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. Rooma Bussi, the India country consumption outstrips that of its of global whisky exports last year. pure Scotch even by budget- The most vocal and influential manager for Scotland Development neighbours, Colombia appears But Scottish whisky producers have conscious middle-class consumers. opponent of cutting spirits tariffs used International, says other Indian increasingly on producers’ radars. The a keen eye on India. They believe it “These things are determined by to be Vijay Mallya, former controlling whisky producers are planning Andean country is a high-priority could become their largest single mar- price, and price is determined by tariff shareholder of United Spirits, which to invest in Scottish distilleries, as a emerging market, they say. Despite ket – eventually surpassing the US – if and tax,” says Mr Hewitt. dominates India’s liquor industry strategy for their long-term future. exports of only £23m last year, India’s 150 per cent import tariff on Prising open India’s highly with a 45 per cent market share. “Interest from India in Scotch companies believe Colombia is a market foreign spirits were reduced. protected domestic market for Scotch But Diageo recently took a 25 per whisky is at an all-time high,” Ms of considerable potential. Direct exports Scotch whisky producers have long whisky, and other European spirits cent stake in United Spirits, along Bussi says. “A lot of Indian companies have risen by 140 per cent over the lobbied for a tariff cut. But they are and European wines, was one of the with management control, a deal are looking to secure their supplies.” past decade.

Chinese develop connoisseurship

New generation is learning to appreciate malts, writes Ben Marino

s dusk settles on a data compiled by Market- used as a way to grease the per cent to £25m in terms of smoggy Beijing Sun- Line. wheels of business, and direct shipments to China Aday evening, Kami- While selling Scotch entertainment budgets have in the first six months of wase Satoshi quietly pre- whisky to drinkers more been slashed by state- 2013. According to Alex Sal- pares to open his tiny accustomed to local spirits owned companies and local mond, Scotland’s first min- whisky bar, hidden in an may sound like a Herculean governments falling in line ister, however, this year’s office building near the cap- task, the overall picture with Beijing’s edicts. slowdown is just a blip. ital’s diplomatic area. remains positive, according In late November, Rémy Speaking in Beijing in The Japanese expatriate, to industry insiders. Cointreau, the French October, Mr Salmond said: who has been running his Recent figures reveal drinks group, warned that “The slowdown... is actually upmarket outlet for the exports to China stand at its full-year operating prof- a slowdown in the rate of past four years, is part of a £140m – up from just £1m in its are expected to drop by expansion and I suspect close-knit community of 1992. Yet, as Scottish distill- 20 per cent at least. that every other product in independent bar owners eries invest millions pro- The drinks group blamed the world would like to who have been selling moting their brands in continued European uncer- have a slowdown which premium whiskies to the China, the recent slowdown tainty and a “sharp” slow- resulted in a substantial capital’s well-heeled drink- in the Chinese economy has down in the sales in China rate of expansion.” ers for almost a decade. had a notable impact. for its warning. Sales of Overall, the Chinese spir- While whisky remains a Faltering exports have Rémy Martin cognac during its market is expected to luxury product in a domes- been hit by the new leader- the first six months of its grow 17 per cent to $53bn tic spirits market worth ship’s aggressive campaign business year fell 10.4 per by 2017, according to Mar- $42bn in 2012 – according to against corruption and lav- cent compared with the ketLine. MarketLine, a research firm ish spending by govern- same period in 2012, to A stone’s throw from the – Chinese drinkers are ment officials. €327.2m. Forbidden City and the slowly learning to distin- Sales of all spirits have Whisky sales have also hordes of Chinese tourists guish single malts from been hit as gift-giving, often been affected, falling by 20 lining up to see Mao’s blended whiskies. remains resting in state is “At the start, customers the capital’s historic lega- were unable to tell the tion quarter, once home to difference between single foreign diplomatic missions malts and blends, but now in the 1920-30s. they often ask for limited Johnnie Walker House. edition single malts,” says once part of the