Each week, we bring you the latest whisky news on WhiskyCast. Now, we’ll be bringing it to you as it happens here on our News Updates page!
February 9, 2018 – The global boom in whisky sales fueled another record year in Scotch Whisky exports during 2017, according to new statistics released today by the Scotch Whisky Association. Citing export data from HM Revenue & Customs, the SWA reported gains in both the value and volume of Scotch Whisky exports, with an 8.9 percent increase in the value of those exports over 2016 to £4.36 billion GBP ($6.03 billion USD). Export volume grew by 1.6 percent to the equivalent of 1.23 billion bottles.
“It’s really very heartening that all the work that Scotch Whisky producers are putting in to get Scotch out to world markets is paying off now,” said SWA deputy director Graeme Littlejohn in a telephone interview. “That’s not to say there aren’t challenges…of course there are challenges. Brexit’s a challenge, non-tariff barriers are a challenge, tariffs continue to be a challenge in several global markets, but these are really encouraging figures,” he said. The Scotch Whisky industry is responsible for more than 20 percent of Great Britain’s overall food and drink exports, and is Scotland’s second-largest export second only to crude oil.
While Blended Scotch continues to make up the largest share of Scotch exports and grew in 2017, it was outpaced by exports of single malts with a gain of 14.2 percent in 2017 over the previous year. These exports generate a larger impact on the Scottish economy, since UK law requires that single malts be bottled exclusively in Scotland instead of being exported in bulk as blends can be. That creates jobs in bottling plants, which helps account for some of the more than 40,000 jobs around the UK linked to the Scotch Whisky industry.
Listen to Mark Gillespie’s interview with Graeme Littlejohn:
The United States and France remain the leading export markets for Scotch Whisky. The US continues to be the overall leader for exports by value, with shipments valued at £922 million GBP ($1.273 billion USD), up 7.7 percent from 2016. Exports to France were valued at £433 million ($598 million USD), a gain of 2.1 percent over 2016.
However, France remains the overall leader by volume despite a 5.9 percent decline in exports to the equivalent of 178 million bottles. The US had a 7.4 percent increase in volume to the tune of 127 million bottles. To put this in perspective, France has traditionally been a market where lower-priced blends have been one of the most popular spirits for consumers, and a gain in value coming along with a decline in volume could indicate that French consumers have joined those in the US and other markets in “trading up” to more premium Scotch whiskies. This trend was reflected in the US last week, when the Distilled Spirits Council released its annual economic analysis showing strong increases in sales of premium whiskies and other spirits with a decline in sales of so-called “value brands.”
In addition, the US market for Scotch Whisky has expanded significantly in recent years as consumer interest widens. “We know that the US consumer has changed over the years,” said Robin Coupar, the longtime brand ambassador for Campari’s Glen Grant single malt brand. “When I came to America 15 years ago, it tended to be male consumers slightly older who would be quite loyal to a brand. Certainly over the last five to ten years, there’s a younger consumer coming in and they’re looking to try different whiskies – they’re not as loyal to one brand as they used to be,” he said in a telephone interview. Campari took that market into account when it made the decision to launch a new 15-year-old Glen Grant single malt in the US domestic market this month after previously debuting new expressions in Europe before bringing them to North America.
This “premiumization” trend can also be seen in Spain, another traditionally strong export market for Scotch Whisky. The value of Scotch exports to Spain increased 5.2 percent in 2017 to £166 million GBP ($229.2 million USD), while the corresponding volume of those exports fell 4.6 percent to 61 million bottles.
In regional terms, the 27 European Union nations remain the largest regional export market with 31 percent of all Scotch Whisky exports, followed by North America at 26 percent and the Asia-Pacific region at 22 percent. This explains why the industry has been actively trying to protect its interests as Great Britain negotiates its exit from the European Union. “Brexit continues to be challenging for the industry – we’re doing a lot of detailed work with the UK and Scottish governments to try and come out of Brexit in growth,” said Littlejohn, noting that the priority remains a stable transition period of two to three years with current market conditions before the UK goes on its own as a trading partner and can negotiate its own deals with India, China, and other developing markets with historically low levels of Scotch Whisky exports.
