Scotch Whisky Industry's Big Building Spree
Will booming capacity mean another whisky loch needs draining...?
As SCOTLAND prepared to vote in the 2014 referendum, writes Tom Bruce-Gardyne for WhiskyInvestDirect, "its most iconic industry [was] on a bender," declared the Financial Times.
The independence issue has since been resolved (until the next vote in the 'neverendum'), but the Scotch whisky industry is still ramping up the volume. This is the biggest distillery-building spree since Queen Victoria was on the throne.
No fewer than 21 distilleries were built in the 1890s to feed the late Victorian whisky boom. But in the decades that followed it was nothing but distillery closures thanks to war, US Prohibition, the Great Depression, and war again.
It was not until 1957 that Seagram's signalled the good times were back with its new Glen Keith distillery on Speyside. Three years later the nearby Tormore sprung up. Palatial in scale, and clad in pale granite with a chimneystack modelled on a towering whisky bottle, it symbolised the industry's newfound self-belief.
Rising exports, particularly to the States, were extrapolated forwards as though Scotch would grow forever. But by the early 1980s the party was over again thanks to recession, rising sin taxes, and something called vodka.
DCL (now Diageo) was forced to close 21 distilleries, of which eight were later resuscitated. With the brakes on production, the whisky loch was slowly drained and by the Millennium demand was beginning to take up the slack.
In 2007 Diageo began building Roseisle, the first of a new generation of super-distilleries with capacity to produce 10 million litres per year. It was a tremendous vote of confidence in the future of Scotch – and in the company's blends – considering the first drop won't make into the flagship Johnnie Walker Black Label until 2022.
Much more was to come. In May 2012 Pernod Ricard announced it would invest £40 million a year in Scotch and boost its production by a quarter. That news was swiftly trumped by Diageo's bombshell that it was going to invest £1 billion in the industry. Apparently it was a five-week tour of Asia earlier in 2012 by the then CEO Paul Walsh that swung the decision.
The amount may have been inflated for the headlines, as it included working capital to finance all the maturation involved. Though as the whisky writer Ian Buxton said: "So it's half a billion, but that's still a shedload of money."
There would also be a new 13m litre distillery at Teaninich, and another one if the whisky boom continued. According to the IWSR, Scotch exports grew in value at a compound rate of 4-5% per year from 2002 to 2014, and by 1.45% by volume. With the spirit enjoying a greater global spread than ever and surfing the rise of the middle classes from Shanghai to Sao Paolo, volume growth is forecast to hit nearly 3% a year for the next decade.
However, with whisky's distribution pipeline completely stuffed, plus the Chinese government cracking down on conspicuous consumption, there has been a bit of a wobble. Shipments dropped 7% last year, and Diageo announced its expansion plans – including Teaninich – were on hold. Begging the question of how much of that billion has actually been spent.
Nevertheless Pernod has ploughed on with Dalmumuch, its new 10m litre colossus on Speyside, while Macallan is building itself a new £100m distillery, due to open in 2017.
Between them Diageo and Pernod control two thirds of Scotch production – a share that has barely been dented by the dozens of boutique distilleries sprouting up from the Borders to the Outer Hebrides. The new entrants certainly prove what a dynamic category whisky is right now. Let's hope they all find a dynamic market as their new spirit matures for sale.
It's a sobering thought, but the great Victorian boom was all over by 1901.
Award-winning drinks columnist and author Tom Bruce-Gardyne began his career in the wine trade, managing exports for a major Sicilian producer. Now freelance for 20 years, Tom is a regular columnist for The Herald and his books include The Scotch Whisky Book and the new Scotch Whisky Treasures.
You can read more comment and analysis on the Scotch whisky industry by clicking on Whisky News.