US diplo- Mr Kamiwase. matic mission, now serves Today, whisky is mar- as a private club, whisky keted as an upmarket prod- bar and educational space. uct by both global drinks Inside, new drinkers are brands and smaller Scottish introduced to the complex distillers, as they try to cap- flavours that make up the italise on years of booming blended whisky’s signature luxury sales in China. coloured label bottles. And Nonetheless, the Chinese the new customers are all spirits market remains different, stresses Siew Ting dominated by local white Foo, a brand manager for spirits and imported Johnnie Walker. “You can’t cognac. In 2012, sales of spe- use one lens and apply it to ciality spirits accounted for all” drinkers in China, she 85.7 per cent of the market, says. compared with 3.1 per cent Additional reporting by for whisky, according to Spirits level: China’s drinkers are turning to whisky Getty Gu Yu

Contributors

Camilla Apcar Amy Kazmin Hugo Greenhalgh For advertising details, please Junior editorial researcher, South Asia correspondent Commissioning editor contact Mark C Howarth: +44 How To Spend It (0)20 7873 4885 or via email: Oliver Ralph, Lex writer David Scholefield [email protected] or Trisha Andres Sub-editor your usual FT representative Contributor, Ben Marino FT Weekend Asia video producer and Andy Mears, Picture editor All editorial content in this reporter supplement is produced by Emily Cadman Ben Lazarus, Research the FT. Data journalist, Andres Schipani FT live news desk Andes correspondent Steven Bird, Our advertisers have no Kevin Wilson, influence or prior sight of Mure Dickie Amie Tsang Chris Tosic articles or online material. Scotland correspondent FT world desk researcher Designers FINANCIAL TIMES DECEMBER 7/DECEMBER 8 2013 ★ 3 The Business of Whisky A toast to carbon reduction Spirit that’s keen to woo more female drinkers Sustainable practices could save the industry money, writes Trisha Andres Cocktails have broken the ice, writes Amie Tsang

reen credentials and the shows the industry is on course to Go savings. So there is certainly a small whisky industry make a meet its environmental targets for green: green dividend, although we can’t say hisky is still tance of how a brand is per- Maureen Brekka, director of perfect pair. With strong 2020 and 2050. Energy efficiency at the Diageo for sure what that might be in abso- widely seen as a ceived. marketing in North Amer- links to the wild Scottish distilleries has improved by 6 per cent has lute terms,” says Ms Hesketh-Laird. W man’s drink – and “Our Big Peat brand is a ica for Jack Daniel’s owners Highlands, whisky has a while packaging operations have won an that is not far from the serious, credible whisky Brown-Forman, says the Greputation for being natural, compris- become 16 per cent more energy effi- award surge of investment in truth. inside, but the packaging bourbon brand’s Tennessee ing ingredients of water, barley and cient since 2008. While production has for its the industry has allowed Women make up just 25 pokes fun at it,” she says. “I Honey has extended the an admixture of peat. With many dis- risen 11 per cent since 2008, the indus- new companies to explore new per cent of whisky drinkers think that appeals to appeal among women. tilleries tied to rural communities, the try has reduced greenhouse gases plant technologies to offset its worldwide, according to women. It’s not old school Karen Fullerton, Glenmo- industry has always had a motive to emitted by 10 per cent over the same consumption in both big Diageo, the drinks com- whisky, and I think that rangie’s global brand limit its environmental impact. period as well as boosting energy effi- andA small ways. On a local level, Bow- pany. makes it more warm and ambassador, says: “A lot of But the whisky industry has striven ciency per litre of pure alcohol dis- more distillery uses recycled energy British women are welcoming.” it is just women saying, to go further by adopting sustainable tilled. from the production process to heat keener, representing 29 per Ms Barrie wants to pro- why can’t I? Why should it practices, from reducing emissions Meanwhile, 16 per cent of the indus- the local swimming pool. cent of UK whisky drinkers, mote whisky as a versatile be gender-specific?” and reliance on fossil fuels to waste try’s fuel came from non-fossil Chivas Brothers has replaced its but the beverage remains drink for women. “The Ms Fullerton admits that and water management. sources, up from 3 per cent in 2008. transport fleet for employees with overwhelmingly more popu- industry has changed, while it may be the case in Their motives are not altogether The SWA has yet to quantify