The HMRC statistics only reflect the first destination for export shipments, which explains why several relatively small nations rank higher for export traffic than their size might suggest. Singapore’s importance as a regional shipping hub in the Asia-Pacific region was reflected with a 29.4 percent increase in value and a 14.2% increase in volume to 47 million bottles, while Latvia’s growing importance as a hub for Russian-bound exports also grew. European Union trade sanctions against Russia have forced traders to use Latvian ports as a workaround to get Scotch Whisky into Russia, with a 74.9 percent increase in the volume of Scotch shipments to 37 million bottles – up from 21 million bottles in 2016. For the record, Latvia’s 2017 population is listed at 1,949,670, which means the country exported enough Scotch Whisky to theoretically supply every man, woman, and child with 19 bottles of whisky during the year. In addition to the Russian market, the SWA’s Littlejohn notes that some of that increase may be due to cross-border traffic with Estonia following a sharp increase in that country’s excise taxes on alcohol.
Editor’s note: This story was updated with comments from Robin Coupar of Campari America. The Bloomberg Generic Composite Rate was used to convert GBP into US dollars as of publication.
January 22, 2018 – A crackdown by British Columbia’s liquor enforcement agency targeting the Scotch Malt Whisky Society’s four partner bars has turned into a political hot potato, complete with criticism from BC politicians and an online “#freethewhisky” petition campaign.
Andrew Weaver, the leader of the Green Party in British Columbia’s Legislative Assembly, blasted the government’s decision to raid the four bars and seize their bottles of the Scotch Malt Whisky Society’s whiskies following a Twitter campaign from whisky lovers demanding a change in provincial laws.
Weaver’s Green Party is a partner with the New Democratic Party in the province’s coalition government. British Columbia Premier John Horgan, the leader of the NDP, has not yet addressed the issue, and spokesmen for the Ministry of the Attorney General have declined all interview requests since the raids. The Liquor Control & Licensing Branch is part of the Ministry, but spokesmen claim the Attorney General has no role in the branch’s enforcement actions.
Thursday, LCLB inspectors and police raided Fets Whisky Kitchen in Vancouver and The Grand Hotel in Nanaimo, along with The Union Club and Little Jumbo in Victoria. The agents seized 242 bottles of Scotch Malt Whisky Society whiskies from Fets and 11 from The Grand Hotel on the grounds that the bars had acquired those whiskies illegally from the two private liquor stores in British Columbia that carry SMWS whiskies. According to local news reports, Little Jumbo’s owners had removed its SMWS whiskies from the premises earlier this month after hearing reports of a similar enforcement action against another local bar. The private Union Club has not commented on whether it had any whiskies seized.
Susie Sirri, the operations manager of The Grand Hotel, was in Vancouver when she was notified of the raid at her family’s hotel in Nanaimo. The hotel had joined the Society’s ranks of partner bars in 2017, and had not built yet up a large inventory of SMWS whiskies.
“I ended up going to Fets Whisky Kitchen to see the liquor inspectors there,” she said in an interview. “When I walked in, I recognized the two gentlemen that were confiscating the bottles and I said ‘you look very familiar,’ and they said ‘well, that’s right…you helped us when we were at your hotel a week ago asking you about Scotch Malt Whisky Society in plain clothes.” Sirri said the inspectors refused to explain why they didn’t discuss the issue with her at that time, but said she was told that there was a “big investigation and they couldn’t say anything.”
The crackdown came just as one of British Columbia’s largest whisky events of the year was getting underway. The Victoria Whisky Festival attracts whisky lovers from around North America, and has become regarded as one of the world’s top whisky events because of the variety of whiskies available to taste. That changed following the crackdown, as exhibitors scrambled to adjust their plans out of fear that the province’s liquor inspectors would conduct a similar crackdown at the festival.
