Long term investors can grow Scotch whisky sector
The Scotch Whisky industry is thriving as it continues to be a major contributor to both the Scottish and UK economy, writes Adam Hardie, partner and head of food and drink at Scottish Accountancy firm Johnston Carmichael.
In the past year exports generated £4.3 billion in revenue with around £1bn of this going into the Treasury’s coffers.
The 109 distilleries which are currently licensed to produce Scotch whisky exported 90 million cases worldwide last year, accounting for a quarter of all UK food and drink exports. At present the industry directly employs approximately 10,000 in Scotland, mainly in rural and deprived areas, and supports an estimated total of 35,000 jobs across the whole of the UK. Scotch is a globally recognised brand which also creates a host of additional intangible economic benefits.
Given its positive impact it is therefore great news that there are now over 40 new distilleries hoping to get off the ground in Scotland with some of them already under development. Unfortunately, as things stand, many of these new ventures which are keen to become part of a thriving industry sector will not progress as they will be unable to source the required funding.
It seems strange, given the current success of Scotch whisky, that new entrants to the market are struggling to get off the ground. The situation was summed up at a recent Scotch Whisky Association conference where Anthony Wills, managing director of Kilchoman Distillery on Islay, a business set up relatively recently in 1995, said that funding was the biggest headache for new start distilleries.
The problem facing aspiring distillers who want to get into the Scotch market is that investment returns come on a much longer timescale. It takes two years to plan and build a typical distillery, and then a minimum of three further years to make the product before it can be classified as whisky. Thereby you have a minimum period of five years, often longer, where an investor will see no return.
New distilleries which need external investment must therefore appeal to backers with both patience and deep pockets. Within the UK that usually means looking to investors in London and the south east of England or, even more likely, overseas where there is a strong affinity for Scotland’s national drink within the investment community. Indeed, within our firm we have recently been involved in a number of new start distillery projects where we’ve seen welcome capital funding coming from American and Russian investors.
The Scotch whisky industry may be thriving but if it is to grow then new distilleries are going to have to cast their nets far and wide to get the substantial investment they often require. The fact that Scotch enjoys global recognition and is such a well-regarded brand in so many parts of the world should be a strong advantage is addressing investor concerns about the long wait they must incur before they see any returns.