Last updated: December 30, 2013 4:34 pm

Whisky: sales unbottled

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Demand for the winter tipple is growing nicely

The depths of winter. Time for roaring log fires and a nice warming glass of Scotch. Imagery is a powerful thing when it comes to selling spirits. And the marketing is working. Sales of whisky rose 8 per cent a year between 2007 and 2012, according to the International Wine and Spirit Report, with Scotch, American and Irish whiskies all contributing to the growth.

Scotch is the biggest category, selling 96m cases last year. That is expected to rise to 112m by 2018, largely thanks to demand for premium blends in emerging markets. The slowdown that has hit sales of pricey cognac in China has not spilled over to whisky, yet.

To serve that growth, Scotland is seeing an investment boom, with new distilleries being built and mothballed distilleries being dragged back into use. Diageo, the market leader – and owner of brands such as Johnnie Walker – is investing £1bn over five years to increase its Scotch production. Pernod Ricard, the number two – home to Chivas – is also spending heavily, reopening a distillery at Glen Keith and opening a new one on the River Spey. Smaller players are also getting in on the act. A brewery based on the Isle of Arran has launched a share issue to fund the refurbishment of a distillery in Falkirk.

But one of the strengths of Scotch as a drink is also one of its weaknesses as an investment. To merit the name Scotch, a whisky has to be matured for at least three years, and for premium whiskies such as single malts the maturing period is much longer. That ties up capital and gives the added risk that producers have to predict demand 10 or 20 years into the future.

For bourbon and other US whiskies, the investment case is a little different. For a start, maturing times are, in many cases, shorter. Not only that but bourbon is growing faster than Scotch and from a smaller base – volumes are expected to rise from 34m cases last year to 43m cases in 2018.

The big beneficiaries are Brown Forman – owner of Jack Daniels – and Beam. True, neither is a pure play on whisky, but on 25 times forecast earnings both trade at a healthy premium to their Europe-based rivals.

This article has been updated to reflect revised sale figures.

Email the Lex team in confidence at lex@ft.com

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