The world is in love with hard liquor. Sales of whisky, for example, have grown 50 per cent in the past five years, to $54bn annually. This week Diageo said that it would invest £1bn in the production of Scotch over the next five years. That is barely a wee dram for the owner of Johnny Walker and Guinness (annual sales £10bn). But it no doubt goes down smoothly in Scotland, whisky’s ancestral home.
As with many luxury products, sales of whisky are driven to an ever greater extent by emerging markets. Much of the industry’s optimism is based on the logic that over the next 20 years, 2bn new consumers will become wealthy enough to want to drink something that shows how far they have risen in the world. Scotch, especially single malt whisky, has the heritage image that makes it an aspirational product. Emerging markets already make up 40 per cent of global premium spirit sales by value, twice as much as a decade ago. As they get richer, such markets should help to lift annual sales by an average 13 per cent for the next 15 years, according to Goldman Sachs.
Producers are sitting pretty. Barriers to entry are high, so, even with added investment in Scotland’s distilleries, supply will be limited. By definition, Scotch has to be made in Scotland and must mature for at least three years in oak casks. That supports prices too. Scotch accounts for just 4 per cent of the 27bn litres of spirits sold globally each year, but makes up 12 per cent of the value of those sales.
The real challenge for producers of Scotch, which is steeped in tradition, is positioning brands to suit vastly differing markets. In Brazil, the biggest emerging market imbiber of Scotch, drinkers go for blends and single malts. In China, by contrast, consumers choose only the priciest whisky as gifts or for entertaining – and sometimes mix it with green tea. It’s always better to go with the grain.
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