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Thursday
May032018

Scotland Day 2: Family Matters

After yesterday’s extravagant tasting marathon at Glenfarclas, we’d popped down to the recently redone Dowans Hotel near Aberlour for dinner. This old building was once in disrepair and though it had onced served as a school for George’s father, the fabulous building had been left rundown and deteriorated. Recently a Glaswegian family had purchased the property and slowly refurbished the place over the last few years. Not able to afford closing the facility during refurbishment, they methodically closed one section at a time to refurbish the establishment. Now it’s one of Speyside’s most well put together little hotels and restaurants. You can feel the care and love the family has put into the building and equally so how they interact with their customers in as if we were indeed themselves part of their family.

We spent the meal reflecting on the day and trading stories about the state of the industry. It’s an interesting time to be a distiller in Scotland. Every successful business in this industry is a target for cash rich multinational corporation. Money is cheap and no one wants to pay taxes on their profits, so any excuse to spend money seems to be on the table. With Jack Daniels paying nearly a quarter of a billion dollars BenRiach Distillers and 20 some odd new distilleries on or coming on line soon, there’s a sense that the industry has reached some new period of unstoppable growth. George is skeptical and so am I.

Of course, Scotch whisky has is a cyclical business. The industry has experienced pretty consistent waves of boom and bust. Things heat up for 8-10 years before cooling off for another decade, allowing distillers to rebuild stock and reassess the market. That’s been the pattern for at least the last century. The previous bust was a bad one. Many are aware that in the early 80s a number of distilleries closed down, the result of over production and excessive hedging coupled with a downturn in sales. No one in Scotland wants to get caught with whisky they can’t sell. That attitude in hindsight seems inconceivably shortsighted considering the stuff is supposed to get better as it ages, but pouring money into “liquid assets” that literally evaporate doesn’t look good to corporate boards or international investors. Had they continued to produce at the levels they’d planned in the 70s, we’d probably have a whole lot more old whisky to sell right now, but that’s not a game the distillers wanted to play back then.

We’re 20+ years into a Scotch boom and no one here wants it to end. The world is obsessed with Scotch and its global reach and aspirational stature create an intriguing synergy of what seems like endless potential. That said, the huge majority of the volume is still sold on the low-end side of the market and that sector is showing significant signs of weakness. If young stocks begin to stagnate they put pressure on the whole system. The result might just be more focus on the high-end from the big brands, but could also be a boon for the independent bottler and blenders who are more comfortable marketing small quantities and single barrels than the big guys. All this creates a strange uneasiness in Scotland with many lauding the current trajectory, but some skeptical eyebrow. These companies must create value for shareholders and however ridiculous prices for rare scotch seem now, there’s much more money on the line for them in the volume brands.

That uneasiness is lost when you talk to someone like George, who can examine the market and make determinations about his own brand based on knowledge and gut, the power of being family owned. Independent family ownership has never been more obviously advantageous for our segment of the market than when bottom line comes into focus and things get tight. What’s amazing about George is that when I note that there’s no one else quite like Glenfarclas, he’s likely to agree, but he also points to a handful of other family owned brands that have a similarly strong positions in our important albeit niche market segment. Nex thing I know he's on the phone with them making sure they're going to play ball. These are the partners we want. My meetings today won’t be published here due to their sensitive nature, but rest assured that there are new distillers and bottlers ready and waiting to us sell single casks.

In this highly competitive and political atmosphere, patience pays off. Once the dust settles, this might just be the dawn of a new golden age of independent ownership, a small but important counterpoint to consolidation that seems limitless in this unusual industry. After all nothing matters more than family.

-David Othenin-Girard