Scotch Whisky’s slightly sore head
In a recent in-depth analysis of the Scotch whisky industry, the FT painted a grim picture of suppressed demand and an ever-rising tide of maturing spirit. Will distilleries and jobs be swept away in another great whisky loch? Tom Bruce-Gardyne believes such talk is way too pessimistic
The week-end before last, the FT went big on ‘Scotch whisky’s hangover’ – as it titled a full-page expose of the industry’s current woes. The report by the paper’s Scotland correspondent, Simeon Kerr and its consumer industries reporter, Madeleine Speed, makes for an interesting read, up to a point.
Having opened with the travails of the Holyrood distillery in Edinburgh that paused production this spring “for the foreseeable future,” the authors lay out their main argument that; “overproduction in the 2010’s has resulted in a surfeit of casks maturing just as demand has ebbed due to the global cost of living crisis and uncertain drinking trends among younger consumers.”
Having referenced the great ‘whisky loch’ of the 1980’s, they write: “The fear this time for some investors is that alcohol in the new tobacco, in structural decline.” That mention of tobacco relates to the long-running public health crusade against drink, led by the WHO which has been advocating for higher taxes, marketing bans and cancer warnings on labels.
Whisky trends
In March last year, the FT caused a stir with its headline: ‘Booze faces its big tobacco moment’. The industry insists there is no correlation whatsoever, though this hasn’t stopped the neo-temperance lobby from adopting the exact same tactics that were used against smoking. For now, the noise around this debate has dampened a little, for governments have more pressing concerns.
As for a structural decline, that relates to shrinking sales among Millennials and Gen-Z consumers, and whether this has been caused by a shift to sobriety and wellbeing, or a lack of disposable income, in which case it’s more of a cyclical issue. Trevor Stirling, senior analyst and MD for European and American beverages at Bernstein gave me his views after Diageo’s latest (FY26) results.
“I don’t think they [Diageo] were denying there is a structural element. They’re just saying it’s more cyclical than structural,” he said. “I buy that argument, personally, but in a way it doesn’t matter. As long as a market’s declining, it doesn’t matter the cause.”
The market in question is the US, where Diageo was down 11.5 per cent thanks to haemorrhaging sales of Tequila and Canadian whisky. Its Scotch business shrank by a mere 1 per cent. Bernstein calculates that Johnnie Walker accounts for just 7 per cent of Diageo’s US sales, and Buchanan’s for around 3 per cent, and that both are dwarfed by Crown Royal and Don Julio.
The FT quotes the former Diageo whisky veteran and author, Nick Morgan, saying the US accounted for as much as 65 per cent of Scotch exports by value on the outbreak of World War II. That figure now stands at 18 per cent – a reflection of how much the category has broadened its global appeal, something it continued to do since the ‘whisky loch’ of the 1980’s when interest rates averaged 11.5 per cent – another key difference between then and now.
That dependence on America is now the fate of Irish whiskey, whose US sales are over six times any other market. As those sales soared from 1m cases in 2008 to 6.1m in 2022, the number of whiskey distilleries in Ireland jumped from four to fifty.
Irish whiskey faces bigger problems
Life has been tough for the likes of Holyrood, and the FT article included the view of Duncan McFadzean, CEO of financial advisers Noble & Co that up to a quarter of Scotland’s 160 distilleries could be up for sale. However, things are much worse across the Irish Sea.
Scotch whisky’s slightly sore head is not much of a headline, but it may be closer to the truth compared to the hangover gripping the likes of Cognac, Tequila, American and Irish whiskey. Not to mention Canadian whisky, soon to be banned from the US. Those spirits would give their right arm for the current export growth in Scotch with volumes up 6 per cent and value up 3 per cent in the first half of this year.
But back to the central point and whether the industry is drowning in excess whisky. The FT put current maturing stocks at 1.4bn litres compared to less than 400m a decade ago – figures sourced from Martin Purvis and Duncan McFadzean’s Commercial Spirits Intelligence newsletter.
McFadzean praises the article but believes the FT got the wrong end of the stick, and says: “The 1.4bn is cumulative surplus production above an assumed steady state consumption.”
And, in any case, do these figures really suggest a massive new whisky loch about to burst its banks? Definitely not, reckons Alastair Valpy, boss of Volpe & Castello, a bonded warehouse and bottling company in the Central Belt who is also quoted by the FT.
Nor is he at all concerned that Diageo has US8.5bn worth of maturing spirits in its inventory, of which roughly two-thirds is Scotch. He points to others like Billy Walker, who owns GlenAllachie, who are maintaining or even increasing production.
“They are aware that you don’t need to stop production of something that’s going to be bottled in 10-12 years’ time for a problem that’s very much of today,” he says, of the current economic headwinds. For what it’s worth, he believes “the industry is actually in excellent shape.”
Diageo has cut production, possibly to appease its more impatient investors. You wonder what Ewan Andrew, Diageo’s President Global Supply Chain & Procurement, really thinks in private. When I asked him in 2024 if there was something about Scotch whisky that doesn’t really lend itself to the short-termism of the City, I remember the long pause that followed.
This content has been produced in collaboration with Whisky Invest Direct, the Scotch whisky trading platform for distillers, independent bottlers, and private investors.