Tag Archives: Scotch Whisky

Rare Whisky Review – 24th June 2016

As the rare whisky auction market in the UK has exploded over recent years, it’s become increasingly challenging to regularly feature coverage for each auction-house. We’ve taken the decision to produce a more holistic rare whisky review rather than a weekly auction watch featuring just one auction-house. While we plan on focussing on the secondary market, we’ll also feature important primary market releases and our opinion on pricing, value and market impact too.

We’ll ultimately be producing fewer reports but we hope our readers continue to enjoy our market commentary. We welcome feedback, suggestions and recommendations for future content.

Secondary Market – June 2016

Macallan are experiencing a sea-change in both demand and pricing for their, among others, classic 18 and 25 year olds. The increases through 2016 have been utterly mesmerising; almost unlike anything we’ve seen before. The 18 year olds have seen a 34.13% increase through 2016 and the 25 year olds by 26.14%.

Macallan Indices for 18 and 25 year olds

Scotch Whisky Auctions June sale pushed certain values further with a notable 1963 Macallan vintage (pre the more traditional 18 year olds) fetching a huge £2400. Buoyancy remained but looked to stabilise a little more for many other bottles of vintage 18’s as they continued to trade at the top of the market. The below Rare Whisky extract shows the volume and annual average value for the Macallan 1972 18 year old.

Macallan 18 1972 Volume vs Value

Bottles are vanishing from the market and values are soaring. A robust correlation?

Contemporary Macallan bottles continue to underperform the broader market.

William Grant’s highly collectable Hazelwood Reserve (the first of the five bottle set commemorating respective birthdays of Janet Sheed Roberts) has always been the most desirable of the set. This was last sold at auction in the UK for £420. That price seemed a distant memory as the current market fetched £2200.

The index below shows the combined performance of the five bottles.

Hazelwood Index Jun 2016

The impact of this recent sale is clearly evident but the remaining four bottles continue their negative trajectory. We suggest this particular bottle was bought by a collector looking to complete the set. As this is the most challenging bottle to acquire, for a completist collector price is often not the biggest barrier… simply finding one is!

Old 1980’s Lagavulin had more or less doubled in value over the last 3 years. £920 was paid for a poor fill level White Horse 1980’s bottle. These old gems are becoming less frequently seen in the market. Are the remaining bottles being hoarded or are they being drunk? The answer to that in some respects will define future values. These old, hard to find discontinued releases, look to provide further value to the collector and investor; but is there value to be had out of the current retail/primary market? We look at that a little later.

SWA High Performers
Stellar performers from the recent June Scotch Whisky Auction

Illustrating how influential and important the secondary market has become, some of the largest rare whisky retailers have now established auction based routes to market. The Whisky Exchange’s online auction – Whisky.Auction is one of those. Showing continued heightened demand for the rarest of examples, a bottle of Port Ellen 2008 Feis Ile sold for £3,700 in their June auction far exceeding its previous £3,400 record.

Bonhams June auction brought two notable rarities under the hammer. One of the 77 bottles of Dalmore Candela fetched a record £13,000, significantly up on its 2014 previous best of £10,600. The second bottle was interestingly a blend rather than a malt when an early 1900’s bottle of Johnnie Walker managed a very respectable £6000.

Whisky Auctioneer’s most recent auction ended on the 30th of May and was a generally buoyant affair. That said, a bottle of the 1953 Glenfarclas Wealth Solutions bottle came well down from its October 2015 high of £5,200. This bottle settled well below previous sales when it finally sold for £3,900 (broadly in line with its 2013 prices).

Glenfarclas 1953 Wealth Solns
Not a particularly good solution for one’s wealth if you bought at the peak

Tobermory isn’t necessarily the distillery most associated with collecting and investing, Tobermory 1972 33 year oldhowever, further cementing the underpinning of the whole market by liquid quality, a bottle of 1972 33 year old Tobermory sold for £735. We were fortunate enough to be able to sample this bottle on a recent treasure hunting trip and we were both bowled over by this exceptional spirit.

Final mention has to go to Whisky-online Auctions superb £8,200 result for a bottle of 1967 ‘Largiemeanoch’ – which is Gaelic for stunning sherry cask Bowmore! This bottle appeared expensive when it first sold in the UK for £2,350 in 2012, a price now dwarfed by recent market performance.

