...where distraction is the main attraction.

Thursday, January 8, 2015

What Was the Scotch Whisky Boom? Part 2: Single Malt Prices in the US between 2007 and 2015

On Tuesday, I took a look at where the aggressive growth was happening during the Scotch Boom.  While volume was indeed up, it had really only grown 20% over 30 years.  But during the same period, export value grew 470%.  Exports were the engine behind the growth since UK consumption had fallen drastically.  Aged malt stocks were declining at a decent clip, but malt production increased once those older stocks started getting bottled at a faster pace.  As a percentage of exports, single malts were growing rapidly and exports to the United States were also burgeoning, especially when considering sale value.

I was probably a little nuts to go as far back as 1980, and should have focused more on the boom time.  2007 was a major lift off year as the annual volume shot past 300 million liters and value jumped 14%.  Between 2007 and 2013, export volume was up 8%, while value was up 51%.  Again, note where the real growth is happening: £££.  Between 2008 and 2013, Scotch's largest export market, the United States, had a 19% growth in volume and a 120% growth in value.

With growing single malt sales driving growth and the US market zooming along, I'm going to take a look at single malt prices in the US between the years of 2007 and 2015.



Background on the data:
I am using Wine Searcher's Average Wine Price system, selecting only US retailers.  Their site has an explanation behind how they arrive at averages.  To summarize, they do not include auctions; all prices are adjusted to 750mL bottles; they remove the highest and lowest 20% prices in order to correct for pricing errors or egregious retailer choices.  Aside from the ability to scroll through pricing history, Wine Searcher's big draw for data purposes is their retailer count.  For instance, if you search for Johnnie Walker Black Label they'll actually stop their listings at 500 retailers.  Their system has over 350 retailers selling Talisker 10.  So they are pulling from a very large data set.  And, anecdotally, their site has proven very reliable and accurate in my searches for beers, wines, whiskies, brandies, etc.  But please note, this is not an advertisement for Wine Searcher.  Their Average Wine Price history requires a paid subscription and I've been known to mooch off of other people's accounts from time to time.

I have also only included single malts for which Wine Searcher has a full history starting in January 2007.  So you will not find a number of well known whiskies in my chart.  Some of our faves didn't hit the market or the system's history doesn't have enough data until 2008 or later.  Distilleries like Bruichladdich are not represented at all because they haven't had a single expression that stayed on the market for these eight years.  Also, I've noted when questionable data pops up in the "Notes" column to the right of the "Total Increase" column.

I encourage you to check out my shared Google Doc at this link.  I'm not sure what you see on a "shared" doc, but I hope it'll let you sort or filter.  There's a lot of info to be seen and it's probably more useful than the rest of this post, so enjoy!



Because I'm looking at these prices from the point of view of the whisky drinker, I considered his or her financial reality when color coding the price increases.  The National Average Wage Index went up 11% between 2007 and 2013.  Between 2007 and 2014, the US's Consumer Price Index rose 14%.  Using those numbers, I got to 15% as a midpoint between the rise in wages and inflation over the expanded eight years.

No whisky producer is going to 15% on the nose so I gave them some wiggle room and assigned the green color a range of 10-20%.  Light blue notates a 0-10% rise. Any whisky that went down in price since 2007 gets a cool dark blue.  On the other side of things, a whisky that went up between 20.1% and 50% gets pinked.  50.1% to 100% gets a darker pink/red.  And a whisky that had an increase of over 100% (yes, there are some) gets a fire truck red.

Now, I was going to just share the list with you and say, "Have fun!", and leave it at that.  I quite seriously have commentary on every single one of the listed whiskies.  But since we have only so many hours on this planet, I'll limit my observations.



Charts!

Please note, these charts are not as solid as Tuesday's, since every whisky is weighted the same here.  If the sales counts were available for each one, I'd be happy to weigh them thusly.  So I wouldn't recommend leaning too heavily on these visuals.

BY AGE GROUP

Note: the stacked graph totals in the first chart do not match the final totals in the second chart exactly since each year's increase gets compounded.


These two are my favorite graphs from this post, as they're less unbalanced than the others below.

