The Scotch whisky industry is currently in the middle of an era. Quite what that era will be defined or described as won’t become clear for another decade or so. For it is usually with the experience and benefit of hindsight that we can apply such labels. For example, the period that followed the industry’s catastrophic downturn and distillery closures of the mid 1980’s came to be synonymous with and defined 10 to 15 years later as the era of the so-called “whisky loch”, due to the huge amount of excess, aged stock sitting around unloved. Similarly, the application of the term “whisky boom” to any era (e.g. the late 1800’s was a boom time for whisky sales and distillery construction) usually has relative context because it was followed by a corresponding “bust” a few years later. (Such as the Pattison-triggered crash in 1898 that followed the boom).
So, in the Scotch whisky industry, how will the 2010’s and early 2020’s be looked upon and labelled in years to come? It is clearly a time of tremendous enthusiasm and growth: No less than 31 new distilleries were founded and commenced operations in Scotland between 2010 and 2020. Compare this to the state of play in 1999 when roughly 95 distilleries were operating. The last decade has thus seen 30% growth in the number of whisky distilleries! You can read more about this in Whisky & Wisdom’s previous feature piece, The Scotch whisky distillery building boom.
Of course, the big change and growth here is not just the number of operating distilleries, but also their relative scale. At one end of the spectrum, many of the older and long-established distilleries have undergone massive expansion programs, increasing their numbers of mashtuns, washbacks, and stills to greatly increase their output. There are now five distilleries each capable of producing over 12 million litres of alcohol per annum – the two largest of which can each now produce up to 21 million litres. (That’s Glenlivet & Glenfiddich. For comparison, back in 2011, the largest malt distillery in Scotland “only” had a capacity of 10.5 million.) At the other end of the spectrum – and where the majority of the newer 31 distilleries sit – there is now a new wave of smaller distilleries with production capacities varying between 20,000 and 400,000 litres. Again, purely for context: Consider that Edradour, the distillery that used to market itself for so many years as the “smallest distillery in Scotland” used to have an annual capacity of 90,000 litres. Today, there are no less than 17 distilleries with smaller production capacities than Edradour! (Although, for full context, Edradour has now increased its output to 260,000 litres. But that’s still 17 distilleries making between 20,000 and 259,000 litres!)
Hopefully, the message wasn’t lost in the telling of those numbers. There is now, evidently, a market for the smaller, dare we say “craft” distilleries in Scotland, and there are plenty of independent operators, partnerships, and consortiums prepared to back new distillery ventures of a size that would once have been considered non-viable. The newer distilleries are capitalising on more modern and energy-efficient production methods, different routes to market, and also innovating with brand partnerships and visitor centre offerings that form part of the business model. Incorporating other spirits into the distillery’s production and sales (e.g. gin) has also allowed a new model to flourish. It is a far cry from the consolidation of the 1980’s and 1990’s when a mere handful of entities owned and controlled the majority of distilleries, and were rooted in very traditional thinking. Meanwhile, the international growth of the big brand blends (Johnnie Walker, Ballantines, Chivas Regals, etc), plus demand for the high-profile single malt brands, is fuelling unprecedented production levels across the board. Witness also the growth in the number of independent bottlers now on the market. It seems everyone is either cashing in or jumping onboard…which, in itself, is a metaphorical canary in the coal mine.
Where will all this lead to? Historically, previous experience tells us that a “bust” is on the way…it’s been the circle (or cycle?) of life for Scotch for 200 years. However, we’ve been saying a bust is on the way for over 10 years now, and yet there are seemingly no signs of slowing. Global interest in the product continues to increase; new international markets continue to open up; and a general affluence across consumerville means plenty of people are splashing out and expanding their whisky horizons. Note also that this is not limited to Scotch whisky – similar growth and expansion is evident in the Irish whiskey industry, the Australian whisky industry, and in North-American whiskies. Japan would arguably have been leading the charge, had their industry not been caught napping ten years earlier. Indian and Taiwanese malt whiskies are also on the rise, as are other new-world whiskies.
Notwithstanding the evident optimism of the preceding paragraph and the current whisky boom, there are some warning signs out there. Rather than repeat all those warning signs here, you might like to read our previous feature piece that explored this theme, Is the tide turning on the Scotch Whisky industry? (An article which, by the way, generated a lot of commentary within the industry at the time and was widely circulated!)
The problem for anyone staring into the crystal ball at the moment and trying to predict the future is that there are a few red herrings and smokescreens around: Sales of Scotch whisky by volume were in steady decline until 2021, although they were rising by value. In other words, the planet was purchasing less bottles of Scotch whisky, but buying more expensive bottles. Hence, the healthy P&L statements of some companies may be papering over a deeper-rooted problem. The biggest smokescreen of all – COVID-19 – drove sales up in almost all drinks categories, as consumers in lockdown increased their alcohol spend whilst shopping online. It remains to be seen how and where consumer spending habits will change as the impact of COVID-19 retreats… yet simultaneously set amongst the backdrop of rapidly rising inflation and the higher costs of living.
Not surprisingly, the rising costs of doing business have hit those making the whisky. The wholesale (and thus retail) prices of some whisky brands have increased significantly as distilleries deal with rising energy costs (i.e. gas) due to the war in Ukraine. One distillery recently shared with W&W that their gas bill had gone up £380,000 per month! One brand recently shared that even the cost of their packaging (i.e. cardboard boxes) had gone up exponentially due to the massive shortage of cardboard in Europe at the moment – supposedly due to the near-monopolisation of cardboard by Amazon for their shipping requirements! (Which was yet another flow-on effect of COVID-19 with people shopping online whilst stuck at home… and now continuing to do so, despite the removal of lockdowns). In a similar vein, one distillery reported the cost of buying in their malted barley had risen by 35% in the last six months, and the cost of acquiring sherry casks had gone up 68% in the last year. It should surprise no one that these rising costs are eventually borne by the consumer at their local liquor outlet. The retail price for a bottle of whisky can only get so high before businesses are met with price resistance from the consumer. How the industry chooses to deal with this is now the play to watch.
If you listen to all the brand ambassadors, we’re in good times, and some will assert we’re still in the middle of a whisky boom. How long will the good times last? Well, your crystal ball is as good as mine, and it seems neither the optimists nor the pessimists can point to anything too concrete. But even if you take the glass-half-empty position… a half-poured Glencairn is still a generous dram!
Cheers,
AD
PS: If you enjoyed this read, you might like several of our other articles and feature pieces on Scotch whisky. You’ll find a selection of our most popular and widely-read articles here.
I’ve been saying the same things, although I think my guess of when the bust will be is a bit premature. But there are a lot more people than the distilleries will get burnt this time. Think of all those barrels sold as ‘investment opportunities’ or all those people (of whom I’m one) who have a hoard of whisky hoping it will help them through a rainy day. When the burst comes, it may all drop in value overnight, especially of everybody goes to sell at the same time.