“We’re just pouring what we’re allowed to pour,” said Gordon and MacPhail’s Richard Urquhart. Urquhart had flown to Victoria from Scotland for the festival, along with a series of meetings in other Canadian cities. The family-owned company has been a longtime supporter of the festival, and has presented a number of rare whiskies in previous years. This year, Urquhart and his colleagues had to cancel a master class scheduled for Saturday because only one of their whiskies (the Benromach 10-year-old) is carried in the provincial stores. They had planned to open a 1972 Strathisla and a 35-year-old Benromach for the master class and Saturday night’s consumer tasting, but left both bottles sealed on the table next to a sign explaining the situation.
Other exhibitors took a similar approach, with Jonathan Bray of Calgary-based Secret Spirits keeping all of his whiskies closed for the night while explaining the issue to consumers. The Scotch Malt Whisky Society was forced to cancel a Friday night tasting for around 80 people, along with two master classes on Saturday, and had also brought in the Society’s global brand ambassador from Scotland to meet with members and consumers during the weekend. Kelly and Rob Carpenter, who own the Canadian brand of the Society, have pledged to make up any shortfall in the festival’s contributions to two local charities caused by the cancellation of their events.
Under British Columbia law, bars and restaurants are required to purchase alcohol directly from the British Columbia Liquor Distribution Branch, and are not allowed to buy from the province’s privately-owned liquor stores. The requirement dates back to before the province legalized private liquor stores, which must still order all of their whiskies through the provincial system. While those stores are allowed to place special orders for whiskies not carried in the province’s BC Liquor Stores, bars and restaurants are limited to only what the BCLDB chooses to stock in its inventory. That same requirement extends to special events such as the Victoria Whisky Festival, though no inspectors were openly visible at the event during the weekend.
“I really would like to know some of the reasoning behind why they did this,” said festival attendee Tim Vickers as he pointed to a pair of Springbank single malts that were on display but not available to taste. “Why now, after ten years of not enforcing this law, why now?” Other attendees expressed similar frustrations with the government crackdown as well. “It’s not a tax issue, because the taxes are paid, but it seems to be regulators flexing their muscles unnecessarily,” said Dave Mason of the West Coast Whisky Society in Vancouver.
The Grand Hotel’s Susie Sirri pointed out that the government crackdown unfairly targets only one specific whisky brand and the limited number of bars that offered it. “What about the bars that are carrying all of the specialty gins or the specialty vodkas … are they going to close down Gastown, are they going to close down all of the other bars that each have a bottle of whatever? I mean…every bar in British Columbia is carrying something from a private liquor store to stay competitive.”
This story will be updated with additional information as necessary. WhiskyCast has requested an interview with spokespersons for the Ministry of the Attorney General, and that request has been declined for now.
Links: Scotch Malt Whisky Society Canada | BC Liquor Control & Licensing Branch | BC Liquor Distribution Branch | Fets Whisky Kitchen | Little Jumbo | The Grand Hotel | The Union Club | Victoria Whisky Festival | Secret Spirits
January 20, 2018 – British Columbia regulators are drawing fire from whisky lovers following a crackdown on Scotch Malt Whisky Society bottlings at four bars in Vancouver, Victoria, and Nanaimo. Agents from the province’s Liquor Control & Licensing Branch raided Fets Whisky Kitchen in Vancouver, Little Jumbo and The Union Club in Victoria, and the bar at the Grand Hotel in Nanaimo Thursday, seizing the entire inventory of SMWS whiskies from each bar. All four bars are “partner bars” with the Society’s Canadian chapter, and obtained their whiskies through SMWS-affiliated privately-owned liquor stores in Vancouver and Victoria.
British Columbia controls the distribution of alcoholic beverages in the province through the government’s Liquor Distribution Branch (BCLDB), through which the privately-run stores are allowed to place special orders for whiskies and other products not carried in government-owned liquor stores – such as the SMWS whiskies. However, bars and restaurants have long been required to buy alcoholic beverages directly from the Liquor Distribution Branch, and are limited to those products the government agency’s liquor buyers choose to carry.
