Client Update - September 2024

Dear WhiskyInvestDirect user,

The last few months have seen some weakness in the Scotch whisky market. This is nothing new. The fact that the industry goes through cycles is the very reason we decided to set up WhiskyInvestDirect in 2015. Our business enables distillers and Scotch whisky brand owners to plan long term and reduce the difficulties of forecasting demand seven to eight years’ ahead.

The latest results from Chivas Regal, owned by Pernod Ricard, show a smaller percentage drop in whisky sales than Diageo, but nevertheless it is a decline and one that is almost inevitable after many years of growth. I noted Jean Etienne Gourgues’ (CEO) comment about their results, which acknowledges the current situation but is also forward looking:

“Whisky is and always will be a long-term game and with a positive 12% compound annual growth since full-year 2021, our eyes are fixed on the future. Our return to growth in the second half has set a good level of confidence as we enter the current fiscal year." This is encouraging.

When our business was set up in 2015 we were in a similar position to today. Global sales had been sluggish for a few years, some markets were in decline and stock levels in the industry were high. This enabled WhiskyInvestDirect to buy good quantities of malt and grain and offer stock to our growing customer base. Prices for new make malt, in 2015 were approximately £2.60 and £1.00 for grain. As of today, prices for those whiskies have risen to around £9.00 per litre for malt and £3.50 for grain, even with the current price weakness.

The returns over the long term for our investors have been slightly ahead of the long term average of 7-8% per annum, net of all costs.

The recent slow down in global consumption, combined with a post-covid pipeline filling from some of the larger companies, has meant that many whisky companies now consider themselves well stocked. This is a dramatic change from the last few years when everyone felt under-stocked and were therefore not offering stock to the market, and ourselves included. So, I believe we have returned to a similar situation as we faced in 2015 when we got going. It was a seriously good opportunity then for us to buy stock, at good prices and offer them to investors. We are now able to take advantage of the easing of stock pressure and we intend to buy more stock from a wider range of distillers over the coming months.

This is good news for the business and provides a buying opportunity for our platform users.

I think it’s important to stress that the majority of the whiskies available from WID are good ‘blending’ single malts and grains. Our aim was always to deal in the wholesale blending market, buying spirits that are popular with a variety of blenders and bottlers. This makes our spirits less prone to the performance of the premium and super premium categories of the Scotch market. It is also worth pointing out that in the recent results from Diageo and Pernod it is the more price competitive category that has fared better recently.

Another distinction I’d like to make is between us and some of the ‘cask trading’ companies that are making a lot of noise in the media. We have nothing in common with these companies and their business is not comparable with ours in any way. Their customers are being charged up to 4-5 x the price available on our platform. From our angle it looks like some very unfair prices are being offered to unwary investors.

As we head into this second cycle, with stock availability back to what it was seven or eight years’ ago, WID is stronger and fitter than before. Our reputation in the trade is solid, we are supplied by a wider range of distillers and our business model has been tested and proven over a nine year period.

From an investor point of view, many of you who have been invested over three or more years have seen above average returns, in the high single digits per annum. But we recognise that the current price weakness is a concern for many. With the exception of the month or so during Covid when prices dropped sharply but recovered equally quickly as buyers stepped in to take advantage of low prices, there has been very little price weakness. What we have seen recently, in the last few months, is some selling pressure on the platform with investors taking profits. This has coincided with a lack of buyers picking up stock. This selling pressure has pushed prices down. Market forces have been at work.

Patience has always been rewarded in the Scotch whisky industry. The charts and data available on our site show that price drops have historically proven to be good buying opportunities. The Scotch industry always plans long term and has always ridden through downturns and come out stronger.

My team and I are always happy to answer your questions and take your calls. Please don’t hesitate to get in touch with us.

Kind regards,

Antony Kime,

CEO, WhiskyInvestDirect