Scotch Whisky – Recovery Position
Scotch moved from recession to renaissance with ease, but theÂ split between mature and emerging markets has never beenÂ clearer, says Spiros Malandrakis of Euromonitor International
TRIUMPHANT SHIPMENT announcements and boisterousÂ production plans have been setting theÂ tone throughout the resurgent ScotchÂ industry for a while now. According toÂ the Scotch Whisky Associationâ€™s latestÂ announcement in April 2011, exportsÂ rose by 10% in value in 2010 to set a newÂ record of Â£3.45 billion. Right on cue, keyÂ players unveiled plans to expandÂ production capacity in a series of defiantÂ statements hinting at expectations thatÂ the industry will not only survive theÂ prolonged slump relatively unscathed,Â but is also bracing itself for consistentÂ and rising gains moving forward.
For example, Diageo has lined up aÂ capacity investment for its Caol llaÂ distillery in Scotland. The spiritsÂ behemoth announced that it will spendÂ Â£3.5 million (US$5.6m) expanding andÂ upgrading the facility which is locatedÂ on the western island of Islay, with theÂ distillery seeing its production capacityÂ increased by 700,000 litres of pureÂ alcohol (LPA) per year from 5.7m litresÂ to 6.4m litres.
Bacardi was not left behind. HavingÂ bought 100 acres of land in centralÂ Scotland and in the process ofÂ developing a second maturation facilityÂ for Dewarâ€™s, the company is focusing onÂ renovating three ageing warehouses,Â while a blending facility will be builtÂ during 2011. The group has alsoÂ redeveloped its site in Glasgow, where itÂ has built five maturation warehousesÂ and a blend centre, as well as installedÂ bottling lines and packing equipment. Â Bacardi plans to invest US$250m inÂ stages up to 2017 in anticipation ofÂ rising global demand for its flagshipÂ Dewarâ€™s brand.
Meanwhile, Pernod Ricard hasÂ expanded production of The Glenlivet,Â having increased capacity by 75%, whileÂ The Edrington Group, distiller of TheÂ Famous Grouse, announced that it willÂ invest Â£10m in installing 33 new whiskyÂ vats and a high-speed bottling line at theÂ companyâ€™s Glasgow site.
So, the question remains, was theÂ recession-induced slowdown merely aÂ blip that has now been left behind?
Beyond shipment figures and buoyantÂ company projections, actual salesÂ volumes did indeed witness a relativeÂ rebound â€“ if less spectacular thanÂ suggested and definitely not uniform.Â According to Euromonitor International,Â global blended Scotch whisky salesÂ posted a 1% total volume increase inÂ 2010, while single malt actuallyÂ registered a decline of 1% for the year.Â Nevertheless, both the blended andÂ single malt categories achieved aÂ marked improvement on their respectiveÂ 1% and 3% declines in 2009. However,Â not surprisingly, the wideningÂ discrepancy between the performancesÂ of mature and emerging nations, whichÂ has come to be a common threadÂ permeating sales in all major alcoholicÂ drinks categories, also left its mark onÂ Scotch.
Within this context, AsiaÂ Pacific, the Middle East andÂ Africa and Latin America allÂ saw a strong bounce-back inÂ both categories asÂ consumption and drinkingÂ habits were quick to reflect theÂ buoyancy of their respectiveÂ economies and the resultingÂ demand for aspirational,Â Western brands. On the otherÂ hand, sales in eastern EuropeÂ successfully escaped 2009â€™sÂ virtual collapse in the case ofÂ blended Scotch, although theyÂ did not fare as well in the case of singleÂ malts. Stalling premiumisation trendsÂ and supply chain disruptions in RussiaÂ were to blame, although anecdotalÂ information suggests that recovery isÂ currently under way.
The key point and a common themeÂ that was also witnessed during previousÂ recessionary circles in emerging nationsÂ (such as the Latin American crisis ofÂ 2001-2002) is that while challengingÂ socio-economic conditions in suchÂ markets can result in sharp declines inÂ sales, consumption rates also tend toÂ bounce back much more quickly than inÂ mature markets. Taking into account theÂ widening discrepancies between matureÂ and emerging economies, it is indeedÂ little wonder that developing nations areÂ climbing higher on key playersâ€™ priorityÂ agendas.
As a matter of fact, Scotch sales inÂ mature markets not only appeared toÂ continue to be mired in stagnation inÂ 2010, but the advancing wave ofÂ austerity and fiscal tightening measuresÂ sweeping these nations give little hopeÂ for a strong rebound any time soon.Â According to Euromonitor International,Â both blended and single malt styles sawÂ more than a 2% total volume decline inÂ western Europe at the same time asÂ North America put in a largelyÂ uninspiring performance, with a minorÂ gain for single malts and a continuing, ifÂ slower, decline for blended Scotch.
The really painful thorn in ScotchÂ manufacturersâ€™ still haemorrhagingÂ sides is, unsurprisingly, located in theÂ crumbling European periphery. TheÂ drops witnessed in key markets such asÂ Spain, Greece and Ireland have beenÂ eye-watering to say the least. TheÂ example of Greece, posting a 16% totalÂ volume decline in blended Scotch andÂ more than a 20% drop in single malts,Â provides a cautionary tale of the close ifÂ not direct correlation between drinkingÂ habits and the inescapable gravitationalÂ pull of economic fundamentals.
According to EuromonitorÂ International, both the single andÂ blended malt Scotch categories areÂ expected to post a 1% total volumeÂ CAGR over 2010-2015. Nevertheless, theÂ already apparent shift towards emergingÂ markets will gain further momentum atÂ the same time as sales in mature regionsÂ face further â€“ if relatively moreÂ moderate â€“ declines. TrademarkÂ protection negotiations will be the key toÂ unlocking emerging market potentialÂ and escaping the plague of counterfeitÂ products.
But beyond the great expectationsÂ stemming from the hopefully insatiableÂ thirst for aspirational ScotchÂ consumption in emerging markets,Â innovation and the riddle of expandingÂ the categoriesâ€™ demographic will alsoÂ soon need to be addressed. The debateÂ between the supporters of a tried andÂ tested marketing approach revolvingÂ around age statements versus theÂ backers of a more eclectic, vintage year-basedÂ proposition provides a glimpse ofÂ the available promotional avenuesÂ moving forward, and it is the latter thatÂ will increasingly come to the fore.
On a rather more radical note, theÂ recent launch of Ginger Grouse on tap (aÂ premix of The Famous Grouse andÂ ginger beer, a ground-breaking launchÂ rewriting the rulebook for the everconservativeÂ Scotch category, mightÂ provide an injection of some sorely neededÂ youth and female appeal to theÂ category. Scotch manufacturers might beÂ thinking in decades, but tomorrowâ€™sÂ discerning Scotch aficionados could wellÂ be the casual, experimental drinkers ofÂ today. db