Scotch should smooth production rate

24th June, 2014 by Neal Baker

With the Scotch industry undergoing a spike in production to meet increasing demand worldwide, Dutch financiers Rabobank have lent a hand to help settle the spirit’s naturally unstable and fluctuating production model.

rabobankFollowing research into the Scotch business, the Netherlands-based bank picked out areas of improvement that could be made to help the industry capitalise on the current boom in sales in the US and emerging markets.

The industry is ramping up production to rebuild the declining stocks of longer aged whiskies, which run the inherent risk of missing their demand peak and becoming overstock when the barrels are opened and the spirit is bottled for sale in years to come.

“The long maturation process of Scotch adds to the challenges of trying to match current production with uncertain future demand”, stated Rabobank analyst, Stephen Rannekleiv.

As a result, “the Scotch whisky industry has historically suffered from the acute cyclicality of production, which has led to periods of excess supply followed by periods of shortage”.

The new report from Rabobank, ‘Now That’s Smooth’, suggests that a smoother rate of production growth could reduce these historic shifts between excess supply and shortages.

There are three main areas of improvement picked out by the report:

Smoothing out the lumps

“The production cycles in Scotch seem fairly predictable, generally moving in six to seven-year cycles (peak to peak) in which annual production increases range from 30 percent to 50 percent (trough to peak), and then return to near previous lows. These peaks and troughs typically create periods of excess supply, followed by periods of tight inventories.

“The Scotch industry should attempt to achieve more stable production growth in the future, eliminating the surges and declines that have been characteristic of the past.”

Slow and steady growthAccolade Park

“From 2006 to 2012, total inventories rose 17 percent, while annual consumption rose just over 11 percent. This level of inventory growth is clearly needed in the short term to create future availability of aged stocks, but at some point, the production should return to a more rational rate of growth more in line with a slightly conservative projection of consumption growth.

“For the Scotch industry, aiming to guide inventory growth based on projections that err on the side of conservative rather than optimistic forecasts, will inevitably lead to occasional missed sales opportunities, but for a category that seeks to build its premium image based on a perception of scarcity, this would be preferable to allowing excess inventories to flood the market.”

Innovate rather than discount

“At some point, a return to industry oversupply is probably inevitable and the industry should be prepared. In the current environment, whiskies of other origins (particularly American and Canadian) are generating tremendous growth through flavour innovations.

“In the future, should oversupply return, expansion into flavour extensions would be a better response from a strategic perspective than the discounting seen in the past, which also serves to undermine the prestige of the category.

“While this may not be appropriate for all brands, blended whisky brands in basic and premium price areas may need to innovate to retain relevance with their consumers in the face of increasing competition from other whiskies.”

Leave a Reply

Your email address will not be published. Required fields are marked *

Subscribe to our newsletters

Job vacancies

ON-TRADE Sales Executive

Roberson Wine
London, UK

OFF-TRADE Sales Executive

Roberson Wine
London, UK

Judging Week Runners

Decanter World Wine Awards
ExCel Centre, London E16, UK

Sales Administrator

Les Caves de Pyrène
Guildford, UK

Retail Commercial Executive

Laithwaite's Wine
Theale, Berkshire

Wine Buyer

Conviviality Plc
Crewe, UK

Sales Account Manager - On-Trade

Berkmann Wine Cellars
Liverpool

Sales Account Manager - On-Trade

Berkmann Wine Cellars
M3/M4 corridor

Media Sales Manager - Hong Kong

The Drinks Business Hong Kong
Hong Kong

Regional Account Manager

New Generation McKinley
London, UK

Experienced Sales Account Manager – On Trade

Cantina Goccia
London and the south, UK

National Sales Manager – Premium Drinks

Core Recruitment
London based with national travel

Wine Trainee

Stone, Vine & Sun
Twyford, near Winchester, Hampshire

The Global Merlot Masters 2017

Deadline : 24th February 2017

The Prosecco Masters 2017

Deadline : 10th March 2017

db Awards 2017

Deadline : 28th April 2017

The Global Organic Masters 2017

Deadline : 3rd March 2017

Click to view more

The Global Sparkling Masters

the drinks business is thrilled to announce the launch of The Global Sparkling Masters

The Global Rosé Masters 2016

the drinks business is proud to announce the launch of the Global Rosé Masters 2016.

The Prosecco Masters 2016

Now in its third year, the competition will reflect the growth in popularity of this fresh and exciting sparkling wine from the picturesque regions of Veneto and Friuli.

The Global Pinot Noir Masters 2016

After the success of last year’s competition that judged over 250 wines from no less than 16 countries, the drinks business is proud to announce the third year of the Global Pinot Noir Masters

Click to view more