Old, rare and high quality whiskies continue to be the subject of desire to a growing international audience. This sustained demand is pushing prices ever higher. While demand remains as it is and supply (of the right bottles) is relatively low in the grand scheme of things, this continued buoyancy looks set to continue.

Some of the exceptional increases we’ve seen over recent months would appear to need to cool down a little. We can’t physically see the Macallan 18 year olds progress on the same trajectory. We envisage a cooling is required in certain areas of the market to restore balance; however, we don’t expect a significant re-trace… equally we never say never.

Primary Market/Retail Releases.

Continuing Lagavulin’s 200th birthday celebrations, a new 25 year old has been released. 8,000 bottles (slightly fewer than the 2002 release’s 9,000) wholly matured in sherry casks will cost £799 per bottle. Does that represent value to the collector and investor?

Lagavulin-whisky_Lagavulin-25-Year-1200x675

Firstly, the dedicated Lagavulin collector will undoubtedly need to buy this bottle but we see little immediate reward for the investor. The 2002 release 25 year old sells on the secondary market for around £500 – £600.

While, to some degree, we’re not speaking from a position of absolute knowledge as we haven’t yet tried the liquid (but we will be), we suspect a similar auction price-point could be achieved in the short to medium term e.g. a 20% loss over retail price. If the liquid is utterly stellar, secondary market prices could be a little higher.

From a pure pricing perspective, at £799, the Lagavulin has positioned itself above virtually every other 25 out there. The current 25 year old Macallan sherry oak can be found for the same price. Dalmore’s pricing was decreed as outrageous when their recent 25 year old hit the market for £600 (that now sells at auction for around £400).

Both Highland Park and Glendronach (Grandeur) can be found for around, or under, the £350 price point. Two worthy drams in anyone’s book.

Looking at some others – Glenmorangie can be found at £250, Glenfiddich is £299 and Diageo stablemate Talisker is a mere snip (it actually really is) at £230.

OR how about half a case of Glenfarclas 25 year old (£120 per bottle) for more or less the same price?

We’re not saying the pricing is wrong, bad, good, superb or indifferent, just interesting. Once we’ve tried the liquid we’ll be able to comment with absolute knowledge.

Until next time, slainte.

Andy and David.

Monthly Market Watch – February 2015

Values Harden amid Shortening Supply.

Following a plateau/slight re-trace in whisky values at the end of 2014, vast open market supply looks to have calmed to more manageable levels. That relative back-step in supply enabled rare whisky values to progress, in some cases significantly. The total number of bottles seen on the open market in February amounted to 2,690, still some 28.8% ahead of the 2,089 seen in February 2014. When 2014’s total growth of 68% is taken into account, 28.8% feels more ‘relaxed’.

Throughout the first two months of 2015 we’ve seen 6,029 bottles hit the open market, up 45.7% on the same time period in 2014. When February volumes are directly compared to Decembers record 4,153, (a 35.23% drop) volumes look to be cooling a little which should be positive for overall values.

The RW101 indices showed good growth through February with just one index moving into negative territory –

The indices for February ranked in order of increase are –

1 – RWPE Index – Port Ellen +29.06% (view Index)

2 – RWK Index – Karuizawa +9.47% (view Index)

3 – RWIcon100 – Icon 100 Index +5.89% (view Index)

4 – RWM18 Index – Macallan 18 +3.33% (view Index)

5 – RWB Index – Brora Index +2.27% (view Index)

6 – RWRMS Index – Rare Malts Selection Index +1.85% (view Index)

7 – RWVintage50 – Vintage 50 Index +0.05% (view Index)

8 – RWM25 Index – Macallan 25 -0.55% (view Index)

 

The significant jump in the Port Ellen Index was primarily due to the 4th release doubling in price, increasing a staggering 106.25% (£800 to £1,650). This coupled with a 23.34% gain for the 3rd release reversed the steep drop we saw at the end of 2014.

Port Ellen Index sees 2014 losses reversed
Port Ellen Index sees 2014 losses reversed

The benchmark RWIcon100 Index outperformed the general market, increasing by 5.89%. Yet again, bottles with older age statements and older vintages led the way. Good growth was seen for Dalmore’s 1973 30 year old (up 46.67% on Jan), Laphroaig’s 40 year old (up 26.53% on Jan) and Macallan’s 30 year old blue wood box variant (up 26.43% on Jan). The Glenlivet 1972 Cellar Collection was also up an impressive 25% on January.

