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  • Jonny Fowle

Precarious Economics and the Cyclical Nature of Whisky Sales

2017 has proved to be a great year for Scotch whisky with auction records being smashed, exports on the rise and casks being valued higher than ever before. Along with this success has come an influx in new distillery proposals. In the space of a week it was announced that 3 (of Scotch’s most revered) closed distilleries were to be put back into production. Diageo released the news that they were to recommence operations at both Port Ellen and Brora just 2 days before Ian Macleod’s announcement that they had procured Rosebank distillery, which is also set for regeneration. Undoubtedly this is a promising step forward for the whisky industry, or is it?


Scotch Whisky has had a turbulent history seeing a number of distilleries mothballed, closed and reopened over the years. According to the Appendices of MacLean’s Miscellany of Whisky, 33 distilleries closed between 1920 and 1930, 16 opened between 1960 and 1980, 1980 - 2000 saw 22 distillery closures, and from 2000 - 2015 18 new distilleries opened while a further 17 were proposed. Even some of the most popular distilleries of today have seen multiple closures and openings; Ardbeg, for example, was closed for almost the entirety of the 1980s until its revival in ’89 and out of the 260 distilleries that took out licenses after the Excise Act in 1823, only 20 remain. Whilst based on various factors such as political and economic fluctuations, the main reason for these closures is actually fairly straightforward: supply and demand.


Due to a boom in whisky sales over the last few years, it is natural that people are looking to invest in the industry. Whisky’s current success can be attributed to a number of things, for instance the growing popularity in 1920s style speakeasy bars and the glamourising of the drink in “box set” shows such as Madmen and Boardwalk Empire. However, far more important than this are two factors - We are emerging from a recession and whisky’s exports are targeting new markets abroad.


On a visit to Scotland in 2016, Andrea Leadsom made a statement saying:


“International trade is at the heart of our economy, and our food and drink industry has a crucial part to play. That is why we have launched our ambitious plan to boost our exports by £3billion over the next 5 years”.


Now, whether or not Brexit will change things is yet to be seen, but in the mean time the rest

appears to be ringing true. Scotch whisky is the biggest single contributor to the UK’s food and drink exports, making up about a quarter of the total revenue, and its contributions are only increasing. In the two years preceding this statement, India’s Scotch whisky sales increased by 41%, undeterred by the 150% import tariff, and other developing Asian countries are following suit. In an article on CNBC.com, Upton Saiidi discusses how big companies like Diageo are responding to “demand from China’s increasingly urbanised population and its rising middle class”.


Add to this the current obsession with throwback culture and there certainly appears to be a case for investing in whisky, and particularly in closed distilleries. An independent bottling company by the name “Lost Distilleries” saw this opportunity arising and currently bottles a selection of whiskies aiming to recreate the flavour profiles of distilleries that have sadly ceased operation. Another independent bottler name “Dead Whisky Society” exclusively released whisky from closed distilleries, although this company is also now dormant. Soon, however, these whiskies will no longer be a thing of the past; amongst others, Annandale reopened in 2014 and is fast approaching its 3rd year of maturation (the minimum age requirement for a Scotch whisky) and this year Ardgowan received planning permission from Inverclyde council.


It is not just distilleries with a history that are opening, there are also a number of new investments in the pipeline, with the Isles of Raasay and Harris seeing their first distilleries emerging, and Skye and Arran their second. At the beginning of the year, Scotchwhisky.com published an article stating that “as we move into 2017, investment in Scotch whisky is only expected to continue, with 20 new distilleries projected to open within the next 24-36 months”. Indeed, in terms of my own personal findings, I have spoken to three different people in the last year alone who have told me of their plans to open a Scotch whisky distillery.


Herein lies the problem. Firstly, we are facing the danger of overproduction where supply will outweigh demand. Secondly, there is the issue of age. Whisky, by law, must be aged for a minimum of three years, but single malts and premium blends are generally aged for far longer. There is currently a lack of aged whisky, and although sales and marketing focus is rapidly diverting consumers towards “non-age statement” whiskies (particularly within travel retail) it is the more mature barrels that hold the highest values and the highest demand.


Whisky’s popularity owes a lot to its history (which closed distilleries hold in abundance) but also in its ability to age well. Will increasing supplies of young whisky while diminishing supplies of aged whisky begin to undermine whisky’s provenance and quality and therefore lead to a drop in popularity and an overall devaluation?


Whisky’s (popularity in terms of sales) is also largely determined by the political and economic events of the time, and it seems we could be sleepwalking into familiar territory. The 1890s was, until now, Scotch’s biggest boom period, and in 1909 Prime Minister Lloyd George began to capitalise on this by raising the duty on alcohol substantially in his “People’s Budget”. This lead to an instant decline both in whisky sales and production and saw distilleries rapidly closing. Similar events had occurred previously in 1707 when the Malt Tax was introduced during the Act of Union between Scotland and England, leading to the Malt Riots of 1725. In the 1930s and 1980s, political instability lead to global recession and

uncompetitive export rates that caused a decrease in whisky sales abroad and subsequent distillery closures (it was the 80s and 90s that saw Port Ellen and Rosebank close respectively).


The lack of sales in the 1980s lead to what some refer to as the “whisky loch”, where a reduction in orders of malt for blending meant there was a surplus of malt whisky in Scottish warehouses. Distilleries such as Glenlivet managed to pioneer the releases of their own single malt whiskies, which had rarely been seen previously, in order to keep sales ticking over. Some barrels were sold, but many were left to mature. These are the aged barrels that we are now running out of.


We are currently in a period of relative political and economic volatility, with Scotland threatening independence from the UK, the UK actively pursuing independence from Europe, and the strength of the pound changing more quickly than the weather. While a weak pound is a boost to exports, it is domestic tax that is currently proving problematic for the whisky industry. In the same week that Port Ellen, Brora and Rosebank announced their plans to begin production, it was reported that there had been a drop in UK whisky sales by 1 million bottles over 6 months. Similarly to the repercussions of tax hikes in 1984, 1943, 1909, this year’s March budget saw an increase in tax on spirits which lead to this dramatic drop in domestic sales of Scotch whisky. Phillip Hammond’s 4% increase saw UK duty hit a record 79%, a figure that priced out whisky drinkers.


This tax increase has since been revoked, which spells good news for the industry. However, it also highlights how precarious sales can be while at the mercy of the current economic climate, especially with production set to dramatically increase. Whilst global exports are still on the rise, we need to protect our biggest markets, which are at home in the UK and in France. According to SWA, the French drink more whisky in a month than cognac in a year, a staggering statistic, and one that is subject to change post-Brexit negotiations.


Whilst the announcements of these new distilleries is music to the ears of die hard whisky fans who are currently spending in excess of £2000 per bottle of Port Ellen, it is the casual consumer who will determine whether or not these new distilleries will prove a success. I for one am excited about the prospect of tasting new Scotch malt whiskies, but I would be lying if I said I wasn't anxious about the future.




@wanderingwhisky