the Vauxhall Ampera electric vehicles, lar with men. what’s available has many countries that whisky altruistic, however. savings the industry has made from plug-in cars that will cut the official The picture has started to changed – it’s becoming drinking is still male domi- “We invest in green projects not going green but Julie Hesketh-Laird, emissions figures for the vehicles by change, however, partly more interesting, with a nated, she says women are solely to reduce carbon. It’s also about director of operational and technical 75 per cent compared with the aver- helped by the growth of a much wider spectrum of fla- voicing their taste for supporting the growth of our busi- affairs, says that more environmen- age car in the UK. cocktail culture. Bartenders vour to choose from.” whisky everywhere – even ness,” says Michael Alexander, head tally aware production should lead to In August, Diageo won the prize for are mixing more drinks Companies are respond- as far away as emerging of environment at Diageo. cost savings, for example in reducing renewable energy project of the year with brown spirits such as ing. Labels are offering tast- markets such as Kaza- Mr Alexander sees environmental energy bills. “The cost of energy is so at the Business Green Leaders’ Award whisky and rum, which has ing notes, and packaging khstan, for example. initiatives as longer-term invest- critical to companies that anything for its £17m bioenergy plant at the tempted women looking to has been redesigned to Markets such as Brazil ments. Apart from helping the com- that improves the efficiency of the new Roseisle distillery in Speyside, try new drinks, or who attract female buy- and South Africa, have pany meet its carbon reduction tar- manufacturing process yields energy Scotland. were previously daunted by ers. been fruitful, as less expo- gets, they control the input costs of Charles MacLean, a consultant and rules about how to drink But the indus- sure to the beverage energy and ensure continuity and writer on whisky, says that while whisky. try is divided means the gender split is security of supply, especially dur- there is a significant capital outlay to Rachel Barrie was Scot- over the recent less pronounced. ing harsh winters. Over the go green, the benefits are substantial. land’s first female master introduction of Yet despite the past four to five years, Diageo “There is a competitive advantage in blender and she thinks the f l a v o u r e d attempts to give the has invested nearly £100m being at the leading edge of environ- growing number of female whisky. drink a modern in renewable energy devel- mental sustainability,” he says. “It bartenders over the past Accord- image, history is a opment in Scotland. makes perfect sense for the industry five years has helped this ing to critical part of the A recent report from to invest in ways to save and reuse trend. brand, for men or the Scotch Whisky energy, especially as energy prices She says there are women. Association (SWA) increase rapidly over time.” “female bar tenders who “Whisky is a cate- are confident, not scared to gory that lives by experiment. . . They’re the its history,” says ambassadors for women Fred Minnick, author of also experimenting.” Whiskey Women, which Whisky is gaining a examines the stories of Distillers of malts could reap benefits of research into barley DNA higher profile, particularly women who were cru- among women: Christina cial to the survival of As the main ingredient, barley is vital to the “The publication of the sequence means it may provide a back-up during bad crop years. Hendricks, who plays a sec- distilleries. health of the whisky industry. The whisky and be possible to improve barley production through Dr William Thomas, a barley geneticist at the retary in the US TV series For him, knowledge beer sector, worth an annual £20bn to the UK breeding varieties that are disease- and pest- James Hutton Institute, says the costs of Mad Men, is a brand of the drink’s prove- economy, relies on malting barley. resistant and able to withstand drought and research and its implementation are negligible, ambassador for Johnnie nance does more to As such, the industry is keen to develop hostile conditions,” says Dr David Marshall, head compared with the benefits of breeding improved Walker; and singer Lady promote whisky than varieties that are better able to adapt to of information and computational sciences at the barley varieties. Gaga has credited Jameson, any marketing cam- environmental stresses and generate higher yield. James Hutton Institute, a research organisation in “We can increase the efficiency of the breeding an Irish whiskey, for help- paign