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SCOTCH: Whisky a go go

While other sectors of the drinks industry watch their sales slump, Scotch has seen export figures rise in both old and new markets. And there is a wealth of potential for blended varieties, writes Alan Lodge.

Few would have predicted the news announced by the Scotch Whisky Association last month that global exports of Scotch reached record levels in 2009, but the recession-beating figures point to increasing worldwide demand for a product that is thriving under pressure from other whisky-producing countries.

According to the SWA figures, Scotch whisky exports rose by 35% in value to £3.13 billion last year, contributing £99 every second to the UK trade balance. Export volumes increased by 4% across the globe, with Scotch producers shipping the equivalent of 1.1bn 70cl bottles.
Scotch enjoyed continuing success in France, which went up 13% in value, and also saw 13% growth in the US.

The most encouraging figures, however, came in the emerging markets which offer the greatest scope for continued growth over the next few years. Brazil was up 44% in value, while South Africa saw growth of 7% in 2009.

Brazil is quickly emerging as a major export market for blended Scotch. Total Scotch shipments to the South American country rose to £60 million – more than double the export levels recorded in 2000. The buoyant performance in Brazil helped the Central and South America region to record an overall figure of 18% growth to £390m in 2009.

The US remains Scotch’s largest export market by value, rising 13% to £419m last year, with blended Scotch shipments particularly strong despite challenging economic conditions. Promising growth of 25% in Mexico contributed to the North America region seeing total value growth of 13% to £508m.

South Africa consolidated its position as one of Scotch whisky’s top 10 export markets, with shipments up 7% to £108m, while Australasia grew 3% to £70m, aided by growth of 3% in Australia.

There were slight slides in some markets, however, with Asia slipping by 9%, down to £543m and the European Union witnessing a 1% decline overall to £1.26bn. The EU slide can be attributed in part to a 5% drop in Spain to £316m, but in France shipment value grew 13% to £407m and shipment value to the country has more than doubled since 2000, rising above £400m for the first time in 2009.

Paul Walsh, Diageo chief executive and chairman of the SWA, says the figures underline the importance of the Scotch industry to the UK economy and called for the government to assist the industry. “It is an impressive performance, underscoring the importance of Scotch whisky to the UK economy,” he says. “The industry is continuing to invest and sustain its efforts to secure fair access to export markets. We look to the next UK government to work with us to build on Scotch whisky’s success in the future.”

His sentiments are echoed by SWA chief executive Gavin Hewitt, who says: “As one of the UK’s leading manufactured exports, all political parties should recognise and support the Scotch whisky industry, both at home and abroad, during the next Parliament. A review of the UK excise duty system is long overdue; we want to see a domestic operating and fiscal environment that better supports our
global competitiveness.”

Surveying the markets

As for the markets, Jamie Forbes, global brand ambassador for Monkey Shoulder, feels that some brands might be missing opportunities in the less-established markets which could fuel growth.

“Asia is of course always regarded as one of the most exciting markets for malt whisky, but I believe that focus is lost on markets like Africa, South America and Russia,” he says. “Good accessible malts need to be given the attention required to allow these markets to grow and flourish.”

Eric Benoist, marketing director at Chivas Brothers, identifies other areas where whisky could be doing slightly better: “We can be pretty sure that South America will do well and we are hoping for a recovery in Eastern Europe. The only really difficult spots remaining are in Spain, Greece and Thailand.”

The global appeal of malt whisky puts it in a favourable position when competing against other drinks. Along with Cognac, it is probably regarded as one of the most luxurious and aspirational products on the drinks shelves. This mass appeal and strong reputation might have helped the category continue to thrive during the economic downturn, according to Nick Morgan, Scotch knowledge and heritage manager at Diageo.

“Scotch whisky is a truly global drink and has been since the early 20th century,” he says. “So we are lucky that when some markets slow down, we can generally be fairly confident that others will pick up.

“Obviously Scotch has a very firm stronghold in Europe and North America – markets which have experienced difficult economic conditions over the past couple of years. But there is also a huge interest and appetite for Scotch in Latin America and Asia.

“At the moment, brands like The Singleton of Glen Ord are performing far better than we had planned in Asia – which just shows how dynamic markets can be. And it’s interesting that in these currently more dynamic markets, there seems to be more of a skew towards on-premise consumption rather than the off-trade – which still seems to dominate in markets like the United Kingdom.”

