As Scots celebrate Burns Night on Thursday to honour Robert Burns — whose distaste for duties imposed by London on Scotland’s national drink was the subject of one of his poems — local whisky producers say they are confident of defying a general weakening of demand for luxuries.
The slowdown extends to the US, Scotch whisky’s biggest export market. A softening in demand there has done little to discourage Annabel Thomas, who is betting that the US will still be able to help her distillery become profitable this year.
Nc’nean Distillery on Scotland’s west coast, founded by the former consultant in 2013, launched its fruity single malt in America in November, despite a global slowdown due to deflation in China and high interest rates in developed markets.
A November report by Edinburgh-based investment bank Noble & Co showed that the price of rare whiskies sold at auction had fallen in the year to September by the most in a decade, other than during the pandemic. That added to concerns that producers could be stuck with excess supply after a flurry of new Scottish distillery openings that has pushed their number to 148, a post-second world war high.
The US was one of two markets among the top 10 destinations for Scotch to record a fall in the first half of 2023, with exports dropping 5.1 per cent to £437mn, according to the Scotch Whisky Association. India was the other.
Thomas argues that the slowdown is likely to be more problematic for bigger players given that a large group such as Diageo will sell through many more distribution points such as shops, each demanding growth. She adds that for small companies such as hers the key is to see the US as a number of markets — and she is confident that Nc’nean can find a niche playing to its identity as a female-led and sustainable producer.
“If you got high-quality stock and you have a different story . . . then I’m not too worried about our position,” she said. “What is [also] interesting about the US is that they have this huge appetite for female-run brands, in fact minority-run brands overall.”
Optimists say the decline in auction prices will hurt speculators chasing a profit on quick sales, producers are adamant that fears of a market flooded with unwanted whisky are unjustified.
They point to the growing number of wealthy individuals in Asian markets and say Scotch’s appeal as an exclusive product will endure and receive a boost as customers switch to pricier drinks, a trend known as premiumisation.
The £2.1mn sale of a Macallan 1926 bottle late last year added to confidence that demand for rare whiskies remains strong, with buyers seeking to take advantage of declines in the value of some bottles to add to their collection.
“While the whisky market is currently not favourable for quick, short-term returns . . . it is a buyers’ market, presenting a valuable opportunity for those seeking long-term value gains,” said Charles Beamish, chief executive of Beamish International, which advises wealthy individuals and family offices on whisky purchases.
Scotch producers’ investments have also been driven by optimism that the UK will eventually complete a free trade agreement with India. The industry body said this could increase sales there by more than £1bn within five years, from £282mn in 2022.
About 37 more distilleries are planned for construction, according to the SWA, which added that the industry had invested more than £300mn in “visitor experiences” in the past decade.
The industry, which accounts for 2 per cent of all UK goods exports, invested £2.1bn in capital projects between 2018 and 2022, the SWA said this month.
Chivas Brothers, owner of brands including The Glenlivet, opened its first guesthouse last year in Speyside, one of the best-known whisky producing areas. This is part of a producers’ trend to diversify revenue by targeting tourists, who spent an estimated £10.4bn in Scotland in 2022, according to data from VisitScotland, a government body.
June and Cameron McCann filled their first whisky cask in November, the first to be produced in Stirling — the ancient city known for its battles against the English — since 1852. The husband and wife team behind Stirling Distillery, established in 2015 and not set for its first release until 2026, is counting on proximity to the city’s castle, which drew 600,000 visitors in 2019, to attract customers to its own visitor centre.
Cameron McCann said the distillery already had between 7,000 and 8,000 people booked for tours in 2024, and hopes to eventually increase that to about 30,000. Tourists have helped to sustain its gin business and generate income before its whiskies enter the market.
“I don’t see any slowdown in the appetite for whisky,” he said. “The tourist side of it will keep going [and] we are literally next door to the castle.”
Optimism is “well-founded”, said Mark Kent, chief executive of the SWA. He said a 3.6 per cent fall in exports in the first half of 2023 should be seen in the context of an “exceptional” 2022 performance that pushed overseas sales up 37 per cent to a record £6.2bn. Exports rose 31 per cent between 2018 and 2022, according to the SWA.
Concerns that a worsening global economic performance was catching up with whisky heightened last year when Diageo, owner of the Johnnie Walker brands, warned of weaker profits because of slower sales in Latin America and the Caribbean.
But Jean-Etienne Gourgues, chief executive and chair of Chivas Brothers, part of French drinks group Pernod Ricard, said Scotch was likely to be insulated from slowdowns in individual markets given it is consumed in about 180 countries, many of which have growing middle classes.
“It is in our nature to remain optimistic about Scotch . . . and we are confident about its long-term resilience to meet consumer demand,” said Gourgues, who was recently in China for Pernod Ricard’s launch of its first single malt produced in the world’s second-biggest economy.
Alan Hamilton, a partner at Johnston Carmichael, an Edinburgh-based accountancy and advisory firm, said while the “direction of travel is positive”, he was still concerned about whether smaller whisky players “would last the pace” in the face of rising costs and shortages of products such as casks and glass bottles.
The nature of whisky production, which must be matured for at least three years, means smaller producers could struggle to raise revenue and meet their operating costs before their products reached the market, he said.
“For the younger guys, cash can be a bit of a battle,” Hamilton said. “It is almost easier to buy an existing distillery even if it is in its relatively young life . . . [but] I don’t see any doom and gloom.”
Tariffs on whisky also remain a burden: 73 per cent of the average price of a bottle of Scotch sold in the UK is claimed in tax. The SWA is calling for a cut to the duty in the forthcoming Budget. Burns would approve.
Additional reporting by Euan Healy in London