could. In 2012, scientists published a high-resolution Scotland that is involved in the study. process using information gleaned from the ing her songwriting. “The difficulty,” says draft of the barley genome sequence in the By better understanding the barley genome, the genome sequence and produce new and better Design is critical in Alwynne Gwilt, a journalist journal Nature. The International Barley industry would be able to generate more yield out varieties, quicker and more efficiently,” he says. attracting women to the turned whisky writer, “is Sequencing Consortium (IBSC), including UK of each batch, helping counterbalance the amount “Of course, it is an ongoing process and may spirit. whisky companies all want researchers in Dundee, Cambridge and Norwich of barley needed if production continues to rise at take about eight years before there is an impact Cara Laing, head of to find a way to target the produced a DNA sequence assembly comprising all the industry’s distilleries. to the distilling industry,” he adds. brands marketing at inde- Mad Men actress female market without com- the majority of barley genes in linear order. This could reduce costs for the industry and TA pendent blender Douglas Christina ing out with a pink Laing, explains the impor- Hendricks Getty whisky.” 4 ★ FINANCIAL TIMES DECEMBER 7/DECEMBER 8 2013 The Business of Whisky Race builds to increase capacity Rare releases provide grist The industry gears up for anticipated growth in emerging markets, reports Oliver Ralph for collectors

lose to Falkirk in the Scot- Global whisky exports tish lowlands, nestled beside the Forth and Clyde Top 10 markets Curiosity must be the appeal for canal, is the site of the 2012 Number of 70cl bottles (m) Value (£m) Rosebank Distillery. Whisky investors, writes Camilla Apcar Cwas first produced there in 1817 and, 1. US at one time, its triple-distilled product was lauded as one of the finest of its inite supply is the nearly 5,000 bottles, com- type. But Rosebank was closed in 1993 nemesis for collectors prising many single malts and has lain derelict ever since. 128 758 Fof vintage cars and plus old blends from brands Although much of the equipment 53 169 27 136 commemorative crockery such as Johnnie Walker and remains in place, the stills themselves alike. In the case of single Royal Salute, is now worth have disappeared, reportedly stolen 5. 8. malt Scotch, the thrills of close to $5m. for their scrap metal value. Germany S Korea limited edition are height- “My rule of thumb is to Gerald Michaluk plans to change all 4. Spain ened by factors including buy two bottles of every- that. The managing director of the silent distillery releases and thing I can afford. One to Isle of Arran brewery, he wants to the unknown number of drink, the other to keep,” buy the site, fix it up, put in new stills 60 195 bottles that may have he says. 6. Taiwan and start producing whisky again. His 2. France already been drunk. Curiosity is central for Mr £7m investment plan will cover refur- 10. Mexico Whisky presents an Patel, who often finds off-li- bishments and the cost of stock. He 22 165 attractive collectors’ item cences to be unsuspecting aims to find £4m with a crowd fund- 35 92 with inherent investment treasure troves: “I have ing initiative, raising small amounts 434154 value. The industry is work- found some very interesting from a large number of people. ing to support the recent bottles that are gems for a Mr Michaluk wants to produce influx of newcomers, but bargain basement price.” about 1m litres of whisky a year, 9. Venezuela 3. Singapore top-tier enthusiasts have In 1969, aged 18, Giuseppe although only a small amount of that been around for a while. Begnoni, an Italian collec- would be single malt. “Most would go 32 102 7. S Africa London collector tor, also began with minia- overseas,” he says. “We’d sell it quite 33964 Sukhinder Singh, of The tures. By 1986, Mr Begnoni, young to be used for blends in India 53 162 Whisky Exchange, began of Whisky Paradise in Bolo- and China.” collecting miniatures as a gna, was buying at auction Mr Michaluk, like everyone else in teenage hobby. He now spe- in the UK and has accumu- the Scotch whisky industry, is eyeing cialises in full-size bottles, lated more than 8,000 bot- the impressive growth rates in emerg- Number of 70cl bottles exported mostly single malts, and tles, which he estimates are ing markets. According to Interna- has accumulated between worth around £4m. tional Wine and Spirit Research, the 7,000 and 8,000 over the past Auction houses offer a global Scotch market is expected to 25 years. “In whisky, there gateway for novice collec- grow by 2.6 per cent a year between is something unique,” he tors. Glasgow auctioneer 2012 and 2018. But, while the markets says. McTear’s holds 10 dedicated in Europe and North America are The most expensive bottle sales in which winning bids expected to be largely flat, Latin Mr Singh has bought was a range from less than £100 to America is forecast to grow at 4 per £100,000 Dalmore 64-year several thousand pounds. cent a year, with Asia just shy of that old, Trinitas, of which only Ever-appreciating prices and the Commonwealth of Independ- three were produced. are also inspiring new busi- ent States at more than 10 per cent. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 “I’ve probably got the nesses to explore whisky as Given that Scotch whisky has to be 980.7 953.3 990.3 1,051.1 1,135.2 1,080.3 1,121.5 1,061.8 1,264 1,190 largest Port Ellen collection an alternative investment. produced and matured in Scotland, it in the world,” he says. With The Whisky Trading is hardly surprising there is an invest- just over 800 different bot- Company was launched in ment boom. “There is a huge number tles from the Islay distillery October and is assembling of people wanting to build and invest – closed since 1983 – Mr Scotch portfolios to buy and in distilleries at the moment,” says Singh is aware of between sell to retail investors. Stuart Nickerson who runs the Malt Value (£bn) 30 and 50 more that he is Crowns 3, a Kuala Whisky Company, a consultancy. missing. Lumpur-based investment That boom is driven not just by 2.382.24 2.36 2.47 2.82 3.06 3.13 3.45 4.23 4.27 About 12 years ago Mr consultancy, has spent growing demand, but also by a supply Singh was paying £30 and much of the past five years crunch. “The industry has always Source: Scotch Whisky Association £70 for Port Ellens. Its popu- buying single malts. traded whisky to be used for blends larity has since increased – But direct investment is internally,” says Mr Nickerson, “but as have its prices. The 2013 not universally endorsed. that’s become far more difficult annual release was £1,500 “Our whisky really isn’t recently. Companies think they can per bottle. made for investing, and we use the stock themselves.” Scotch has always been a great mixer internationally Values are also rising don’t encourage it,” says The result is that people who used among many active distill- Nick Morgan, head of to rely on internal trade are them- eries. Certain limited edi- whisky outreach at Diageo. selves starting to look at distilling. tion Macallans have appre- Single malt Scotch caters The shortage stems partly from the Traditionalists, turn away now. Whisper says Alexander Smith, editor of the Yet, while the industry is embracing ciated 280 per cent since best to patient investors financial crisis that prompted some it quietly but, if you travel to some of the IWSR’s magazine: “The greatest cause mixers, blends of different types of 2011, according to independ- whose passion has evolved producers to cut the amount of new fastest­growing whisky markets, it is just for optimism lies in emerging markets. whiskies have long been accepted. Rob ent valuer and consultant from consuming and col- stock they laid down. Given that as likely to be coconut water as mineral India, Brazil, Mexico, Russia, Poland and Allanson, editor of Whisky Magazine, Whisky Highland. lecting. In the past, Whisky Scotch must mature for at least three water in the mixing jug. South Africa – to name just a handful says this is part of Scotch heritage. “Such is the beauty and Highland’s Mr Simpson has years, it is difficult to turn the supply Whichever statistics you look at, there of the largest emerging markets – “Companies have been tailoring rarity of the Macallan’s lim- taps on and off to cope with short- is little doubt the world whisky market is have all seen rapid growth in Scotch blends for various markets pretty much ited editions, we can’t but term fluctuations in demand. growing. The International Wine and consumption in recent years. since blending began,” he says. help to fuel desire and col- ‘If it was an Spirit Research group (IWSR) estimates In many of these markets, drinking “The blending houses created lighter lectability,” says Ken Grier, r Nickerson has first- 2012 was a record year, with sales of whisky neat is not the norm – green tea styles than those sold on the domestic director of malts at Edring- investment, hand experience of the 96.3m cases, while the Scotch Whisky and Scotch is a common tipple in market. One notable example is Cutty ton, Macallan’s owner. trend. In 2006, he was Association reported export growth of 6 Shanghai and, on the beaches of Brazil, Sark – created to be light to meet a The savviest