Forbes, however, has his own theory on why this might be the case, and how on-trade sales can be boosted in the UK. He says: “Sales of whisky have grown strongly in the off-trade, although this is mainly due to the heavy price wars on entry-level malts.

“The presence of malt in the on-trade needs to be accentuated and through training and education this would be possible. More of the projects like the classic malt taste map, which give bar staff and waiting staff the ability to understand more the taste and character of a range of malts will only benefit the market as a whole.”

Scotch is also having to compete increasingly with whisk(e)ys and Bourbons from other countries, such as Japan, America and Canada, but rather than seeing these emerging producers as a threat to the Scotch market, Benoist believes the increased competition could help drive interest in Scotch.

“Whiskies of other origins present an opportunity rather than a threat,” he says. “They make the market bigger and broader, potentially bringing more new drinkers into the whisky category.

“Scotch will always be the most sought-after of all the origins because of its history and reputation for high standards.”

Michael Cockram, Beam Global’s senior director for classics, Canadian Club & Scotch whisky, is of the opinion that blended whisky will be the main driver for the category in the on-trade for a good few years, particularly in light of the recent recession which hit consumers’ spending powers.

“Malt whisky was growing nicely in the on-trade for a while, but we have to admit that blends will be the biggest on-trade driver for the foreseeable future,” he says. “The worrying thing is that if the economy gets worse people are even less likely to buy in the on-trade. It’s always going to be a relatively small part of the whisky trade.”

Monkey Shoulder is a relatively new blended malt that is made up of whiskies from the Speyside distilleries of Balvenie, Glenfiddich and Kininvie. It has cultivated a “trendy” image in order to tap into the growing demand for whiskies among younger drinkers who perhaps value image and versatility above heritage, provenance and price. Yet Forbes admits that blends suffer from an immediate image problem when compared to single malts.

“The word blend instantly allows the consumer to judge the quality of the liquid before tasting,” he says. “It is something that will not change for some time, as blends have had their place and single malts have had their place, and changing this would take a lot. I think it would be better for blends, instead of attempting to emulate malts, to embrace their position and take advantage of being more accessible.

“Innovation in the world of blended Scotch has not yet begun and I believe it is an expansive and untapped opportunity.”

Richard Paterson, master blender at Whyte & Mackay, agrees that perhaps the consumer does have a sub-conscious reaction to a bottle of blended whisky, but that the industry must do its bit to promote the category’s quality.

“I think some may have the view that blends are inferior, but more fool them if they do,” he says. “They don’t know what they are missing.
“Blended whisky is no worse or better than a malt whisky, its just a very different experience and taste. Again, its all about education. Both our Whyte & Mackay 30 and 40 years old have just been voted the best blended whiskies in the world.

“If you think a blend is inferior, then grab a taste of those whiskies and your mind will be changed forever. Blended whisky has as much to much to offer to the consumer as single malts, but in a different way.”

Cockram, however, believes that the strength of blends in emerging markets like Asia and South Africa will not last as the consumer becomes more in tune with the world of single malt and luxury whiskies.

“In the UK blended suffers from its reputation, but in Asia it’s currently the aspirational thing to do to drink good blended whiskies,” he says. “The evolution in the market will come there too over time, but they are only just opening their eyes to malt. After a large blended market, the malt market should follow.”

Style and substance

Distilleries are increasingly experimenting with different oak and other finishing techniques to create whiskies which, while retaining the character of their particular distillery, offer drinkers something slightly different from what they are used to. Paterson says: “Single malts must constantly be updated, repackaged and restyled – but that has nothing to do with the cheaper single malts, and everything to do with the fact consumers demand it. To have just one style in today’s world is insufficient.

“We invest a huge amount of time and effort on new product development. The list goes on and on but includes The Dalmore King Alexander, which uses six different wood finishes.

“Or the newly launched Dalmore Mackenzie which spent seven years in Port casks, and is now raising money to help preserve Castle Leod, the spiritual home of the Clan Mackenzie up near Inverness. We launched a new Dalmore 18 for the first time last year, and we set a new record at auction by doing a bespoke whisky called Oculus which sold for more than £27,000.”

Likewise Laphroig, the heavily peated Islay malt, has made strides in recent years in producing alternate versions of its much-loved whisky, including Quarter Cask and Triple Wood styles. Yet Cockram insists that there is no need for distilleries to constantly be looking to expand their product range.

“We would never introduce expressions that have no relevance,” he says. “This year we are looking at introducing a 30-year-old Laphroig in Asia, but we’re not innovating for innovating’s sake.”

Alan Lodge, June 2010

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