We welcome distinguished whisky writer Gavin D Smith to our magazine! Pioneer in his own right, Gavin gives us a bit of insight in the current state of the whisky and spirits industry.
global bourbon supply, according to the Kentucky Distillers’ Association. Kentucky whiskey-makers turned out a record 2.7M barrels of bourbon in 2022 — the fifth consecutive year that production topped two million barrels. Back in 2009, the state’s distilleries had an inventory of some 4.6M barrels, while 2023 saw that figure rise to 12.6M barrels. Ongoing consumption figures do not show a comforting correlation with the amount of spirit ageing in rickhouses across the state and far beyond. History – and basic economics - teaches us that when supply exceeds demand for a significant period of time in the world of whisky, all is not well. Such business practices were central to the dramatic period of ‘bust’ that followed late Victorian ‘boom’ in Scotland, while the ‘whisky loch’ of the 1980s was also principally due to over-optimism on the part of producers. So, does another period of ‘bust’ beckon? One factor making it less likely than in the past is the greater resilience of the Scotch whisky industry, for one, due to a much wider range of global markets, not all of which are affected by the same positive or negative economic factors and consumer-led trends at the same time.
However, the price of whisky is undeniably high in many countries, at a time when cost of living issues are impacting many people, and there seems to be a global tendency among younger potential consumers to avoid not just whisky but all alcohol. Around the world, producers of gin, cognac, tequila and wine are seeing sales fall, while craft breweries have been closing in the States faster than craft distilleries. A report noted a 10% decline in alcohol consumption among 18-34-year-olds over the past two decades. Low, or zero- alcohol drinks have become increasingly popular, and a 2023 survey in the USA showed that just over half of all young adults considered one or two alcoholic drinks per day to negatively impact health. It always pays to remember, however, that the whisky industry, of necessity, requires playing the long game. A manufacturer may make a can of beans and sell it a day later. With whisky there is likely to be at least a three years’ wait before a return is realised. As any business figure will tell you, it is notoriously difficult to predict markets several years ahead. So, are those Diageo shares a good buy right now? Cautious optimism seems to be the order of the day, but with the ghosts of past whisky ‘busts’ hovering around, just don’t bet the house on them.
Is Boom Becoming Bust? BY GAVIN D SMITH
Since the creation of Diageo in 1997, its shares have been one of the safest investments around, rewarding loyal holders with pleasing annual dividends year on year. But now, the unthinkable has happened. Diageo shares have fallen in value. In August they slumped by around 10% on the back of notification of the company’s full-year earnings, and overall, they are down 40% from their all-time highs of early 2022. Performances for the world’s leading drinks company were particularly disappointing across Latin America and The Caribbean (LAC), while sales also fell in North America. Confirmation that all was not well in the world of whisky came in September, when the Scotch Whisky Association (SWA) released figures that showed an 18% fall in Scotch whisky export value during the first half of this year, compared to first half of 2023. Value fell by £463.2M ($835.8M CAD) to £2.1B ($3.8B CAD). Only India recorded a rise among the top five markets. The problem is not confined to Scotch by any means, with Sweden’s highest-profile distillery Mackmyra filing for bankruptcy in August, citing struggles with profitability and cash flow. In Wales, Penderyn’s apparently unstoppable expansion has been curtailed by the closure of its third distillery, located in Swansea. The plant only opened in May 2023, but has now ceased production, with Penderyn’s chief operating officer Neil Quigley blaming “The slowdown in the economy and the current reduction in demand for premium products.” Meanwhile, Princetown distillery on Dartmoor in south-west England is largely complete, but is searching for an injection of £5M ($9M CAD) to get it up and running. In the USA, Mark Gillespie pointed out in an episode of WhiskyCast (www.whiskycast.com) broadcast during September, that US craft distilleries had been closing at a
rate of one per week during the previous year, partly due to inflation and cutbacks in consumer spending, but also due to issues relating to distribution. As Gillespie explained, “Just three companies control the route to market for many craft distillers, and their focus is on high-volume brands as opposed to the low-volume craft distillers.” Yet, barely a week goes by without the announcement of another start- up distillery project somewhere, and the creation of new distilleries has been accompanied by significant expansion at many existing sites. Within Scotland, around 40 new distilleries have opened in the last decade, but many of these are relatively small In terms of output, and programs to increase potential output have been responsible for much of the overall increase in capacity. And what an increase it has been. In 2005, total malt spirit capacity stood at 224.19M litres, and by 2023, that figure had almost doubled, to 428.30M. While Glenfiddich boasted the largest individual distillery capacity in 2005 with 10M litres annually (MLA), fast forward to 2023, and Glenfiddich and The Glenlivet each have a potential output of no less than 21MLA, followed by The Macallan with 15MLA. In England, the number of whisky distilleries has risen from one to more than 30 in the last two decades, and over the same period, Ireland’s single-figure tally has grown to more than 40. Australia’s total has climbed from five to more than 100 distilleries, while mainland Europe, including Scandinavia, has in excess of 250, as has Canada. Most remarkably of all, the USA boasted 75 distilleries making whiskey in 2005, while that figure now stands at well over 2,000. In Kentucky, more than 100 distilleries are currently operating, with the state’s distillers producing 95% of the
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