“We’re still very confused, as our partner bars are, about what has led to this,” said Rob Carpenter, who owns the SMWS franchise in Canada with his wife Kelly. “We haven’t been given a lot of information by the Licensing Branch as to what was behind all this, so we’re still a bit in the dark about it.” Carpenter confirmed that all of the confiscated whiskies were imported legally into British Columbia through the BCLDB and all taxes were paid. “Kelly and I, as operators of the Scotch Malt Whisky Society in Canada, are legally registered in British Columbia as liquor agents, so everything about this in terms of how the bottles were brought in and taxes are paid is absolutely legal,” he said. None of the bars have been told whether they will face additional sanctions, such as fines or license suspensions, in connection with the raids.
While the total value of the seized whiskies is not available, Fets Whisky Kitchen owners Eric and Allura Fergie estimated the value of their 242 seized bottles at $40,000 CAD ($32,000 USD). In a post on the bar’s Facebook page, the Fergies posted photos of three government agents using a ladder to remove the SMWS whiskies from the bar’s shelves. Allura Fergie told CBC that “they came in … said we had illegal product on our shelves and they were going to confiscate it.” The Fergies and the Carpenters have retained a lawyer to appeal the seizures, and are hoping to get the whiskies returned to each of the four bars.
The Liquor Control & Licensing Branch is part of British Columbia’s Ministry of the Attorney General, and is operated separately from the Liquor Distribution Branch. Spokesmen for the Ministry declined requests for interviews, but provided WhiskyCast with this statement via email Friday.
“The LCLB operates independently in terms of the General Manager’s supervision of licensees, and enforcement decisions cannot be directed by the Attorney General.
- All liquor products sold by a hospitality customer (bars and restaurants) must be purchased through the Liquor Distribution Branch and must be documented in the establishment’s liquor register, this includes liquor transfers. Hospitality customers must make all their purchases through either the LDB’s Wholesale Customer Centre (WCC), in a BC Liquor Store (BCLS), or via direct delivery by an authorized manufacturer.
- Where products are sold via direct delivery, the manufacturer acts as the LDB’s agent in selling the product. These products must also be clearly documented in the liquor register. The liquor register must be available for inspection at all times.
- The Liquor Control and Licensing Branch (LCLB) cannot comment on compliance measures taken against establishments. As part of its regular operations, the LCLB performs inspections and follows up on complaints received about establishments. An inspector may seize product in an establishment if the inspector believes that it was unlawfully obtained or kept for an unlawful purpose. The LCLB does not release private information about any licensee.”
The raids were conducted just as the Victoria Whisky Festival was getting underway at the Hotel Grand Pacific. The annual festival, which draws distillers and whisky lovers from around the world, has built a reputation for offering rare and unique whiskies while complying with the province’s regulations, and organizers scrambled to make sure exhibitors were fully compliant. A SMWS “Grand Tasting” scheduled for Friday night and two master classes scheduled for Saturday were cancelled with ticket holders to receive a full refund, and the Society’s booth at Saturday night’s tasting festival will be empty.
“For us, we’re very disappointed…we love this festival,” Rob Carpenter said. The festival donates all of its profits to two local charities, and the Carpenters have pledged a donation equal to what the charities would have received from ticket sales for all three tastings.
As word of the raids spread around the Hotel Grand Pacific, other exhibitors pledged their support to the Carpenters and the Society’s partner bars. Jonathan Bray, the owner of Calgary-based importer Secret Spirits, was heavily critical of the province’s actions and planned his own protest for the Saturday night tasting.
“This festival, I’m focusing on Ohishi Japanese Whisky and Hyde Irish Whiskey, both of which are registered and there are purchase orders in place for the province of British Columbia, but they are not yet here, and they are not going to be supplied by the government stores,” Bray said. “They’re only going to be available for private stores, and that makes it illegal for me to showcase them at this festival, so my table is going to have all of these glorious whiskies displayed and the bottles are all going to be closed. You can come and talk to me about them, you can touch them, feel them, look at the label, read the label, but you can’t drink them.” Bray hopes attendees will be upset enough to contact their provincial legislators and demand changes in the law, which he says has not been widely enforced for at least the last ten years.