Among the worst performers were Springbank’s 25 year old Frank McHardy bottle which lost 30.43% and Macallan’s 1971 25 year old Anniversary Malt which fell by 19.05% (in part resulting in the Macallan 25 year old Index staying in the red). Glenmorangie’s 1971 vintage Culloden bottle also moved down by 20%.

Over the past three months Karuizawa values have remained static, albeit static at all-time highs for the brand. February saw further increases in demand pushing prices to new records. The ever expanding desire for bottles of rare Karuizawa shows no immediate sign of calming amid relatively scant supply. Scant supply and the knowledge that any remaining casks will, at some point run out, should see values advance.

Demand shows no sign of slowing for heavily sought after bottles of Karuizawa
Demand shows no sign of slowing for heavily sought after bottles of Karuizawa

The Macallan 18 year old index bucked its 2014 trend and performed admirably, crystallising a 3.33% gain on January. Putting that into context, the Macallan 18 year old index increased by 3.57% over the whole of 2014. Are the 18’s due a more sustained increase?

The Apex Indices (the best performing 1,000, 250 and 100 bottles) also reversed their recent, but marginal, down-trend. All indices made good progress with the best performance seen at the top end of the market where the RWApex100 index moved up 6.79%. The RWApex250 increased by 3.50% and the RWApex1000 increased by 1.53%.

In stark contrast to the positivity of the main key performance indicators, the negative indices continued to fall (albeit slightly). The RWNeg100 fell 1.22%, the RWNeg250 fell 0.22% and the RWNeg1000 fell by just 0.02%.

As the oversupply of winter passes, the approaching onset of spring looks to be bringing more than just green shoots to the right bottles.

Annandale – The Million Pound Cask – The Ultimate Investment?

In April 2004 Stephen Jupe was found guilty of fraud. In May 2004 Jupe was sentenced, at Soutwark Crown Court, to five years behind bars.

This was to be the fitting closure of a lengthy investigation into the Marshall Wineries/Grandtully Distillery whisky (and wine) investment fraud in the mid/late 1990’s.

Full details can be read on the Serious Fraud Office’s website here.

Company fraud was High on the list of convictions but alongside that was clear reference to overpricing of casks of new-make spirit sold specifically as an investment. Hogsheads were being sold for £930 – £980 per cask, way over their market value at the time. Wind the clock forward a few years and we have the first cask of new-make spirit being offered for sale for £1,000,000.

That’s right, newcomer, Annandale distillery is offering its cask number 1 for a cool one million pounds.

The million pound cask
The million pound cask

Asking any amount of money for something is fine in my book. In a free market anyone can ask any sum of money for anything they want. Ferrari’s new “La Ferrari” is £1,000,000, there are plenty of houses for sale for well over that amount, paintings, jewellery, land…. Almost as many things as I can think of.

This issue I have with this particular ‘ask’ is that it’s also being offered as an investment. “For the ultimate collector, investor or whisky connoisseur. There is a once in a lifetime opportunity to own cask number 1 which was filled with great ceremony on November 15th 2014. This is offered for sale at a price of £1million” and “Even if you are no whisky connoisseur, you may choose to purchase a cask as a shrewd investment” claims Annandale’s website. A claim I find quite frankly frightening.

It doesn’t stop there either. Highlighting just two more of their cask offers – Cask number 40 is £800,000 and Cask number 47 (that well known lucky number!!) is £300,000.

The £800,000 Cask #40 being filled at Annandale Distillery
The £800,000 Cask #40 being filled at Annandale Distillery

Usually, when something is offered as an investment it’s backed up with historical figures, charts, background and (however spurious it may seem) the reason why the commodity is considered an investment. All with a clear overarching principle statement that past performance is no guarantee of future growth.

As far as I’m aware, this is the first ever cask to be offered for sale for this amount of cash with no past performance at all. The only real gauge for high value casks was a cask of 1991 Macallan which sold for just shy of $2m HK (around £160k) at auction last year. £160,000 is a massive amount of money for one cask and that was relatively well aged Scotch from the hugely desirable Macallan distillery. I genuinely don’t understand how this can be advertised as an investment? It’s a cask of high strength distilled spirit which, if it’s left long enough, will officially become Scotch whisky in November 2017.

