What does the fu­ture hold for one of Ire­land’s most fa­mous ex­ports?


Belfast Telegraph - Business Telegraph - - Feature -

The epic battle for Ir­ish Dis­tillers, then the monopoly pro­ducer of Ir­ish whiskey, fi­nally drew to a close 30 years ago this month with Pernod Ri­card de­feat­ing Grand­met (now part of Di­a­geo).

In 1988 Ir­ish whiskey was very much the also-ran of the brown spir­its mar­ket. Af­ter al­most a cen­tury of de­cline, an­nual sales were down to about two mil­lion 12-bot­tle cases.

While the cre­ation of Ir­ish Dis­tillers in 1966 had al­most cer­tainly saved Ir­ish whiskey from ex­tinc­tion, the com­pany lacked the heft to com­pete with the in­ter­na­tional drinks giants in over­seas mar­kets — more than 95% of Ir­ish whiskey is ex­ported.

What a dif­fer­ence 30 years can make. Un­der the own­er­ship of Pernod Ri­card, sales of Jame­son hit 7.3 mil­lion cases in the year to June 30, 2018.

Scotch whisky pro­ducer Wil­liam Grant pur­chased Tul­lam­ore Dew from C&C in 2010. Un­der its own­er­ship an­nual sales of Tul­lam­ore Dew in­creased to 1.2 mil­lion cases in 2017 and are ex­pected to hit 1.4 mil­lion cases this year, mak­ing it the sec­ond mil­lion-case Ir­ish whiskey brand.

This year to­tal sales of Ir­ish whiskey are fore­cast to hit about 10.5 mil­lion cases, up 14% on 2017, and a more than five-fold in­crease on the 1988 fig­ure.

At the same time as Ir­ish whiskey sales have been soar­ing, Ir­ish Dis­tillers’ pre­vi­ous pro­duc­tion monopoly has been crum­bling. First into the ring was John Teel- ing’s Coo­ley Dis­tillery in 1987. Tul­lam­ore Dew, which had pre­vi­ously been pro­duced by Ir­ish Dis­tillers, opened its own dis­tillery in Tul­lam­ore in 2014 and last week the Black­wa­ter Dis­tillery in Cap­po­quin, Co Water­ford, be­came the 21st dis­tillery to open its doors.

With its main fo­cus on its Jame­son mega-brand, now the fourth best-sell­ing whisk(e)y in the world, Pernod Ri­card has been grad­u­ally sell­ing off its sec­ondary Ir­ish whiskey brands.

It sold Tul­lam­ore Dew to C&C in 1994, Bush­mills to Di­a­geo (which in turn sold it to Mex­i­can spir­its pro­ducer Jose Cuervo in 2014) in 2005 and Paddy to US drinks com­pany Saz­erac in 2016.

So with sales grow­ing strongly, the num­ber of dis­tillers in­creas­ing and own­er­ship of the ma­jor brands more widely spread, what could pos­si­bly wrong? The rapid growth in the num­ber of dis­til­leries has in­evitably stoked fears that whiskey dis­till­ing is ex­pe­ri­enc­ing some­thing of a bub­ble and that not all of the new en­trants will sur­vive.

Last month it was an­nounced that the pro­posed £12m Quiet Man dis­tillery in Lon­don­derry would not now be go­ing ahead. There have also been re­ports of other pro­posed dis­tillery projects ex­pe­ri­enc­ing fund­ing dif­fi­cul­ties.

Whiskey dis­till­ing is ex­tremely cap­i­tal-in­ten­sive. Not alone do the in­vestors have to fi­nance the dis­tillery it­self, as Ir­ish whiskey must be ma­tured for at least three years, they then have to go out and get the money to fund their stocks.

What this means is that in­vestors in even a mod­est-sized dis­tillery will have to get their hands on at least €10m be­fore they can sell a sin­gle drop of the hard stuff.

In or­der to bridge this gap many of the new dis­til­leries, in­clud­ing Black­wa­ter, also pro­duce gin, which un­like whiskey can be sold within a few weeks of be­ing dis­tilled.

Cash-strapped dis­tillers can also stop dis­till­ing tem­po­rar­ily, some­thing which Coo­ley did for two years dur­ing the 1990s, se­cure in the knowl­edge that the value of their stocks is con­tin­u­ing to ap­pre­ci­ate.

Black­wa­ter co-founder Peter Mul­ryan says that his dis­tillery al­ready has a buoy­ant gin busi­ness, pro­duc­ing its own Black­wa­ter gin and the Boyle’s gin brand for Aldi. He be­lieves that not alone will the gin busi­ness bring in rev­enue while Black­wa­ter is wait­ing for its whiskey stocks to ma­ture, but it also gives it the op­por­tu­nity to de­velop re­la­tion­ships with cus­tomers who will also want to buy its whiskey three years from now.

Although any rev­enue from gin is wel­come, the ra­tio­nale for most of these new dis­til­leries is, of course, whiskey. The new dis­tillers are at­tracted by pro­jec­tions of con­tin­ued strong growth in the Ir­ish whiskey cat­e­gory.