WhiskyCast’s Mark Gillespie is at the Victoria Whisky Festival, and will update this story with additional information as necessary.
Links: Scotch Malt Whisky Society Canada | BC Liquor Control & Licensing Branch | BC Liquor Distribution Branch | Fets Whisky Kitchen | Little Jumbo | The Grand Hotel | The Union Club | Victoria Whisky Festival | Secret Spirits
January 19, 2018 – Corby Spirit and Wine claimed top honors at the 2018 Canadian Whisky Awards, winning both Canadian Whisky of the Year and Distiller of the Year. During the awards banquet held at Victoria’s Hotel Grand Pacific as the kickoff to the Victoria Whisky Festival, J.P. Wiser’s 35 took the coveted award as the Canadian Whisky of the Year – presented to the highest-scoring whisky following blind judging by an 11-member panel of more than 80 different whiskies.
“We are ecstatic, we are pleasantly surprised, we are humbled … there are so many amazing, different Canadian whiskies that were released this year (during 2017),” said Dave Mitton, Corby’s global brand ambassador for the Pernod Ricard unit’s Canadian whisky portfolio. Mitton and his colleagues also accepted the Distiller of the Year award for Corby’s Hiram Walker & Sons distillery in Windsor, Ontario, where the J.P. Wiser’s 35-year-old whisky was distilled. The winning whisky was part of the 2017 Northern Border Collection Rare Releases series, which also included Lot 40 Cask Strength, Pike Creek 21-year-old Speyside Cask Finish, and the Gooderham & Worts Little Trinity 17-year-old three-grain whisky. The Wiser’s 35 and Lot 40 Cask Strength were two of Corby’s nine entries to receive gold medals out of a total of 22 awarded. Diageo’s Crown Royal came in a distant second with four gold medals for various expressions.
“Extremely tight competition – whether it was the closest or not I can’t remember from previous years, ” said Canadian Whisky Awards founder Davin de Kergommeaux. “I can tell you this, the competition was fierce this year…some whiskies that might have won gold in other years, this year they were pushed down to silver because there were just so many other whiskies that were so good.” While de Kergommeaux did not disclose the runners-up in the overall scoring during the ceremony, he did announce that the difference between the top three whiskies was .04 of a percentage point. The judges also awarded 24 silver medals and 39 bronze medals.
In its first year of competing in the Canadian Whisky Awards, Two Brewers, the single malt whisky produced by Yukon Brewing in Whitehorse, Yukon, took home a gold medal for its Peated Single Malt, while founders Bob Baxter and Alan Hansen won the Microdistillery of the Year Award for Two Brewers. The pair started their brewery in 1997 and bought their still in 2009, but did not release any of their whisky until 2017.
“We’re so fortunate that we have a brewery, so we didn’t have to rush anything to market,” Baxter said after the ceremony. “We thought when we started ‘we can wait three years, that’s all good, not a problem,’ but when we tasted it we thought – ‘ahhh, it’s going the right way, but it’s not ready…what’s one more year, and then another and another,” he said. In the end, the youngest of the seven whiskies Baxter and Hansen have bottled so far is seven years old, with their eighth release scheduled to make its debut this weekend in Victoria. The Two Brewers whiskies are available only in British Columbia and Alberta, and will be listed soon in Quebec’s SAQ provincial stores.
De Kergommeaux also honored three retiring leaders of the Canadian Whisky industry with lifetime achievement awards. Vicky Miller has been the chief blender for Black Velvet whisky in Lethbridge, Alberta for many years, while Rick Murphy and Jim Stanski are retiring after years of managing Alberta Distillers in Calgary and the Hiram Walker Distillery respectively.