Okay, so this cask is indeed a one off then. Surely the best Scotch distilled in Scotland EVER? Bearing in mind it’s actually not Scotch for another few years who knows? It might be brilliant but equally, it might fail. A buyer is being asked to ‘invest’ in something which has no provable quality. Be it good, bad or indifferent, nobody can be sure what it will be like in three, ten, twenty or even forty years.

With all the best known premium distilleries there’s a history of production and an in depth understanding of maturation, usually backed up by a vastly experienced, respected master distiller/master blender (Richard Paterson, Bob Dalgarno, David Stewart and Jim Beveridge to name four such icons). Maybe the distillery simply don’t want to sell these casks? I would understand that – The owners want to hang onto their first few babies so much that an ‘offer they can’t refuse’ would be required to make them part with their casked offspring. But I don’t get that feeling here.

One of the distilleries founders, David Thomson, said to The Scotsman “The price tag is high, reflecting that this is a once in a lifetime opportunity for someone to become a part of Scottish history and to own the Scottish whisky industry’s most valuable cask”…. The Scottish whisky industry’s most valuable cask? A bold claim indeed. Most expensive cask? Undoubtedly! As we all know, simply being expensive is no guarantee of either quality or future increases in value.

I would have said that particular badge of honour would go to something being lovingly stroked by The Macallan, Dalmore, Balvenie, Port Ellen, Brora… or something in the ‘intensive care’ area of Gordon & MacPhail’s extensive portfolio…. Apparently these are all second fiddle. It’s official then… the most valuable cask of Scotch is actually new-make from a new distillery…. Really!? Put aside the fact that this cask boils down to – c200 bulk litres of some stuff distilled from some malted barley and put in some wood for a bit – and it still comes down to it being marketed as an investment that’s the issue for me.

For a collector… I get that (if you collect number one casks from new distilleries). For a connoisseur… I even get that (it better be the best ever, ever, ever). But as an investment?

I could say caveat emptor here… buyer beware… but I’d rather just say in my opinion this is the single most risky investment I’ve ever seen. Taking a punt on a bottle of Macallan’s one thing but a million pounds for just one cask seems to stretch the meaning of speculative.

Annandale very kindly informed me (following an enquiry to make sure the numbers were correct & I wasn’t misreading the price in any way) that the prices are correct; however, 2015 production is for sale for £2,100 for a cask of un-peated and £2,300 for a cask of peated new-make which in the current market actually looks good value in comparison with other new distilleries cask prices… an additional £997,700 buys you a stencilled ‘number 1’ and some Chinese dual branding… What the hell am I complaining about!

I say let the open market decide what this cask is worth. If it were put to auction it would fetch its true value, we would really find out if Annandale’s cask number 1 is the “Scottish whisky industry’s most valuable cask”.

£1,000,000?

I think not.

Weekly Auction Watch – 10th Feb 2015

Weekly Whisky Auction Watch

10th Feb 2015

One of the more recently established whisky auction houses has been generating a high level of interest bringing some exciting bottles to the open market. Perth based Whiskyauctioneer has been trading for just over 12 months and appears to be a firm fixture in the monthly auction calendar. Their recent sale included a number of exceptional high end bottles with a balance of attractive prices for both buyers and sellers.

The star of the show was a bottle of the more recently released Black Bowmore along with siblings White and Gold Bowmore. Previous prices for the trilogy have been static at £12,500 for some time. £16,000 took the prize on this occasion showing demand is still high for these top end rarities. This also follows Bowmore’s general increasing trend for older bottles.

Top end Bowmores showcase high demand for old rarities
Top end Bowmore showcases high demand for old rarities

Staying with the aforementioned Bowmore, a bottle of 1968 vintage, 37 year old, sold for £1,455. As recently as December 2013 a bottle slipped through the net, achieving just £450. The previous record was £1,060 in December 2014.

Balvenie had another good auction with constantly increasing demand pushing values higher. A bottle of Sherry Oak 17 year old sold for a record £200, way past its lowest sale vale of £62 in 2012. ‘The Cooper’ performed well again; a bottle lacking the paper surround for the card tube sold for £440.

25.6% loss for the 2014 Brora Special Release
25.6% loss for the 2014 Brora Special Release

Diageo’s 2014 Brora Special release had its first UK auction outing and sold for £950. Not disastrous by any stretch, however, this shows the market value perception for the Special Releases has changed dramatically over recent years. Take off 5% sellers premium plus VAT and that leaves net proceeds of £893, a 25.6% loss over the £1,200 RRP. The question is, will the market catch up in future years or have the Special Releases had their day (from a collectors/investors perspective)? To some degree I do suspect the market will catch up, however, when you take account for sellers premium etc it could be a good three years plus to see any sort of break-even at current retail prices (I’m purely talking Brora here, not the rest of the pack, many of which are solid drinkers and nothing more).