The charts reveal both the most obvious shift in pricing and the seizing of the luxury market.  Almost without exception, old malts' prices skyrocketed.  Perhaps it was due to scarcity or it was the realization by marketing units that Old Whisky could be the next Old Cognac or Old Bordeaux.  There was an ultra-luxury market to be tapped.  And tapped it was.

Meanwhile, starter (younger and cheaper) malts increased somewhere around the CPI inflation range.  As whiskies increased in age, so does the rate at which their prices grew.  This all fits a narrative creepily well.  I was relieved to see the non-age statement whiskies remain conservative, but then again the real NAS crop has only been on the market a couple of years.  It's also cute how Glenlivet 12 and Glenfiddich 12 dance instep perfectly like an old couple, at 25.71%.

BY OWNERSHIP

Note: As noted above these charts are occasionally comparing apples to oranges. Glenfiddich 12 should not carry the same weight at Glenfiddich 40 due to the massive difference in units sold.  These charts are only meant as a brief summary.  The spreadsheet has the good stuff.  Also, for these two graphs I've removed the owners who had only one whisky in the spreadsheet.



Well, this sadly proves what we all knew well.  The Edrington Group is at the forefront of price hikes, from Macallan to Highland Park.  They take it sort of easy with their 12 year olds, but then it gets gory.  The pricing on the Mac 18 and HP 18 have led even the uninquistive to wonder what the heck is going on.

Meanwhile, for all of my griping about Diageo's price increases, they're not as terrible as other better loved companies'.  Their Classic Malts' pricing increases average in the high-20s while the Distillers Editions are in the low teens.  Frankly, it's only Talisker whom they decided was vastly underpriced and did so after 2011.  In the stacked graph above, that big red bar over Diageo's name is entirely fueled by Talisker's price hikes.

The Springbank folks have barely moved their prices.  And, surprisingly, the same goes for the LVMH whiskies.  No one should be shocked if one of those two companies start raising their prices soon.  The other surprise is William Grant standing at number 2.  Their 12s had light red boosts, but all of the older bottlings had huge price bumps.

BY DISTILLERY



Hmm, at least this chart is slightly better than the ownership ones.  But it does have one-offs like Tamdhu and Longmorn standing with multi-whiskied names like Glenmorangie and Glenfarclas.

But, look who sits amongst the tallest bars, Macallan and Glenfiddich, the two best-selling single malts in the world.  Glenlivet and Balvenie, two other major sellers, sit not too far behind.  It makes one appreciate Glenmorangie (4th best-selling malt) and its negligible increases.  Laphroaig and Ardbeg haven't moved much, yet.  Meanwhile, all of Bowmore's whiskies went up in price significantly.  GlenDronach is too high up on the list due to what might be a data error, but BenRiach sits in a very good position as they haven't really moved their prices in eight years.



There are some interesting stories with the individual malts.  Laphroaig 10 hasn't gone up in price as much as I'd thought it had, neither has the Cask Strength and Quarter Cask.  Who knows what Suntory will do with that reality, especially since they've raised the prices on all of their other products quite a bit.  I was very happy to see so many cells in blue from companies I like (Arran, BenRiach, Benromach, and Springbank).  And while most of the big distilleries plumped many of their prices, quieter distilleries like Glen Moray and Tomintoul kept some whiskies in the blue.  And half of this country is paying more than $44 for Glenlivet 12?  Yeesh.

What we don't really see in the spreadsheet is where the truly massive US export price/liter growth, as noted in yesterday's post, comes from.  The SWA says the price per liter of US scotch exports grew more than 80% between 2007 and 2013 alone.  Comparatively, the sheet underestimates single malt prices increases.  In the spreadsheet, I would say that even if we weighted the larger distilleries more, we're not seeing an increase of more than 45%, though probably closer to 40%.

(Taking Big Brother Blend into consideration, Dewar's White and Johnnie Walker Red's prices rose about 23% in 8 years.  Black Label's went up 28%.  Chivas 12's rose 20% and 18's 24%.  Grant's went up 21%, J&B only 8%.  Ballantine's went up 43%, but that doesn't take us any closer.)