A complete list of awards and medals can be found at the Canadian Whisky Awards web site.
Editor’s note: WhiskyCast’s Mark Gillespie has served as a judge in all eight Canadian Whisky Awards competitions.
January 2, 2018 – As a journalist, I spend much of my time covering news that has already happened. There isn’t always as much time to anticipate who may or may not “commit news” in the short-term future, and of course, it’s risky to commit predictions to paper – or pixels – for public consumption. On New Year’s Day, one of my Twitter followers, Dave Parker (@MaltTroll), challenged me to do just that, though.
Now, it would be easy to come up with a humorous and possibly even snarky list of predictions, and I’ll even admit that I thought of a few. The hard thing is to come up with ten serious predictions and be able to back them up with logical reasons for each one.
Some of these may not happen until 2019, and some may not happen at all, but I have a bit of a track record for this stuff. Back in 2010 during a session at the World Whiskies Conference in Glasgow, I predicted that one of Scotland’s major distillers would invest in the U.S. craft whiskey sector within five years. My reasoning was based not on the emerging consumer interest in small-scale distilling, but because an investment in a U.S.-based distillery would allow a Scotch Whisky maker to experiment with new product development while neither affecting current production nor running afoul of the laws limiting Scotch Whisky production. Several months later, William Grant & Sons acquired the Hudson Whiskey brands from Tuthilltown Spirits and went on to buy the entire company in 2017. My only regret is that I’ve forgotten the name of the other panelist who laughed at that prediction and promptly bet me £100 that it wouldn’t happen – I’ve never been able to collect on that bet.
That said, here are my ten predictions for what may – or may not – happen in the whisky business during 2018.
1: Whisky prices will continue to go up worldwide as demand increases, especially for rarer expressions.
This one’s a no-brainer, given that whisky prices have been increasing consistently over and above the rate of inflation as worldwide demand for whisky continues to grow. The corollary is that the number of consumers who complain about rising whisky prices will also continue to grow, and I’ll address that later.
2: We’ll see several more acquisitions of small distilleries by the industry giants, but the trend will expand even more outside the USA.
Most of the recent acquisition spree took place in late 2016, with deals closing or being announced in early 2017. Möet Hennessy’s July purchase of Woodinville Whiskey Company in Washington was the only major U.S. deal of the year, but I wouldn’t be surprised to see three or four craft distilleries change hands this year once the impact of the new U.S. tax reform legislation on corporate finances becomes clearer. We don’t have a good handle of how much cash U.S.-based companies like Sazerac and Brown-Forman may be holding overseas for tax reasons, and the changes to the tax code designed to repatriate some of those funds might spur some acquisition deals.
3: Those acquisitions will not just be complete buyouts, but minority investments designed to hedge their bets for the future.
Diageo (Distill Ventures) and Pernod Ricard USA (NBV Investments) both have in-house units looking for investment opportunities in the craft distilling sector. Until now, most of Diageo’s investment has been outside of the U.S., with minority stakes in Denmark’s Stauning Distillery and Starward Distillery in Australia. NBV Investments was responsible for the Smooth Ambler acquisition in late 2016. While that was a complete buyout instead of a minority stake, it was structured in a similar fashion with co-founder John Little remaining in place after the sale closed.
The best example of this in 2017 was Bacardi’s move to acquire a minority stake in Ireland’s Teeling Whiskey Company along with the U.S. distribution rights. That deal gave Bacardi a piece of the growing Irish Whiskey market to go along with its Scotch Whisky (John Dewar & Sons) and Bourbon (Angel’s Envy) portfolio.
4: The flavored whiskey craze will finally start to die (and not too soon!).
Really, folks … how many more flavored whiskey ideas are left, and is there any evidence that consumers are actually moving up from flavored whiskies to “real” whiskies? There will always be a place for them, but this is one area where whisky makers can learn from the vodka sector. Too many flavored products cannibalize the market and confuse consumers, and if there’s one thing the whisky industry needs to avoid, it’s creating any more consumer confusion. We already have enough trouble getting whisky newcomers to understand the difference between Scotch, Bourbon, and “Whisky” – and people who ask for a “Japanese Scotch.” That leads us to…
5: The push for an official “American Single Malt” designation will gain some momentum outside of Washington, but will be caught up in the Trump Administration’s deregulatory push and not be approved this year.
