USA’s 25% import tariff.
As was alluded to above, one of Scotch whisky’s biggest challenges is that it can be slow to pivot when the playing field changes. Slowing or reducing production volumes now might reduce costs and improve the P&L ledger at the present, but there’ll be a reckoning in 5-10 years’ time when the industry could be in a different space again.
The irony is that the industry has been here before. The so-called whisky loch that spoiled consumers in the 1990’s and early 2000’s came about because of the overproduction in the late 70’s and early 80’s before the industry crashed during the period 1983-1986. And if we look back over 200 years, there is a continual cycle of boom-to-bust and back to boom times again repeatedly impacting the industry.
There were claims being made 10 years ago that the industry had become better at its long-range forecasting, smoothing out the blips, and riding out the whisky scene’s volatility. The next few years might reveal if those claims had any merit….
Cheers,
AD
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Hi Andrew,
I think for myself at least (and maybe anyone who has had a significant investment in whisk(e)y the last 10 years) I have a large backlog of Scotch single malts sitting there. I’m more particular and certainly aim for locally produced spirits that catch my eye. Of course some old favourite distilleries still get a buy but mostly it is Joadja, Starward, Archie Rose and other local single malts catching my eye.
You write about the “blips like the USA’s 25% import tariff.” For me, that isn’t a blip but on ongoing price gouge. For instance, Laphroaig locally was US$40 for 750ML. The Trump tariffs (which he told me I wouldn’t pay for) saw the cost jump to US$52-56. Although the tariffs were rescinded, the price is still in the fifties. Someone is pocketing the difference. I refuse to play that game so have found someUS whiskies that I have come to enjoy. If scotch producers are concerned, they should “follow the money.”
I’d like to congratulate yourself for raising a thorny issue I’ve been aware of for sometime.
When discussing it previously I’ve been met with incredulity, ridicule at at times hostility.
The whiskey world is changing.
I don’t believe Scotch will have the pole & singular position it has enjoyed for the last 100 years.
Many other countries are producing exciting whiskey that can compete on taste, favour & price too.
This can only be of benefit to consumers.
The tide has turned on Scotch – having a working knowledge & appreciation of other countries whiskeys output for me is an essential ingredient of being a whiskey lover.
The premium sector shows no signs of slowing down just yet, as you note. Prices at the top end keep stretching away. A recent example here in the UK was Glenfarclas who, arbitrarily, increased the price of the 25yo from £125 to £215. When I challenged them on this at a whisky fair, they made no defence based on increasing costs of production or Brexit; they merely said they were ‘matching the market’ and claimed that people were overlooking it because it was so comparatively cheap, thinking that it must therefore be inferior! I’m not sure I believe the last part but it certainly appears to be opportunistic. Balblair also gave me the same line. They used to sell vintages at very reasonable prices, e.g. 1991 Rel. 3 (27yo) cost me £125 a couple of years ago, whereas they have now moved to age statements with a 25yo coming in at £500!
It will be interesting to see if the wider fall off in sales has an impact on the premium market eventually. It would seem logical but the two are not necessarily linked. We have to remember that the vast majority of exports (up to 90%) is blends so therefore mainly constituted of grain whisky. The pressures on supplies of single malt have been intense and older age statements have become rarer and prices rarified. The marketing focus on premium whiskies also suggests producers have found ways to squeeze more profit even from traditionally saturated markets and we see the boom of the secondary market as evidence that people even regard whisky as an investment vehicle. Whether this can be sustained in the long run too will also be interesting. Thanks for the article.
I definitely need some updates on the local, richly-flavoured Aussie whiskies!