At this year’s 14% growth rate sales of Ir­ish whiskey would more than dou­ble to 23 mil­lion cases by 2024. Even an­nual sales growth of “only” 10% would push an­nual sales up to al­most 19 mil­lion cases.

Which of course begs the ques­tion: how re­al­is­tic are these pro­jec­tions? While 10.5 mil­lion cases (126 mil­lion bottles) might seem like an aw­ful lot of whiskey it pales be­side other whisk(e)y pro­duc­ers such as Scotch (95 mil­lion cases), Bour­bon (40 mil­lion) and Cana­dian (20 mil­lion). Even if these pro­jec­tions prove to be ac­cu­rate, 2024 sales of Ir­ish whiskey would still only reach those of Cana­dian whisky to­day.

Ir­ish Dis­tillers was taken by sur­prise by the very strong growth in the de­mand for Jame­son over re­cent years. This surge in de­mand means that it is short of both the stocks of older whiskeys and the dis­till­ing ca­pac­ity which it will need to meet con­tin­ued sales growth. This was de­spite com­plet­ing a €100m project at its Mi­dle­ton dis­tillery, that dou­bled pro­duc­tion, in 2013.

With the ex­panded dis­tillery now run­ning at close to full ca­pac­ity, Ir­ish Dis­tillers is re­fus­ing to com­ment on re­ports that it is plan­ning to build a sec­ond dis­tillery on a green­field site some- where in the south-east.

Tul­lam­ore Dew has al­ready cranked up ca­pac­ity at its new dis­tillery. When it first opened in 2014 it had an an­nual ca­pac­ity of 1.5 mil­lion cases. Fol­low­ing fur­ther in­vest­ment at the site, pro­duc­tion ca­pac­ity is now “close to four mil­lion cases”, ac­cord­ing to brand am­bas­sador John Quinn.

The United States re­mains by far the largest mar­ket for Ir­ish whiskey with 4.1 mil­lion cases, 44% of the to­tal, go­ing State­side in 2017. The is­land of Ire­land is next at about 600,000 cases (6.5%).

Other big mar­kets in­clude Rus­sia, France, the rest of the UK, Ger­many and South Africa, each of which took be­tween 340,000 and 400,000 cases last year (a to­tal of 1.84 mil­lion cases or 20%).

In an un­wel­come com­pli­ment to its suc­cess, coun­ter­feit Ir­ish whiskey has be­gun to ap­pear in a num­ber of mar­kets. Wil­liam Lavelle, head of the Ir­ish Whiskey As­so­ci­a­tion, which po­lices the in­tegrity of Ir­ish whiskey, says that his or­gan­i­sa­tion is pur­su­ing le­gal ac­tion against coun­ter­feit­ers in a num­ber of coun­tries.

With the ex­cep­tion of the French mar­ket, where Ir­ish whiskey sales were flat in 2017, sales in all the ma­jor ex­port mar­kets grew strongly last year with sales in the UK up 12.5% and Rus­sian sales jump­ing by al­most 20%.

A note of cau­tion may be in or­der. While Ir­ish whiskey has so far re­mained unaf­fected by ei­ther the grow­ing transat­lantic trade ten­sions or tight­en­ing sanc­tions against Rus­sia, how long can our run of good luck last?

“The fu­ture of Ir­ish whiskey is in Africa and Asia,” says John Teel­ing, who af­ter sell­ing Coo­ley to Amer­i­can spir­its pro­ducer Jim Beam in 2012 has re-en­tered the Ir­ish whiskey mar­ket with his Great North­ern Dis­tillery project.

With the ex­cep­tion of South Africa, Ir­ish whiskey has vir­tu­ally no pres­ence on the African con­ti­nent and has yet to make an im­pact in Asian mar­kets.

Ir­ish Dis­tillers, still very much the 800lb go­rilla of the cat­e­gory with a 70%-plus mar­ket share, re­mains op­ti­mistic about the prospects for Ir­ish whiskey and un­wor­ried about the new ar­rivals.

“Ir­ish whiskey is in the mid­dle of a global re­nais­sance that has seen the cat­e­gory be­come the fastest-grow­ing pre­mium spirit in the world,” says Ir­ish Dis­tillers chair­man and chief ex­ec­u­tive Conor Mc­quaid. “As an in­dus­try, we work to­gether to pro­mote and pro­tect the rep­u­ta­tion of one of Ire­land’s best-loved ex­ports.

“We be­lieve Ir­ish whiskey’s pop­u­lar­ity has the po­ten­tial to grow from a rel­a­tively small cat­e­gory glob­ally and take mar­ket share from tra­di­tional com­peti­tors like Scotch and Amer­i­can whiskey, while giv­ing more choice to con­sumers.”

❝ In­vestors will have to get their hands on at least €10m be­fore they can sell a sin­gle drop of the stuff

❝ With the ex­cep­tion of the French mar­ket, all the ma­jor ex­port mar­kets grew strongly last year

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