Given that the Trump Administration’s current policy is that “two existing regulations need to die for every new one that’s approved,” I don’t see this happening in 2018. We’ve already seen examples where the Treasury Department’s Tax & Trade Bureau process for approving new American Viticultural Areas (AVA) for winemakers has been affected by the policy. Only one new AVA was approved in 2017, and according to Wine Searcher, 18 more are waiting for final approval, with some on the waiting list since 2015. Given that the TTB has not yet opened a formal rulemaking proposal to add an American Single Malt standard to the Standards of Identity list for whiskies, I don’t see this happening until at least 2019.
6: Look for some of the whisky makers that released no-age-statement whiskies several years ago to gradually bring back 10 or 12-year-old editions as maturing whisky stocks catch up.
We’ve already seen at least two indications of this. Chivas Brothers recently indicated that it will gradually start to reintroduce The Glenlivet 12-year-old single malt in many global markets where it was replaced in 2013 by the no-age-statement Founder’s Reserve. In addition, when it introduced the Ballantine’s Single Malt Collection this fall, all three malts from Glenburgie, Glentauchers, and Miltonduff carried 15-year-old age statements, when it would have been just as easy to introduce them to the market without an age statement.
It’s probably still too early for Nikka to start bringing back age-statement whiskies after supply shortages forced it to replace the entire range with no-age-statement whiskies a couple of years ago. Other distillers that made similar moves are likely to start using age statements as soon as they can.
7: Exports of Bourbon and Tennessee whiskies will continue to expand in 2018, but begin to slow down late in the year when the U.S dollar gains strength against the British pound and Euro as the Brexit breakup deadline gets closer.
There’s one word that describes the Brexit mess right now, and it begins with “cluster…” Great Britain’s exit from the European Union comes in March of 2019, and there has been little progress toward a resolution on post-Brexit free trade between the two sides. The markets despise uncertainty, as we saw in June of 2016 when the pound crashed following the U.K.’s Brexit vote. Without some form of a trade agreement in place by the current deadline this autumn, don’t be surprised if the currency traders respond by switching to U.S. dollars in a search for stability (though the U.S. midterm elections in November will bring their own concerns about stability). The pound’s post-Brexit vote crash against the dollar led to increased Scotch Whisky exports to the U.S., while raising prices for Bourbon and Tennessee Whiskey exports to Great Britain. While American whiskey exporters can count on selling to more markets than just Great Britain and Europe, both represent a significant percentage of annual export sales and a late-year slowdown in shipments is not out of the question if currency markets swing on political issues.
8: The long-predicted shakeout in U.S. craft distilling will largely be avoided because of the cut in Federal Excise Tax that should help struggling distillers. Those that do go under would have done so with or without a tax cut because they weren’t financed well to begin with.
While the overall tax reform legislation signed into law just before Christmas has plenty to criticize, depending on where your individual priorities lie, there is no question that small distillers benefitted the most from changes to the tax code. Yes, the big distillers will gain from saving almost $1.1 million dollars in tax on the first 100,000 proof gallons they remove from bonded storage for sale each year, but for distillers that sell millions of cases of whiskey each year, the tax savings will be a blip on the radar for the accountants.
Until now, small-scale distillers have been counting pennies while they wait for their whisky to mature, only to be hit with a whopping tax bill as soon as they’re ready to start selling. For a craft distiller who only removes 25,000 gallons of whisky from bonded storage in a year, the tax bill will drop from $342,500 to just $67,500. That $275,000 in savings could mean the difference between a profitable year or another year of losses for many small-scale distillers.
9: Whisky sales in the USA will show slight gains in 2018, but increasing competition from tequila and other brown spirits could be a sign that prices are rising too fast for consumers.