Bruichladdich looked a little more buoyant than of late, especially at the top end (relatively standard limited releases continued to languish). The 40 year old sold for a record £1,400, edging past its previous best of £1,250… In 2009 a bottle sold for £360. This bottle also becomes the single most expensive Bruichladdich ever sold at auction in the UK.

Bruichladdich's most expensive bottle at auction in the UK
Bruichladdich’s most expensive bottle at auction in the UK

Matching Bruichladdich in age, a bottle of 1966 distilled 40 year old Dalmore sold for £1,800. Not an outright record but a record for a bottle which is unsigned by Richard Paterson. At the other end of the trading range, the Dalmore 25 year old was back down to £400, a significant loss against its £600 retail price.

Broad based Macallan values shifted very slightly north which was pleasing to see. The 15 year old Easter Elchies Seasonal Selection hit a new high of £375 and the 1841 Replica achieved £260, its best price yet. In common with other recent auctions, contemporary high value Macallan NAS bottles failed to sell. Two ‘M’ Decanters and one of the two ‘Reflexion’ bottles remained unsold. Does high value NAS actually mean Not Actually Sold (at auction anyway)?!

New record prices for Macallan bottles
New record prices for Macallan bottles

Port Ellen values look stable at current levels with the 4th release achieving a new record £1,650.

Pre Flora & Fauna Aberfeldy yields 53.6% loss
Pre Flora & Fauna Aberfeldy yields 53.6% loss

At the other end of the scale, the old ‘pre-Flora & Fauna’ bottle of Aberfeldy 15 year old sold for £130, its lowest recorded sale yet. With a high-point of £280 in 2012, recent times have seen a gradual slip in value yielding a 53.6% loss from peak to current trough.

The final interesting observation from this particular auction was the general lack of bottles from silent stills. There were the usual Port Ellen culprits and, a couple of Brora’s and a light dusting of Rosebanks but other than that, consignments from closed distilleries were pretty thin on the ground. A sign of things to come? Get them while you can…?

Until next time.

Slainte,

Andy

Photos courtesy of Whiskyauctioneer.com

Weekly Auction Watch – 3rd Feb 2015

It’s been a while since the last weekly auction watch; certainly not a week… but since then much has happened. Despite the reported downturn in the fortunes of Scotch in general the myriad of whisky auction houses remain immensely buoyant.

Scotch Whisky Auctions recent sale proved demand is still surging for older rarer bottles of whisky. In an industry that’s still volume driven to a large degree, it’s no small wonder the ‘highly desirables’ keep moving north in value. The tiny remaining numbers of the most sought after bottles are experiencing increasingly intense demand. In a world where we have the first NAS only whisky festival (Lord help us all), never before has age, vintage, quality and rarity mattered so much from a collectors perspective.

Strong gains for the original Ardbeg Kildalton
Strong gains for the original Ardbeg Kildalton

While there were few real Ardbeg rarities, the ones present did exceptionally well. A bottle of the original Kildalton sold for £820, just £20 past its previous best, but a new record none-the-less.

Losses for Ardbeg's Kildalton Project
Losses for Ardbeg’s Kildalton Project

Take the flipside of the Kildalton coin and the recent ‘Kildalton Project’ is now trading at £130, some £10 above its original retail price and hugely down from the £250 highs when the first bottles entered the market – Patience is still key when buying: When selling, unless you’re ‘in like Flynn’ with that first bottle, forget it… After sellers commission and VAT £130’s a loss.

Collectors favourite Balvenie had a good auction with many prices stable at recent highs. The standout was a bottle of ‘The Cooper’ which sold for £660. I’ve written previously that someone asked if Balvenie could become the new Macallan from a collector’s perspective. In light of Macallan’s current lacklustre auction form could that be crystallising? Compared to Macallan, Balvenie will never have the back catalogue but is seems to have the consistency and quality to win new fans at a rate of knots.

There’s always going to be a strong market for Macallan, especially older previous releases and I guess ‘steady-away’ was the tone of this auction. The Robert Burns decanter sneaked a new record by £25 when it sold for £1,800. Conversely three out of six NAS Reflexion bottles failed to sell… A kick in the NASticles for high end NAS-Macallan?

