Breaking Down Value in Single Malt Whisky
I've been having this conversation via email with a few customers lately, so I thought why not do a post about it here? To me, this is a flawed argument to begin with, so know that I don't think about whisky in these terms, but it's something people should be aware of none the less. There's the old adage that value comes from whatever you think is good, but that isn't always the case. If you think a white whisky is worth $100, then should it cost that much? NO! Just because one person thinks something tastes good does not mean that it is good or should merit a higher price tag. In my opinion, the cost of a whisky should be based on the following reasons:
- cost of production (i.e raw materials, time, labor, barrels, small batch vs. large scale, etc)
- length of aging (the longer it takes to make, the more valuable it should be)
- rarity/desirability (mothballed distilleries, small production)
- high proof vs. low proof (higher proof gets a higher taxation rate which drives up the cost)
- quality (ultimately the least important factor in deriving value, except concerning source)
Let's break each of these categories down:
Cost of production - What kind of grains were used? Where were they sourced from? Were they organic? How much did it cost to distill each batch? How much can be made each time the still is run? A continuous still can pump out whisky faster and more efficiently than a smaller pot still, which in effect lowers the cost. What kind of barrels were purchased - new oak or used oak? There's a big price difference between the two. The cost of production should be the first step in determining the value of a whisky (unfortunately, the consumer will never know exactly what that is, but we can investigate!).
Length of aging - Should something that sat in a warehouse for ten years be worth more than something that only sat for three years? That depends on the cost of production, of course! Both costs being equal the answer is yes. However, if something was made from cheap grain and mass-produced on a column still like a factory, should that ten year old spirit be worth the same as a ten year old, 100% Islay Kilchoman? I don't think so. Also, what kind of wood did it mature in? Ten years in a fourth-fill hogshead isn't the same as ten years in a second-fill sherry butt or first-fill bourbon. The barrel means everything in determining the value of age.
Rarity/Desirability - Are we dealing with a closed distillery here? Port Ellen and Brora are expensive because they're no longer in production, plus they're highly sought after. Ardbeg limited editions are rare because they decide to make less of each particular whisky, therefore they're highly desired, but the scarcity is created by Ardbeg - they chose to make less. That lowers the value in my opinion, but if people want it badly enough there's no telling how much Ebay can drive that price up.
High Proof vs. Low Proof - This one is straightforward. The higher the percentage of alcohol in the bottle, the higher the taxes paid on the whisky. The higher the taxes, the higher the cost to make up for those expenses.
Quality - Ultimately this is the least important factor because it's the least objective (notice I didn't say "it's the most subjective" because quality isn't entirely based on opinion). After calculating how much it cost to create the whisky, how long it spent in the barrel, the final proof of the spirit, and the amount of it there is to sell, the price of a whisky is finalized. Quality doesn't come into play until the customer actually buys it. If a company, distributor, or retailer were ever to raise the price of a whisky significantly because they thought it was better, it would really piss people off. "Why do you charge more for Lagavulin 16 than BevMo?" Because I think it's better! Yeah, right. However, quality does play a role when determining, say, which Macallan to buy - the distillery bottle or the independent release.
Ultimately these are the main components in any formula to determine value in a single malt. What did I leave out? Single barrel, for one. Single barrel whiskies aren't inherently more valuable than vatted whiskies. They're just more limited, which would fall under the rarity category. That being said, however, I do think that great-tasting, single-barrel whisky is rare. Most barrels that we taste are not as impressive as the distillery blends. Independent bottling vs. distillery bottling is another factor I left out because I think it falls under the quality tab. Macallan should have the best Macallan whisky, therefore their stocks should be worth more than Signatory's or Gordon & MacPhail's. However, this isn't always the case and it's not an absolute.
The reason this whole conversation came about is due to the new Glenfiddich Cask of Dreams release and its $99.99 price tag. There was some sentiment that whisky prices were getting too high and out of touch with the consumer. I agree that this is an overall trend, but let's break down the case of Glenfiddich.
Cost of production - new American oak barrels (not cheap),
Age - 14-16 year old whisky chosen from the distillery
Rarity/desirability - limited availability, high desirability
Proof - higher at 48.8%
Quality - very good, distillery stock
Let's look at some similar whiskies and see if the Glenfiddich price point is too out of whack. Lagavulin 12 year old - $99.99. Same specs as the Glenfiddich, but two years younger and maybe a higher desirability rating. Either way, you're paying $100 for 12 year old whisky. You could get 12 year old Aberlour for $35 or 12 year old Glendronach for $48, but neither are limited, nor are they high proof. Our 11 year old Blair Athol cask came in at around $70, while our Glendronach 16 year still sells for $115. Both are limited and high proof, like the Glenfiddich Cask of Dreams. At 14 years of age, the CoD would fall right in between those at $100.
Again, this isn't the best way of looking at whisky. Ultimately, we could ask any producer if they could have made it for less and the answer could be yes or no. That's like asking a business what their margins are - exactly how much are you taking us for? No one's going to let us in on those numbers. In the end, all we can do is evaluate what we know. To me, the Glenfiddich Cask of Dreams isn't cheap, but it isn't exorbitantly priced either. It's line priced with many whiskies of a similar production, age, rarity, proof, and quality.