At this point I can only theorize about the difference.  Since Wine Searcher lists the retail prices, could it be that the retailers themselves were absorbing a lot of the brunt as they bought their supply from distributors?  Thus they hoped to turn a profit from quantity rather than blowing up their prices any further?  Or, by "topping and tailing" the top and bottom 20% in their data set, does Wine Searcher miss out on the larger retailers who charge prices high above the average?  Wine Searcher does not include BevMo, a large national retail chain whose non-sale prices on single malts tend to be higher than most other stores in California.  My list cannot include newer malts, including (as already mentioned) all of the new NAS whiskies; perhaps those whiskies already went up in price?  While there are no independently bottled whiskies here -- and those have gotten much more expensive over the last two years -- they do not make up a significant part of national sales.  Or maybe it's all Macallan 18's fault.

Considering these elements, we could be accounting for a price rise of 45-50%.  That is still punishing to whisky drinkers.  If the wage index went up around 14% over those eight years and inflation went up 16%, we're certainly not sitting on any extra discretionary cash here.  From the drinker's standpoint, how are we going to keep paying for this?

For the whisky producers who have profited off the value boom, how is this a sustainable business model?  Do you expect the structure to hold as you raise prices two-and-a-half to three times the rate of inflation indefinitely?  And how many shaky quarterly reports does it take to get to the center of a Tootsie Roll Pop?

Or has the vaunted growth already started to give way to a plateau or loss?  In Part 3, I'll consider if The Boom was, not is.

21 comments:

  1. I'm a bit surprised United Spirits didn't see significant price increases compared to Edrington or William Grant (still 25% increases are a big change). Does that mean Dalmore has always been pricey compared to other whisky?

    While I love going to Beltramo's and K&L, BevMo tends to be closer to home for me. BevMo does have a price match policy though certain store managers are more amiable about it than others.

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    1. Well, Dalmore was kinda weird according to the Wine Searcher history:
      --12 year old - a 72% price increase over the 8 years, thanks to a fancier bottle and 7% more water added
      --18 year old - was $200 for a few months in 2007, then there was a huge price change down down to $115. Then it dropped as low as $85 in 2010 and has since gradually increased 77%. So I have no idea what went on there.
      -- 15 year old - the history only starts in April 2009, but it's only gone up 20% since
      -- Gran Reserva - history starts in May 2009 and the price has basically treaded water since
      -- King Alex III - again 2009, and its price is all over the place, ending up at less than a 10% increase since 2010

      So even if I moved the bar to 2010-2015, its Dalmore's products' average increase doesn't change much.

      I had no idea BevMo had a price match policy. Hmm......

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    2. Hmm, I can't seem to find their price match policy online. But they did match the price on a bottle of Hawaiian vodka that was lower at Hi-Time. However another store wouldn't match Hi-Time's $65 price on Bushmills 1608 (which is $100 at BevMo) so I just bought the bottle online at Hi-Time and had it shipped to my home. So it's a bit dependent on the store manager.

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    3. That's interesting indeed. A Google search shows anecdotes of price matching vs. Total Wine and Costco (but no up-front, stated policy). However, I doubt that down here in San Diego they'll start matching prices for Total Wine (70 miles away) or Hi-Time (90m) or K&L. Worth looking into.

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  2. Firstly, absolutely fantastic work; it's amazing the kinds of "reverse-limbo" some companies are trying to play with us.
    But I have to wonder, do the Wine Searcher figures take into account sales volume? I can see it that some of the larger sellers might have better prices and sell a ton more than specialty retailers, especially for lower-end products like Glenfiddich or Glenlivet 12.
    Along with store volume, what about brand volume? If the prices of Springbank 18 and Glenfiddich 12 both go up by X.XX%, it would make sense that so much more profit could be extracted for William Grant and Sons because of it. Could this be how some smaller brands internally justify higher prices and higher inflation, that the overall net burden on consumers is still less that that of a bigger brand's hikes?
    I could be way off on these, but I'd love to have it made sense of.

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    1. Hey Andrew. Since Wine Searcher only collects prices (though they do it daily), I think their Price History toy is just there to give shoppers an idea about what the median price for X Wine would have been on X Date. So they wouldn't weigh Total Wine & More more than Mr. Kegs. (I think.) They'd have to get sales volume data from each retailer. If they had that info, that would be incredible, but I don't think individual stores would part with their figures even if it was kept confidential.

      Yeah, brand volume would determine the big overall single malt price increase number. Sadly, individual brand sales numbers are difficult to come by. I'll show a rare example of one in Part 3. Meanwhile, the companies are happy to share their (book-cooked) profit numbers to the market/investors. But it's safe to say that the big companies' (Grant, Diageo, Pernod, and Edrington) price raises fuel the main number almost entirely.