I reflexted and they're too expensive.
I reflexted and they’re too expensive.

Highland favourite Dalmore has performed well recently and the standout bottle here was Castle Leod. Last month Leod sold for £105 – this month £250 sealed the bidding in what has to be a spike. Expect to see future values back to more mundane/sane levels.

Sticking with Whyte & MacKay, this auction answered an interesting question… Forget his nose but just how much is Richard Paterson’s signature actually worth?

Answer – £85.

A bottle of Jura Tastival without Richard’s signature sold for £65, a bottle with sold for £150. I do however still find myself asking if that signature is quite worth a million for the Paterson Collection in Harrods…

Is this signature worth £1m?
Is this signature worth £1m?

The popularity of older Laphroaig continued when a bottle of 30 year old sold for a record £840 and a bottle of cask strength 21 year old sold for £560. As with most distilleries, the voluminous releases (many Cairdeas bottles) did nothing of any consequence.

The current unleasher of atomic sherry-bombs, Glendronach, performed well. Glendronach prices have been gradually increasing over the past few years rather than seeing massive spikes and corresponding troughs as with some other brands. The old 33 year old hit a new record £430, leaving its 2009 lows of £100 way behind.

As has come to be expected (but not taken for granted), bottles from many silent stills achieved new records.

The Whisky Exchange’s 1982 25 year old Linlithgow (AKA St Magdalene) sold for £175 exceeding a previous best of £145.

A bottle of Connoisseurs Choice 1991/2006 Lochside proved you don’t need to buy something with Richard Paterson’s signature on it to be in with a shout of gaining value. With a 2011 low-point of £33, the most recent £100 sale looks like good progress.

Duncan Taylor’s 1981 23 year old North Port sold for £310; way above of its £130 low in 2013.

Finally a silent Lowland Lady under the name of Ayrshire on a 1970 vintage (G&M Rare Old bottled 2000) sold for £290, nicely passing its previous best of £250 and strides ahead of its £80 low.

Silent stills continue to show good growth
Silent stills continue to show good growth

The market’s really starting to show what has value and what’s perceived as ‘fur coat and no knickers’… so to speak. NAS dressed up in a crystal vase is always NAS dressed up in a crystal vase…. Other bottles are simply stunning Scotch. Buy the latter!

Until next time.

Slainte,

Andy

All images courtesy of Scotch Whisky Auctions

PEAKS AND TROUGHS OF THE SCOTCH WHISKY INDUSTRY 1900-PRESENT DAY (PART 2)

Part 2

Gavin D. Smith

Exports of blended Scotch to the USA were a major contributor to the renewed health of the Scotch whisky business in the years following the Second World War, and between 1959 and 1966 grain production in Scotland rose from just over 41 million gallons (186 million litres) to almost 90 million gallons (409 million litres).

The malt sector’s on-going expansion also continued, with output growing from 29 million proof gallons (131.8 million litres) in 1963 to 51 million proof gallons (231.8 million litres) in 1967, and new capacity was created in a diverse range of geographical locations.

Despite all the individual distillery creations and expansions, a significant part of the overall increase in malt capacity during the 1960s was due to the Distillers Company Ltd (DCL), which embarked on a programme to augment output at many of its existing distilleries. Indeed, between 1959 and 1967 DCL increased the number of stills in its distilleries by more than 50 per cent, with major reconstruction projects being undertaken in some cases.

Overall, the 1960s was a decade of growth for Scotch whisky not seen since the heady days of the late-Victorian era, with the malt sector doubling its output. As Moss & Hume (The Making of Scotch Whisky) explain, “The reasons for the rapid growth of distilling in the 1960s lie in the relaxation of restrictions on production. The United States market, which had taken the bulk of exports since the end of the war, showed a phenomenal rate of expansion, reflected, for example, in the great success of Dewars, Cutty Sark and J&B Rare blends. In 1960, American imports were 12,000,000 proof gallons [54,000,000 litres]); by 1968 they were 33,000,000 [150,000,000 litres].”

Over-production

However, economics difficulties began to develop as a result of the Arab-Israeli war in October 1973, which caused a major rise in oil prices the following year. The global economy faltered as a result, with US demand for Scotch fluctuating wildly during the next few years.