distillers I would not be approached by a group per cent year on year. Diageo’s Johnnie Walker – the world’s specific American palate that wanted a welcome modest beginners of Moscow-based inves- But most of this growth is not coming top selling whisky brand – is served with sweet lighter style.” alongside seasoned collec- paying the prices Mtors who wanted to put money into from the traditional western markets, ice and coconut water. Emily Cadman tors, by launching products I’m paying’ the industry. Two years later, he in a wide range of prices. bought the mothballed Glenglassaugh In November, Bowmore distillery in Speyside and brought it introduced a £16,000 1961 back into production. The investors The company announced last year Many of those investing are build- expression limited to 200 been asked to build a £50m held on for five years, before selling it that it would invest £1bn in Scotch ing flexibility into their business bottles and in September fund of physical stock, but to the BenRiach distillery this year. production. Plans include a new dis- plans, and starting small. Devil’s Casks, a 10-year-old declined because such sup- It is not just smaller players who tillery at Teaninich in the Highlands “The whisky industry has gone matured in first fill sherry ply was not available. are ploughing money into production. and the expansion of 14 malt distiller- through cycles in the past and we’ve casks with a global total of Yet like Mr Begnoni and Pernod Ricard, the French owner of ies. It is laying down plenty of new seen distillery closures and amalga- 6,000 bottles, selling for Mr Patel, Mr Singh would Chivas Regal, is spending £40m a year stock; according to Bernstein, Diageo mations of companies,” says Mr Nick- £52.99. It is now mostly sold not call himself an investor. on its distilleries. In 2010, it increased has been increasing its inventories at erson. “This time, with boutique out in the UK. “I can look at my collection capacity at Glenlivet by 75 per cent. a rate of 9 per cent a year since 2005. distilleries, it is easier for companies “It isn’t [a] huge [market], now and say that it’s Last year, it expanded four other dis- This is not the first time the indus- to work their way through the trough, and I don’t think it ever become a really good tilleries. In June this year, it reopened try has become excited about growth especially if the owner is doing it out will be. But that will also, investment, but I never Glen Keith, mothballed in 1999. In and ramped up production. It has not of interest rather than purely for to some degree, prevent a started off like that. 2015, it will open a new distillery at always ended well. Bernstein points financial returns.” bubble bursting,” says “If it were an investment, Carron on the river Spey. out that Japan saw explosive growth Back at Rosebank, this is the sort of Andy Simpson, founder of I would not be paying the But the biggest spender is Diageo, in demand in the 1970s, followed by 25 investor Mr Michaluk has in mind. Whisky Highland. “We’re prices I’m paying for the largest Scotch producer in the years of decline. “This kind of investment is for the about 20 years behind wine certain bottles, because world by volume and value, according The Asian crisis in the late 1990s hit enthusiast who wants to get into craft in terms of the maturity of they might not become to Bernstein Research. Like Pernod, demand in South Korea and Thailand, distilling. You have to be passionate the market.” investable items for another much of its investment will produce Japan saw explosive leading to mothballing of distilleries. about the product and willing to buy US-based property devel- five to 10 years. premium blends, such as its Johnnie More recently, there has been a slow- it,” he says. Even if the emerging mid- oper Mahesh Patel, who “Investing in whisky isn’t Walker range, popular in emerging growth in demand in down in both Asia and Latin America. dle classes in Asia and Latin America bought one of the other like investing stocks and markets. “Johnnie Walker has hit 20m There will always be uncertainty. lose their taste for whisky, Rosebank Trinitas bottles, was first shares,” Mr Singh warns. cases a year and we need to provide the 1970s, followed by “We can know where the market is would at least be left with a group of introduced to whisky at “If you’re not a whisky for the future,” says David Cutter, going in broad terms, but you have to people who like the product so much, university. Mr Patel esti- drinker, I would say don’t supply director at Diageo. 25 years of decline finesse your plans,” says Mr Cutter. they funded the distillery. mates his collection of even bother.”

