Scotland 2016 Post-Script
People ask me all kinds of questions about the direction of the Scotch whisky market. Is global demand really that high? Are we really going through a shortage? Who’s drinking all this stuff? Who can afford to buy that much Scotch? These are all important inquiries for consumers and fans of the spirit, but in all honesty the answers to the mysteries of Scotch depend entirely upon who you ask. For example, I remember asking Hunter Laing owner Stewart Laing once about the correct pronunciation of Ledaig distillery. “Is it Le-dayg or is it Le-chig?” He told me the former, but about four minutes after that his brother Fred walked into the room and asked us what we thought of the “Le-chig” sample. I hear all kinds of reports about what’s happening behind the scenes and many of the things I hear are often contradictory to what I myself experience or what I learn from other professionals. Let's use the rising importance of India as another example. Some people believe stocks of whisky are purposely being held back in preparation for a potential a tariff decrease on the import of Scotch into India. Others don’t think that’s ever going to happen.
In looking at the stats, however, you can see why some companies might be itching for India to come online. According to reports printed in this year’s Malt Whisky Yearbook, the top selling whisky in the world is Officer’s Choice—a brand whose core sales are in India. Number two is McDowell’s No. 1—another Indian brand. Johnnie Walker comes in at number three, but its complete global sales are about half those of Officer’s Choice. Looking at those numbers you might also assume that the billion-plus population of India was the top whisky-consuming nation in the world, but not the case. They’re actually number eight. That tells you something very important about India’s whisky fans: they’re drinking a lot of domestically-produced whisky, likely because it’s vastly cheaper than the Scottish imports which see gigantic mark-ups due to taxation. Remove the heart-stopping 150% tariffs and who knows what might happen. Some folks I've spoken to are still holding on to this idea, while others seem to have moved on from the possibility.
But that’s just one theory concerning the future of whisky economics I hear in the industry locker room. Another reason for shortages in whisky involves greater consumption of single malt itself, many of them now at higher proofs, which could potentially exhaust supplies at a much quicker rate. The top two whisky-purchasing countries in the world are the U.S. and France. When it comes to blended whisky, France buys about double of what the U.S. does at 12.7 million cases per year. When it comes to single malt, the roles are reversed with America doubling the numbers of the French. However, case quantities of single malt purchasing are at 1.7 million in the States versus 890,000 in France. Malt consumption globally is still well under 10% that of blended whisky, but it’s rising steadily and current supplies are still heavily-based on production levels from a less-glutinous era. All in all, you can analyze the numbers all you want in a search for more answers, but I’ve never been a stats guys. I like to look at behavior and intent when it comes to business, and I’ve noticed a pretty significant pattern in terms of the people I do business with. Let’s look at the behavior of the friendly faces from the independent bottling community we’ve worked with over the years.
Chieftain’s (Ian Macleod) - We’ve bought some legendary casks over the years from Chieftain’s. Today there are none available for us to purchase, however. Ian Macleod bought the Tamdhu distillery in 2011 and now supplies us with more official distillery bottlings, rather than independently-bottled casks.
Gordon & MacPhail - When I first started working at K&L we purchased a number of different selections from G&M, one of the most historic bottlers in the business. Today I buy a lot more Benromach from the distillery G&M reopened at the end of the 90s.
Signatory - While Signatory has owned Edradour for decades, they’re now building a second distillery next door to the main site—one that can be expanded if necessary. There’s also a lot more Edradour whisky in their warehouses than I remember seeing before.
A.D. Rattray - Some of the first whisky casks we ever purchased on behalf of K&L were bottled for us by the Morrison family. Today they’re much more focused on getting their Glasgow distillery project off the ground as independent selections become less prevalent.
Adelphi - While we never actually bottled anything under the Adelphi label, a number of our Faultline editions over the years have been from Adelphi’s stock. Today, however, there’s nothing for us to buy. No worries for our friends Keith and Alex, however, because they’re far too busy making whisky at their new Ardnamurchan distillery which opened in July of 2014.
Wemyss - We’ve done a few dealings with Wemyss over the years, but I’m not sure independent casks will be a big part of their future at this point. The Edinburgh-based family opened Kingsbarns distillery in the Lowlands at the end of 2014.
Hunter Laing - Our business with the boys at Hunter Laing has never been better. The supplies still look strong in Glasgow. That being said, Andrew and his brother just announced their intention to build a new distillery on Islay. Starting ASAP.
I think the only people I’ve left out here are Duncan Taylor (who were planning to build a distillery at one point) and Douglas Laing who are slowly moving into more blended NAS brands. You could throw in Compass Box, but in a sense the company did just work out a deal for five distilleries—Royal Brackla, Craigellachie, Aberfeldy, Aultmore and Macduff—now that Bacardi has become a recent partner in the operation. This obsession with supply isn’t a coincidence. If you’re a skeptic and you honestly believe there isn’t an issue with obtaining continual supply just look at the almost unanimous scramble from independents to secure access to production. The writing’s on the wall here. You either need to own your own source of single malt, or face what lies ahead without a guarantee. But what actually does lie ahead? Confidence, from what I’ve seen this week.
No one is even slightly worried about the market taking a turn for the worse, it seems. I can’t help but think of a similar confidence in the housing market back in 2007, especially after watching The Big Short on the flight over. Of course, as a number of friends and colleagues pointed out to me over the last few days, the rock-solid confidence investors had in the housing market was based on fraud, which isn’t the case in the whisky industry. That’s true, but the only thing more unstable than fraud in my opinion is fashion. Whisky isn’t a necessary commodity. It’s a fashionable choice based on personal preference, as well as stylistic and economic conditions that can change at the drop of a hat. It’s because of these unpredicted changes that distilleries in Scotland over the last century have been boarded up, closed down, and mothballed only to be reopened, refurbished, and rebuilt later on down the line.
This type of flux seems to be business as usual for those in the whisky industry. Strikes and gutters. Gluts and shortages. You take the good as it comes and you prepare for the worst. These guys are used to it, but it still scares the hell out of me.