Once again, enthusiastic expansion had caused supply to outstrip demand, and the press dubbed this surplus stock ‘The Whisky Loch.’ The Distillers Company Ltd was particularly hard hit, closing nine malt and one grain plant in 1983, followed two years later by a further 10 malt distilleries.

Brora distillery - Gone but by no means forgotten.
Brora distillery – Gone but by no means forgotten.

Malt whisky output had peaked at 207.660 million litres in 1978, falling to 93.383 million litres in 1983 – its lowest level since 1964.   This “crash” in production helps explain the very tight supply for aged malts from the 1980s now affecting the 25 and 30 years old sector.

The economic policies of the UK’s Conservative Government headed by Margaret Thatcher from 1979 led to a fall in inflation and greater business confidence, and globally the situation was also improving. As a result, output of malt spirit rose from 264.947 million litres in 1986 to 428.762 million litres during 1990, and Scotch began to find new markets in countries such as Brazil, Russia, India and China.

Return to growth

The impetus of growth through the past decade has seemed unstoppable, and having spent £40 million establishing the vast Roseisle distillery near Elgin during 2009/10, in April 2013, Diageo announced an additional £30 million of investment in Speyside, including a doubling of capacity at Mortlach.

Roseisle distillery - Affectionately known as the Death Star.
Roseisle distillery – Affectionately known as the Death Star.

At the time, a  Diageo spokesperson noted that “These developments build on recent Diageo investments in Speyside totalling in excess of £40 million, including distillery expansion and upgrade projects at Linkwood, Mannochmore, Glendullan, Dailuaine, Benrinnes, Inchgower, Cragganmore, Glen Elgin and new bio-energy plants at Dailuaine and Glenlossie.”

Meanwhile, Chivas Brothers, having increased capacity at The Glenlivet by 75 per cent in 2010 with the creation of a new distillation unit, went on to enhance potential output at at Glenallachie, Longmorn, Glentauchers and Tormore distilleries in 2012, as well as re-opening the silent Glen Keith plant during April 2013. Overall, Chivas has committed £40 million annual capital expenditure on its whisky operations, the bulk of which is being spent on Speyside, most notably with the creation of a ‘super-distillery’ named Dalmunach, destined to rival Diageo’s Roseisle on the former Imperial distillery site.

An end to boom?

However, after Scotch whisky exports hit a record £4.3 billion in 2012 – an increase of 87 per cent in 10 years – the trend began to reverse, with a decline in sales, and the first half of 2014 saw a slump of 11 per cent, or £220 million in terms of value.

The Scotch Whisky Association (SWA) blamed new anti-extravagance drives in China, the stronger pound and an economic slowdown in some markets for the decline in Asia and the Americas, previously two of Scotch whisky’s fastest-growing regions.

Overall, the downturn principally concerns blended Scotch, with malts continuing to perform well. In 2013 malts sold more than eight million nine-litre cases for the first time, and in the USA, the volume of the malts market grew by 12.9 per cent.

The USA and Asia Pacific are becoming increasingly significant malt territories, while there is an ongoing premiumisation of malts in France. Over a 10 year period, the global ‘Super premium plus’ malts sector has grown by 10.2 per cent Compound Annual Growth (CAGR), compared to an overall malts growth figure of 4.3 per cent CAGR.

‘Premiumisation’ is the key term here, as both malts and blends in what is termed the ‘Premium plus’ segment have outgrown the Scotch whisky category as a whole, increasing by 4.9 per cent CAGR in the last decade, compared to a sector rise of 1.8 per cent CAGR.

Such statistics provide some comfort for the Scotch whisky industry, but by far the bulk of its sales are of ‘standard’ blends, and Diageo has blinked first in the face of headline figures, halting construction of a proposed £50 million malt whisky distillery at Teaninich, north of Inverness, as well as a £30m expansion of Clynelish distillery, construction of a bio-energy plant at Glendullan, and the planned £18m expansion of Mortlach distillery in Dufftown.

To date the situation has really only caused the sound of quite muted alarm bells. What should, in theory at least, prevent too much pain for the Scotch whisky industry this time around is the sheer geographical spread of its spheres of operation.

However, the current dip in Scotch whisky’s fortunes serves as a timely reminder that ‘boom’ cannot last forever, and there is always a reckoning of sorts…

PEAKS AND TROUGHS OF THE SCOTCH WHISKY INDUSTRY 1900-PRESENT DAY (Part 1)

Part 1

Gavin D. Smith

1900 was a pivotal year for the well-being of the Scotch whisky industry. Unprecedented growth of whisky production during the late Victorian period had led to the creation of 33 new distilleries in the last decade of the 19th century alone, while many others were extended and modernised.