      It's good that you referenced Springbank since they're so very different than the big kids. Their processes are less modern and sleek, requiring more human labor, so their overhead is much higher. Meanwhile, their US distributors have plumped up their US prices to crazy levels, sometimes almost 2x the UK price. And I wouldn't be surprised if the distributor isn't taking most of that cut.

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    2. Given how much Springbank prices jumped when they switched distributors from Preiss to Pacific Edge, it does seem safe to say that it's almost all distributor-driven in the US. Though I think Springbank also has some weirdness because the turnover is low enough that it often takes a while for price increases to flow through to all retailers, so there's often a lot of variation - e.g. Hazelburn 12 Year selling for anywhere between $60 and $120.

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    3. As a statistical note, even though the average price is not adjusted by store sales volume, as long as the store sales remain relatively stable (or grow at same rates across stores), the *change* in price over time will be correctly estimated. In other words, the price bias will be the same at all time points, and will be canceled out when looking at changes (differences).

      To me, there's another very important aspect that you could consider in your analysis, Michael. And that has to do with the "brand shift". By this, I mean the gradual shift of various brands to new expressions (often NAS or with reduced stated ages), that are either added to, or ultimately meant to replace, the existing "legacy" expressions. Macallan is a prime example, but others would include JW 15yo Green & 18yo Gold, Glen Garioch 10yo & 15yo, Longmorn 16yo, Balvenie 15yo. The reverse phenomenon is that of pimping up the expression - 43-46% abv, non-chill filtering, no fake tan, such as Tobermory and stablemates Bunnahabhain & Deanston, Glen Garioch (again!), maybe BenRiach? - which justifies a reasonable increase in price of 10-15% in inflation-adjusted dollars.

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    4. @Florin. All but one of Burn Stewart's product refreshes jumped in price more than 15%. The odd one out (always the odd one!) was Ledaig 10 which didn't change much at all. Deanston 12 and Tobermory 10 were up over 60%.

      I'm very interested in brand shift. It's still sort of new. Many of these shifts happened in 2011. Curiously that's when things started going downwards across the board for whisky's financial numbers. I'm still wondering when Macallan will be bringing their purdy colors to America. Could this be the secret reason why Mac 12's quality has gone down? So that no one will miss it when it's gone? Don't worry Edrington, we'll keep this secret between us.

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    5. @Jordan. Hazelburn's prices are so weird. I've seen the 12 selling in some places for less than the 8 sells at others. Or other places that have both an sell the 12 for only $5 more. Then there was the weird Costco sighting of the 12. II wish I liked Hazelburn more. I don't think it sells well in the US. There's also a big swing in Springbank prices across the country and I'm wondering if that's turnover related, or something else. For instance, on the East Coast and in some of the Midwest, it's not difficult to find Springbank 18 for $125. On the West Coast, we're lucky to find it less than $180.

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  3. Amazing work, well done and thank you very much for sharing!

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    1. Thank you! I hope to have Part 3 posted early next week.

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  4. I don't really understand any of this but I'm outraged anyway.

    (Could the argument be made that prices at the start of the period you looked at were depressed on account of the previous bust? And so that some of the subsequent rises is a correction?)

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    1. I was tinkering with UK's inflation data while writing these posts. There could seriously be another series of posts just on the history of whisky prices and inflation. As an act of mercy I'll keep it to one post, sometime in the future.

      One argument could easily made that there was no value boom at all, that it was all just a correction for inflation. If my maths be correct then our current Scotch prices are less than half of what they were in 1949 when adjusting for inflation. But there was also a period of time during The Dark Times (specifically 1990-1996) when the export price-per-liter was much higher than now (again adjusting for inflation) as if the industry was trying to recoup some of the damage. Yet, the price did sink a bit by 2006. I'm not sure how all of this plays into our US prices, but it likely had an effect.

      While raising prices during an bullish period to correct for lower price during a bearish period is probably good business, it's a tough sell to customers. Meanwhile, short-attention-span investors wouldn't want to hear it. Anyway, I'm just speculating but calling it The Whisky Inflation Correction would only be sexy to 0.1% of the population. Whisky Explosions are much hotter.