Never underestimate the fickleness of the American consumer. Brand loyalty – especially in the drinks business – is a fantasy, and most people are looking for something new and unusual to drink. They want bragging rights in their circle of friends for being the one to jump on a new trend first, and that’s part of the reason for whisky’s booming sales over the last decade. Given that prices are rising for most whisky categories – especially the premium ones – the point is coming where more consumers will be priced out of the market and start to look for alternatives. While they may switch from mainstream brands to craft whiskies for the “artisan” or “local” flair, many craft whiskies already are priced at premium levels that could discourage some consumers. That opens up a market for producers of tequila, rum, brandy, and other brown spirits to come in at lower prices and take some of whisky’s market share.
10: Look for several of the small distillers in Scotland that have opened in the last 3-5 years (or are being built now) to merge their business operations as a way to save money and create economies of scale for purchasing grain, barrels, bottles, and other commodities.
At least a dozen new distilleries have opened in Scotland over the last three years, and as many as ten more may open this year. Their backers are betting on continued growth of Scotch Whisky sales globally, but the annals of Scotland’s history are filled with stories of distilleries that went under because supplies exceeded demand…and the costs of doing business greatly exceeded revenues.
Here’s another area where distillers might want to remember the past. Back in 1877, six of Scotland’s major distillers merged to form the Distillers Company Limited, which went on to become the dominant force in the Scotch Whisky industry for many years and is one of the ancestors of today’s Diageo. In 1966, the three families that dominated Ireland’s whiskey industry realized they needed to merge together to succeed or all three would fail separately. They formed Irish Distillers, paving the way for the eventual comeback of the Irish Whiskey sector, and their successors are now sharing best practices and techniques with many of Ireland’s startup distilleries.
While each of the small-scale Scottish distillers have their own style of making whisky to meet the expected demand, their chances of future success could be greatly improved by teaming up on the business side. A consortium of small distillers might well be able to negotiate better prices for barrels, grain, bottles, and other commonly-used supplies and services. In addition, shared back-office functions could cut the costs for all members, along with providing technical support and mutual assistance as needed. Distillers have a long tradition of helping each other out when needed, and if investors are willing to put their egos aside, a partnership like this might lead to greater profits in the future.
There are plenty of other predictions that could have been added to this list, such as increased expansion in visitors centers and tourism, along with the overall expansion of distillery capacity, but there also remain plenty of questions to ponder. Will the growth of Taiwan’s Kavalan and other “world whiskies” pose a serious challenge to the industry’s longtime leaders? Will craft distillers continue to increase market share by attracting new consumers, taking sales away from larger brands, or will they feed off each other by competing for the same share of the market? Are we oversaturated with whisky festivals around the world? Will Jim Murray pick a Scotch Whisky as his Whisky of the Year in the 2019 Whisky Bible?
Right now, I’m guessing “maybe,” “all of the above,” “possibly,” and “who cares?” Apply them to those questions as you see fit.
Editor’s note: This commentary reflects Mark Gillespie’s opinions exclusively, and the views expressed here do not necessarily reflect those of WhiskyCast or its sponsors. Our policy is to label commentary as such to avoid confusion with the news stories presented on WhiskyCast.com. All photos ©2018, Mark Gillespie/CaskStrength Media.
Irish Whiskey’s history has been written over centuries, but Carol Quinn has the unique task of preserving the history that was actually written down. The professional archivist has spent the last five years cataloging more than two centuries’ worth of historic documents, photographs, and bottles from the distilleries that joined forces in 1966 to form Irish Distillers – and she’s barely getting started. The stories hidden away in the Irish Whiskey Archive tell more than just the facts and figures … they give today’s whiskey lovers a glimpse of the people who helped put Irish Whiskey on the map.
Editor’s note: Production support for this episode was provided by Irish Distillers Pernod Ricard. In accordance with our ethics policy, WhiskyCast retains full editorial control over the content of this episode.
Links: Irish Distillers