As the decade progressed, investment in whisky came to be fashionable, with banks lending money for speculators to acquire both stocks of maturing whisky and distillery shares. Blending companies spent money both on the acquisition of speculative stocks and new distillery projects.

Output of Scotch whisky had peaked in 1897, when 35.76 million gallons were produced, and the largest number of working distilleries during the second half of the 19th century was reached in 1899, with 161 in operation. Moss and Hume (The Making of Scotch Whisky) write that “Stocks were built up…to ridiculous levels…The annual increase in stock warehoused in Scotland rose from just under 2,000,000 gallons in 1891-2 to 13,500,000 gallons in 1897-98 and 1898-9 net additions to stock amounted to 40 per cent or more of total output.” The rise in production of pot stills was largely paralleled by the patent still producers, and grain whisky output rose from 9,400,000 gallons in 1886 to nearly 21,000,000 gallons in 1900.

Too good to be true

Outwardly, the Scotch whisky industry had never looked in ruder health, but all good things come to an end, and the years of plenty were soon to cease. The crisis was to be precipitated by the actions of R&W Pattison, a Leith-based firm which had been established in 1849.

Pattison’s began to blend Scotch whisky in their own right in 1887, as Pattison, Elder & Company, and while apparently extremely successful, both the Pattison brothers, Walter and Robert, were noted for their personal extravagance and flamboyance, and as early as the summer of 1894, when the business appeared to most observers to be flourishing, the Distillers Company Ltd board described Pattison’s finances as “…very doubtful.”

In 1896 the partnership became a public company, with the two Pattison brothers owning all the ordinary shares and 25 per cent of the preference shares, and they were also paid some £150,000 in cash. Such was their level of expenditure and outlay, however, that despite this large injection of capital, in order to remain in business, the brothers had to resort to selling stock which they bought back at inflated prices by obtaining bills of exchange which were then discounted. This resulted in greatly exaggerated valuations of their whisky. Amongst other dubious practices, the Pattison’s also over-valued property which they owned and, in order to maintain an impression of probity, paid share dividends out of capital.

The Pattison Crash

Inevitably, the whole facade would eventually crumble, and the firm collapsed spectacularly in December 1898. When formal liquidation proceedings commenced, it became clear that there was a deficiency of some £500,000, and available assets were worth less than half that sum. In 1901 Robert and Walter Pattison were convicted of embezzlement and fraud and sent to jail.

The wider consequences of what became known as the ‘Pattison Crash’ were the bankruptcy of 10 individual companies with whom Pattison’s had done business, and a slump in whisky prices, affecting distillers, blenders and merchants throughout the industry.

However, It seems highly likely that the failure of Pattison’s was really just the catalyst of the crisis, and ‘boom’ would have turned to ‘bust’ before too long in any event, as the level of stocks being accrued bore little relation to the level of sales. The Pattison’s were not alone in being determined to believe that the good times would last forever.

In reality, the Pattison collapse and its consequences meant that the Scotch whisky industry saw no further growth in terms of distillery construction for half a century.

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Image from the National Library of Scotland

Scotch in the 20th century

The end of the Boer War in South Africa during 1900 led to a reduction of spending by the British government on armaments and war-related materials and services, which played a part in the onset of a period of economic depression during the early years of the new century.

Overall Scotch whisky output had reached a peak of almost 36 million gallons in 1899, and by 1906 this figure had plummeted to below the 24 million gallons mark. Grain whisky production was particularly badly hit, falling from 21 million gallons to 12.5 million gallons during this period.

By contrast, pot still whisky production fell far less than might have been anticipated during the early years of the 20th century, after initially dropping from an 1898 level of just under 16 million gallons to some 10 million gallons in 1900. However, this had more to do with accumulating stocks than consistent demand for the product. The quantity of stock held rose from almost 90 million gallons in 1898 to more than 120 million gallons five years later.

While 159 Scotch whisky distilleries were operational in 1900, that number fell to just 15 in 1933, and US Prohibition (1920-33), an inter-war global economic slump, high UK taxation levels and two world wars all contributed to the relatively depressed nature of the Scotch whisky industry until more prosperous economic times arrived during the 1950s and beyond…..