Producers Are Responding to an Expected Increase in Worldwide Demand, Writes Mure Dickie
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The BusinessFT Special Report of Whisky Gene therapy Big spenders Mad for it Distillers unlock the China develops new More women are inner secrets of barley appreciation for malts acquiring the taste Yields grow Page 3 Connoisseurs Page 2 Cocktail culture Page 3 Saturday December 7 / Sunday December 8 2013 Hopes soar for spirited revival Producers are responding to an expected increase in worldwide demand, writes Mure Dickie avin Hewitt picked a good mothballs and new ones brought into Royal Salute Tribute to Honour comes decade to work in the operation. UK-listed Diageo, the in a bottle decorated with gold and whisky business. The world’s largest spirits producer by diamonds and has a price tag of former UK diplomat sales, announced in 2012 it would $200,000 before tax. became chief executive of invest more than £1bn in Scotch pro- Not all is good cheer. Scotch produc- Gthe Scotch Whisky Association in 2003 duction over the next five years. ers are locked in a legal battle with and in the 10 years since watched the Chivas Brothers, the Scotch whisky the Scottish government over plans customs value of Scotland’s exports of and gin arm of the France-based Per- for a minimum alcohol price that the its most famous tipple soar from nod Ricard drinks group, says its capi- SWA says would encourage protec- £2.4bn to an expected £4.4bn in 2013. tal expenditure is about £40m a year. tionism in other markets. “It’s a pretty good record,” says Mr And, just last month, Scottish pro- Hewitt, who steps down this month. ducer Edrington announced plans for nd, in a reminder that even Sales of Irish whiskey are also surg- a modern distillery and visitor centre the most promising market ing, with multinationals investing in for its Macallan whisky that will have can stall, a slowing econ- the main brands and the number of a price tag of more than £100m. omy and a crackdown on Irish distilleries set to triple over the As Ian Curle, Edrington chief execu- excess have badly hurt next five years. In the US, Jack Dan- tive, explains in this report (page 4), Asales to China, with the value of iel’s this year announced plans to the group has done well by focusing direct shipments falling 20 per cent invest more than $100m in new stills on premium spirits, particularly its year-on-year to £25m in the first half and warehouses at its rural Tennessee Macallan single malts. of 2013. distillery. Bourbon producers in Ken- While blends still dominate – Scotch is also suffering some of the tucky have poured hundreds of mil- accounting for 90 per cent of total double-edged problems of success, not lions more into their facilities in what Scotch whisky export volume in 2012 least a shortage of aged stock. Edring- has been described as the industry’s – their share by value has fallen to ton and other distillers are trying to biggest expansion since Prohibition about 80 per cent, says the SWA. gain flexibility by moving from mar- ended 80 years ago in the US. Marketing has become increasingly keting whisky by age. The sheer pace New players are breaking in: Eng- sophisticated. Chivas Brothers of investment suggests risks ahead. land and Belgium now boast working recently opened a new “Prestige Hall” But Mr Hewitt says the growth in distilleries and Taiwan’s Kavalan sin- at its bottling plant in Glasgow that capacity is far exceeded by the emer- gle malts are winning respect. features a less automated production gence of millions of potential drinkers But Scotland is where the action is. line for upmarket brands that require in Asia and elsewhere. “The industry Old stills have been taken out of special packaging. The company’s Roll out the barrel: a cooper at Scottish producer Edrington builds a Macallan cask has a fantastic opportunity,” he says. 2 ★ FINANCIAL TIMES DECEMBER 7/DECEMBER 8 2013 The Business of Whisky India’s taste for real McCoy Venezuela and Colombia fuels hopes Rocky for Scotch In Venezuela, a lack of dollars for importers, because of tight currency exchange controls, has caused rampant of higher sales shortages of everything from niche goods to mass-market staples, and from ceremonial wine to toilet paper, writes Andres Schipani. But amid increasing scarcity, one Both Scottish and Indian producers want to thing is seldom absent from shelves in bars or shops: Scotch whisky. see a reduction in tariffs, writes Amy Kazmin “Sometimes there might not be milk in grocery stores, and people will complain. But if we ran out of whisky there could be a riot,” says a shop n theory, India is already the hoping that the changing composition owner in a plush neighbourhood of world’s largest whisky market – of India’s spirits market – including Caracas, who wished to remain at least in volume terms. Its the growing importance of foreign nameless. 