Beyond the BRICs for Scotch Whisky
As Brazil, Russia & China weaken, India isn't alone in buying more Scotch, and now Africa beckons...
UNTIL a few years ago, writes Tom Bruce-Gardyne for WhiskyInvestDirect, China was the star of the so-called BRIC economies for Scotch.
Drinks executives would jet back from Beijing wide-eyed at the pace of economic growth and the thirst for Western brands among the Chinese middle classes. By 2012, the value of direct shipments of Scotch to China peaked at £71.5m – a 40-fold increase on 2000.
Last year's figure, however, was £39m thanks both to a softening of the economy and to President Xi Jinping's crackdown on conspicuous consumption.
Few saw that coming. Nor the return to Cold War politics in Russia. Nor the recent news that Brazil is now in recession after a second quarter of decline in GDP by 1.9%.
So among the "BRIC" group of emerging economies – a term first coined by US investment bank Goldman Sachs in 2001 – it seems only India is still performing as advertised. Now the spirit's third biggest export market by volume, India grew 30% last year according to the Scotch Whisky Association (SWA).
That said, Scotch remains tantalisingly out of reach for most Indians, thanks to punitive import tariffs. It still has less than 3% of the country's total 'whisky' market.
If the three other BRICs have turned to rubble, it's just as well Scotch enjoys unrivalled global distribution among international spirits. When quizzed about last year's 7% drop in exports to £3.9 billion, David Frost, CEO of the SWA, was right to tell Scotchwhisky.com:
"We're in 200 markets, so you win some, you lose some. It's swings and roundabouts."
Diageo's former CEO Paul Walsh set a bold target of generating half the firm's profits from emerging markets by 2015. If that has almost been achieved, it is only by widening the net beyond the BRICs to vibrant corners of South East Asia and Latin America. And in a recent Q&A with analysts Diageo's new boss Ivan Menezes claimed Mexico, Peru and Columbia are growing in double digits.
But arguably the greatest source of untapped potential for Scotch whisky is sub-Saharan Africa. "Like Asia twenty years ago," says Keith Bonnington, who covers this vast continent for the Edrington Group (home to Famous Grouse, Macallan and other global brands), "nobody knows what the scale of opportunity could be."
By way of back-up, Bonnington quotes the region's youthful demographics, with 51% of people aged under 20, plus the rapid shift to city dwelling and GDP growth of 4.5-6% a year.
"Only ten years ago people were considering [Africa] as an almost hopeless continent with civil wars and stuff like that," says Pernod Ricard's CEO for the region, Christian Porta. Now he claims:
"There's an appetite for brands. The number of high net worth individuals is growing fast, and the number of medium affluent consumers even faster."
Huge challenges remain, especially in terms of routes to market. Diageo may have a wide distribution network thanks to Guinness, but it might not suit premium spirits. Because in Africa, beer tends to travel in refilled bottles in a pick-up truck to reach the consumer.
Scuffed labels aren't ideal if you're Johnnie Walker. Yet that didn't stop Andy Fennell, Diageo's erstwhile CEO for the sub-Saharan region, declaring that:
"The last two decades were about the BRICs, now it's about Africa."
Wise words or hubris? Time will tell. And 20 years is plenty long enough for today's new-make spirit to mature into premium blends and single malts, ready for bottling and shipping to wherever in the world that new or long-standing consumers want to enjoy it.
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 has been a weekly columnist for The Herald and his books include The Scotch Whisky Book and most recently Scotch Whisky Treasures.
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