The cost of Scotch
How is the Scotch industry impacted by global issues like war, the pandemic and brexit?
WAR, pandemic, inflation, Brexit ... these are issues and events that you would not normally associate with Scotch whisky. However, they have caused a major disruption to lives and industries across the globe, and the Scotch whisky industry is no exception.
During an interview with Glenfarclas marketing executive Ian Mcwilliam, I took the opportunity to ask him about just how the distillery and the Scotch business as a whole has managed to cope with these disruptions.
According to him, the industry has seen some major disruptions in terms of not just production, but also supply chain issues, thanks to Brexit and Covid-19 restrictions.
“Thankfully, the British government deemed Scotch whisky to be an essential item. So that was good for us as we could keep producing whisky,” he said, adding that having to implement social distancing at the distillery did change their production schedule somewhat.
“Normally, summer is a silent season, and we do the routine maintenance during July and August. The social distancing came in spring time, around March and April, and because of the strict rules, we had to stop production,” Mcwilliam explained.
“But what we did was get the summer maintenance teams in early to do their jobs, and when social distancing rules eased, we started production again and continued right through summer. It was the first time we produced whiskey in summertime! It was not a huge amount, because water is quite limited in summer. But all in all we produced at the beginning of the year, what we wanted to do based on our forecast,” he added.
Another problem the industry is facing is the lack of workers, not so much at the distillery, but at the bottling halls.
“We had a lot of workers who were Eastern European, but because of Brexit they could no longer work for us, and had to go back home,” Mcwilliam said.
“Then just after that, the pandemic hit, and it was not possible to have people working too close together on the bottling line. But even now that (the rules have) eased, people just don’t want to come back to work,” Mcwilliam said.
The Russian and Ukraine war has also been a major disruption, with the latter being a major producer of some items that the Scotch whisky industry needs for their packaging.
“We’ve got plenty of whisky, which we could bottle eventually if we can get glass! Some major bottling halls in Ukraine are no longer producing. And it’s not just glass we can’t get – it’s also labels, cardboard box and tubes. This is an industry-wide problem,” he said.
So, assuming that the distilleries eventually get the bottles and packaging sorted out, and their whisky is ready to ship, then comes another problem – how do you get them to the consumers?
“Logistics is the next problem. There are not enough truck drivers in Britain now. And even if you do get it loaded onto a truck, and to the docks to go overseas, there is also a lack of shipping containers in the world at the moment,” Mcwilliam said with a wry smile.
He reckons that this is probably caused by the lack of trade with China at the moment, as there used to be multiple ships going in and out of Europe to China.
“That trade is gone for now, so there’s not enough empty containers to get back into Asia. So, logistics-wise, we used to be able to predict that if you placed your order today, you should be able to get it shipped from Scotland to Asia within five to six weeks. Now, we just don’t know! And that’s a real problem, as we can see many countries going out of stock.”
The rising inflation and cost of energy in Britain is also going to affect the whisky we love.
“Another thing we’re facing now is high inflation, which is in record figures in Britain,” he said. “And then there’s the energy cost. The government has lifted the price cap for the energy companies, so we’re now facing an increase in energy costs of about 700% next month.”
The cost of the sherry casks Glenfarclas uses for maturation has also gone up because Britain is no longer part of the European Union.
“We’re no longer in the EU, so there’s no more free trade, and that means additional taxes. Add to that the problems with logistics for transporting the casks from Spain to Scotland, and we’re looking at an increase of 68% cost for our sherry casks,” he revealed.
So, after all that, the big question is: What does all this mean for the average consumer?
“Well, for one, you can expect to see some fairly substantial price increases for Scotch whiskies around the world,” Mcwiliam said frankly. “It’s not that we want to increase prices. We don’t want these energy costs that are coming but it’s out of our control.
“The price increases should be pretty much across the board, as we try and get some sort of balance from the rising costs we’re facing as producers,” said Mcwilliam.
He also reckons there will be a lot more non-age statement whiskies coming into the market as distilleries struggle with stocks of older whiskies.
Mcwilliam did note a change in consumer behaviour that happened during the lockdowns, which impacted their stocks.
“What we’ve seen for sales during lockdown was actually an increase in the demand for the older-aged premium products. I think what was happening was people were stuck at home, restaurants were closed, bars were closed, no holidays, and people couldn’t travel,” he explained.
“So people were basically drinking at home, and probably drinking better quality stuff than they normally would. So instead of drinking a 12 or 15-year-old whisky, they were drinking a 21 or 25-year-old.”
According to him, although the restrictions have eased, that trend has continued to the point where the distillery is starting to struggle to fulfill demand for certain age statements of their Scotch.
“We had to stop producing the 21 because we just don’t have enough stock of casks to keep up with demand,” Mcwilliam said.
“In some cases, we have the casks but if we used them all to produce the 21, we won’t have enough to make the 25 in four years’ time.”
That doesn’t mean that there won’t be anymore 21-year-old Glenfarclas, ever. Mcwilliam says that this is just a “little dip” at the moment where they don’t have enough for the 21.
“We’re just trying to keep stocks for the future. You can’t just produce a 21-year-old whiskey today – these whiskies were laid down 21 years ago!”
At the end of the day, Mcwilliam is just glad that the whisky industry is still standing strong. “My boss, John Grant, said to me once that people drink whisky in good times when they are happy, and when they are sad, they drink it to feel happy,” he said.
“End of the day, we’ve got a glass of whisky in our hands that we can enjoy. And that’s a great thing.”