1.3bn people inherited a taste multinational players such as Diageo What’s in a main items on the agenda of a expected to mute Mr Mallya’s opposi- Despite Venezuela producing some of for whisky as part of the legacy and Pernod Ricard – and increasing name? India’s proposed India-EU trade agreement tion to a tariff reduction. the Caribbean’s best rum, such as Iof British-colonial rule, and the drink pressures on domestic spirits makers market is split that Brussels and New Delhi began Indian companies that use imported Diplomático and Santa Teresa, Scotch is seen as a symbol of sophistication could make the government more between home- negotiating in 2007. Scotch as a raw material for their whisky accounts for 20 per cent of the and status. inclined to act. brewed whiskies But the talks have stalled for more whiskies also believe tariff cuts could spirits market and 88 per cent of drink Indians currently consume about “In terms of our market access and Scottish than a year and there is little prospect help them grapple with sharply imports. It is omnipresent in bars and 150m nine litre cases of whisky each agenda, India is our number one imports Getty of a deal – or even a revival of negoti- higher input costs, shrinking margins, clubs, at dinners and at beach parties. year. That accounts for about half of priority,” says Gavin Hewitt, chief ations – ahead of India’s and demands for better quality. Be it an affordable blend or an the country’s total spirits market, executive of the Scotch Whisky Asso- parliamentary elections, due to be The expectation of a tariff reduction expensive single malt – both habitually which is growing by some 10 per cent ciation. “There is a massive unmet held before May. – eventually, if not imminently – is served with lots of ice in tall glasses – a year as the economy expands and demand from Indian consumers for Even after elections, reviving the leading some Indian players to whisky remains popular, which some millions of young Indians reach legal Scotch whisky, but the pricing puts it trade agreement would seem an uphill make new investments in Scotland in observers attribute to British workers in drinking age. beyond the reach of many in the mid- battle, given the chasm between the order to ensure their future Scotch the oil industry. According to the Yet to purists, most of what Indians dle classes.” two sides, not mainly on the spirits supply. Scotch Whisky Association, Venezuela know and drink as whisky does not India was the fifth biggest market tariffs, but on issues such as high Scotland’s total annual whisky pro- was its ninth largest export market last merit the label. Indian whiskies – col- for Scotland’s whisky exports in import duties on cars. duction is just 100m cases a year, year, with total sales of £102m. loquially known as IMFL or “Indian- volume terms in 2012, but only its which could come under strain from a But, despite the drink’s popularity, made foreign liquor” – are made from 19th biggest market in value. r Hewitt, however, sug- sudden surge of demand from a newly there are clouds on the horizon. Aside distilled molasses spirit, which is then Most of India’s imported Scotch is gests that India’s gov- opened Indian market. from foreign exchange controls, which, blended with small quantities of the bulk-blended malt used by local ernment could unilat- Kyndal India, a drinks company among other things, hinder imports and imported grain- or malt-based Scotch companies to make Indian whiskies. erally lower the tariffs that manufactures and imports limit companies’ ability to repatriate whisky. Of the 150m cases of whisky con- on imported spirits – a premium spirits brands, has just profits, Nicolás Maduro, successor to Scotland, the world’s biggest whisky sumed, genuine bottled Scotch Mmove that he says is supported not entered into a joint venture with John the former president, the late Hugo producer, exported £61.5m worth of accounted for less than 1 per cent. just by Scottish distilleries but, sur- Fergus & Co to set up a £6.7m malt Chávez, has vowed to limit whisky to India in 2012, up nearly 18 Yet distillers believe the entire prisingly, the Indian spirits companies distillery and bonded warehouse in “profiteering” and strengthen price per cent from the previous year – and dynamic of India’s whisky market that once vociferously opposed any Fife to produce Scotch for India and controls. up 46 per cent since 2007 – but still would change if tariffs were lowered, talk of cutting tariffs. “Their stand is other emerging economies. Although Venezuela’s per capita just a fraction of the country’s £4.3bn allowing far greater consumption of shifting markedly,” he says.