BALANCING ACT
Recent years have seen a spate of new distillery openings but will the resulting surge in supply outweigh future demand?
will demand meet supply as more and more whisky distilleries open?
In the last quarter of 2017, an unprecedented number of new whisky distilleries opened, while dozens of others announced they would be opening soon or were seeking investment. There were even announcements of formerly mothballed distilleries being resurrected. Meanwhile, some well-established distilleries announced they were doubling capacity. It’s all very exciting, but is there enough demand?
In May 2015 there were some 115 distilleries licensed to produce whisky in Scotland according to the Scotch Whisky Association. By my latest count, there are 126 active distilleries, with a further 26 at various stages of planning and construction. If they all get off the ground, that would total 152 distilleries.
In one week in October, three closed distilleries announced they were re-opening, which took the whisky industry by surprise. It’s impressive that these stories weren’t leaked in advance. Diageo announced they were planning to reopen the distilleries of Port Ellen on Islay and Brora in Sutherland, with the aim of distilling again in 2020.
The day after this news, Ian Macleod Distillers announced they had purchased Rosebank Distillery in Falkirk and would be resurrecting it. Should these three go ahead as planned, this would take the total number of whisky distilleries to 155 – an increase of 40 since 2015.
This flurry of openings echoes what happened before the whisky industry crashed in 1898 after years of booming sales. In the last decade of the 19th century, 33 new distilleries opened and the volume of whisky stored under bond rose from just under 9 million litres to over 61 million litres. From 2010 to 2015, stock in bonded warehouses in Scotland increased by over 20%.
The whisky industry has always gone in cycles. The last major crash was dubbed the ‘whisky loch’ and happened during the 1970s due to severe overestimation of demand. This led to the closure of several distilleries during the 1980s.
The rate of announcements about new distilleries was around one per week towards the end of 2017. Raasay Distillery, Lindores Abbey Distillery, GlenWyvis Distillery, Annandale Distillery and Clydeside Distillery opened over the course of a few weeks. Despite the whisky industry’s history of boom and bust, times are different compared to the 1970s.
There are more export and emerging markets for whisky – the surface has barely been scratched in India, Africa and Latin America with regards to single malt whisky. Hopefully, with continued reduction of import tariffs in these emerging markets, the demand will continue to rise in line with the increasing levels of output.
In established markets, there will inevitably be a shift from consumers buying blended whisky to buying single malt whisky – this comes with time and with consumer education. Whisky being made today may not be sold for another five, 10, 15 or more years. I trust the economists and investors have crunched their numbers correctly to anticipate future demand.
I expect there will be a balancing out in the next few years. The well-established distilleries will continue to lead due to their distribution routes and brand loyalty but it will be interesting to observe how emerging single malts come to market. Many have already said they will wait longer than three years to bottle, but they will need the cash-flow and patience to see this out.
I think we will see the emergence of ‘new wave’ whiskies, bottled young and targeting consumers willing to spend more for something produced on a smaller scale. There are exciting – and potentially turbulent – times ahead for the whisky industry.
‘I think we will see the emergence of “new wave” whiskies’