Edrington targets younger demographic by dispensing with age The group has emphasis on single malts, been a significant shift in Mr Curle says, profits have to differentiate upmarket has dismayed some Macallan will still be sold female drinkers to the a higher-value segment the centre of gravity.” more than quadrupled. single malts, traditionally enthusiasts. One Canadian by age, but the 1824 series brand. decided on a bold growing much faster than This is not the only The chief executive, a classed by the ages on reviewer left a tasting of shifts attention to what the “We have taken a risk, step in marketing, the blended whiskies that transformation. The former accountant who their labels. the new colour-themed 1824 company sees as the but we think it's a account for the bulk of company has become far was brought up in Glasgow One range of Macallan is series this year deeply decisive impact on taste managed risk and we think writes Mure Dickie volume. more global. While most of and has spent his entire now marketed by colour frustrated. “For those who made by the wood in the benefits of taking this Edrington’s Famous its profits came from career at Edrington, credits rather than age. And have tasted what Macallan which a whisky is risk outweigh the Grouse has been Scotland’s Europe 14 years ago, well much of the success to the Highland Park whiskies used to produce, what they matured. downsides,” Mr Curle says. or a flavour of trends top-selling blend for 30 over half now come from long-term perspective are sold under the names were and could be Purists were also upset Edrington’s biggest effort in the whisky years and is in the top 10 elsewhere. And from a fostered by an unusual of Norse warriors and gods again, this is by the new Fine Oak is going into further Findustry, there could worldwide. But the group’s workforce entirely based in ownership structure. In whose characteristics they gravely range of Macallans, building its core drinks, be few better places to focus has moved toward Scotland, now only 40 per 1961, three granddaughters are supposed to embody. disappointing,” he says, but they with plans including a start than the office of Ian the standalone output of cent of staff work there. of the founder of the 152- There are clear benefits he declared. have been a hit £100m redevelopment of Curle, chief executive at its Macallan distillery on Globalisation can be year-old company put it to moving away from age. Mr Curle is and have the Macallan distillery that distilling group Edrington Speyside. Both brands were costly, however. The group under the control of the Lack of stock is the biggest unapologetic. helped attract will increase capacity and and chairman of the acquired with Highland suffered a £90m loss for Robertson Trust, a charity. restraint on sales of Most young and create a new visitor centre. Scotch Whisky Association. Park on Orkney as part of the year to March 2013 Employees own about 24 Macallan, says Mr Curle, Such plans rest on deep At Edrington’s Highland Distilleries, because of a £275m per cent of the group’s even when it retails at a 50 confidence in the prospects headquarters in Glasgow, which Edrington bought writedown of the value of shares and, free of stock per cent premium to peers. for Scotch and other spirits Mr Curle grapples with the for £601m in 1999. its Brugal rum brand, market pressures, it can Leaving off the age among the growing challenges that come with “We were effectively acquired in 2008 and since take a longer view, a real statement – which must Ian Curle, chief populations in Asia, Latin whisky’s global boom, buying the Famous Grouse battered by the economic benefit when it comes to refer to the youngest executive of America and Africa. including stock shortages, company in 1999. Now troubles of key southern whisky, which must by law whisky used in a bottle – Edrington “There are millions of the need to tend to super- we’re in 2013 and, if you European markets. be aged at least three allows much more flexible new consumers with premium markets and were to look at the relative But Edrington’s years before sale. Private use of available stock. higher income levels selling whisky in new contribution of each of underlying performance has ownership may also aid It also, say analysts, emerging,” Mr Curle says. ways to new consumers. these brands, you would been strong, with pre-tax the making of bold reduces reliance on “If you look at the Edrington itself is an now argue that we bought profits hitting £169m, up decisions. Edrington has dwindling supplies of demographics, that’s going example of one important the Macallan company,” from £119m in the year to put itself at the forefront older spirit. to go on for years and trend – the increasing Mr Curle says. “There’s 2010. Over the past 14 years, of efforts to find new ways The new approach years.”