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    2. I meant also the question of whether the price of old whisky was depressed post-1983 such that the sharper rise in its prices vis a vis younger whisky might amount to the same as it would have if they'd all increased at more or less the same rate over the entire larger period. I have no idea if this is true, of course--it's just something you hear a lot of old-hands say: that the whisky loch post the 1980s bust created an artificial situation that cannot be taken as the norm against which to measure the current situation. In other words, I'm wondering if 2007 is too late a start for such an analysis.

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    3. The results of price +/- will definitely change depending on the analysis's starting year. I tried to have a good reason to choose 2007. 2007 was when the SWA's numbers started showing the industry's sudden large value gains. Those gains were largely due to jumps in the value assigned to the whisky, rather than big jumps in actual liquid being exported. Since the price per liter started its jump in 2007, that's where I started this analysis to see how individual whiskies moved as well. The potential problem I think you're pointing out is, what if the prices were at a low point in 2007 due to the whisky bust? That would mean the prices would understandably go up because they were already depressed.

      If I adjust for inflation, the price-per-liter in 1981 is exactly the same as it was in 2007. Once the market busted in 1983 (though export volume sales never dropped more than 10% overall during the "bust"), the adjusted price actually increased slowly until it peaked in 1992 then gradually dropped until 2007 when it's back to the exact pre-bust prices. So while price-per-liter was at a low point in 2007, that's where the price sat before the bust (during which the price-per-liter was actually higher). I feel like a graph would explain this better than words because you make a good point and I want to use visuals to explain my logic.

      But in my analysis I also wanted to show that different companies have reacted very differently to the situation. Even if they were due to a correction for depressed prices, the gains aren't a boom but rather a return to normalcy. But if the SWA is right, then the value assigned the average liter of whisky was the same just before the bust as it was just before the boom (after adjusting for inflation). Thus the 2007 starting point.

      I hope this addresses your concern. There'll be a part 4 in February(?) that might help.

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    4. Hey--I don't have any concerns per se; just trying to wrap my head around all this. Do I understand correctly then that the situation in 2007 is as though there has been no effective price increase since 1982? That if you were to redistribute the rise in prices from 2007-15 to 1982-2015 it wouldn't look like such a dramatic increase, especially for older malt? If I am understanding correctly, does this mean that while on the one hand we shouldn't fall for the talk of a boom we shouldn't also be too exercised about the increase in price (on the whole)? I'm sorry if I'm not understanding. You may have to explain this slowly, as though to a developmentally challenged golden retriever.

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    5. The amounts are the same for 1982 and 2007 (when adjusting for inflation) as far as how the companies price the volume that they're exporting. What distributors, importers, and retailers do/did after that I attempted to illustrate with the US price spreadsheet. But I don't have that data for 1982, just 2007-2015. I wish I could break it down between maturation lengths using the SWA's info but I can't because they lump everything over 10 years into one line. So, without that age info and without a big 1982 US price dataset to pull from, I'm not sure how it would turn out. You could be right, or the whole ultra-premiumization could, historically, be a new approach during this past decade.

      Regarding the increase in prices between 2007 and 2015, no one should be surprised that the prices went up. It's the degree of the ascent that's tough to reconcile. Companies could easily utilize market forces to raise the price per liter back out of lower historical regions, but the market forces didn't exist for a boost of this size. There's the external force of inflation (17% in UK, 14% in US) which would explain some increase. But the internal forces of supply and demand weren't as strong as advertised. Volume sales only increased two of those years equalling a total of an 8% increase over the whole stretch, and malt whisky % of the exports went from 10% to 14%. So a 20% increase in prices (the green shaded cells in the spreadsheet) would have been understandable/defendable, maybe even 25% could be argued depending on the volume sales of older malt. But 44% worldwide and 72% in the US? I don't see anything motivating that other than various unkind descriptors. Though outrage mileage may vary.

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    6. That was a lot of words to say: prices should have gone up but holy crap they went up a lot more than is justified by the data.

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  5. Dang. This is some damn fine detective work. Glad to have found this (courtesy of SKU).

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    1. Thank you Kevin! Yes, Sku's post came as a happy surprise this morning. :) I promise that my reviews are (slightly) shorter than these Boom posts.

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