There does seem to be a steady drip drip drip decline. I resisted quoting last year's financial analysis and calling this series "What is the Scotch Bust?" because there is no bust, yet. But I will keep that title in my back pocket for next year or the year after, in case the trickle turns into a loch.
This year's trilogy will structurally mirror last year's. Part 1 focuses on the export volume and value numbers published by the Scotch Whisky Association. It's the post with all the cute minimalist charts. Part 2 will be the newly updated and expanded US prices for single malts. More whiskies! More rows! More columns! More graphs! Part 3 will include final analysis and conclusions and 2015 numbers and I really hope to make it briefer than last year's tome.
All of the data from my Excel charts here can be found in the SWA's Publication section, where the reports for 2009 through 2014 are available. They just, literally two days before New Year's, published the 2014 numbers...
Welcome back to 2014! The value decline seen in 2013 not only continued in 2014 but became steeper. Export volume decreased, as it had in four of the previous six years. And very curiously, the price per liter of exported whisky dropped below 2013's, 2012's, and even 2011's average. Single Malt sales worldwide continue to soar, meanwhile blend sales are sinking. Aged single malt stock is draining, but production has ramped up at a much higher pace. And in scotch whisky's biggest export market, the United States, volume sales experienced a large decline, even taking value down with it.
First, the big graph.
|As with all of these cromulent charts, you should click to embiggen|
Last year I wrote about the plateau that had formed in 2012 and 2013. Plateau no more. Volume (liters) fell 3%, Value (£) dropped 7.3%, and even the value per liter declined 4.4% (or 7% since 2012). So you don't have to squint to see most of this, let's zoom in from a different perspective and take a look at the growth and decline since 2007:
All three of these lines (volume, value, and value/volume) fell to their lowest levels since 2010. Since 2011 was the biggest sales year in scotch whisky history, we're essentially at the point before the big shoulder formed. If the declines continued in 2015 and the totals drop below 2010 levels, one could argue that that may be a cause for worry amongst the beancounters.
Before I delve into what was behind this decline. I wanted to include the next two charts which each contain possibly the saddest lines that a whisky chart could contain.
But the rest of the world is drinking it. Maybe a little less than we just were. Let's see what's behind that drop.
MALT AND BLENDED WHISKY SALES
Last year, I focused solely on sexy sexy malt whisky. But it's not the driver of the decline. In fact malt whisky sales continue to grow.
So if malt whisky sales are on the rise, then what's going on? Well, this is where numbers need some explanation, because it is here where the decline occurs...
So you can look at the above chart and see two things. Firstly, it confirms that malt volumes are blasting off. Secondly, it appears as if blend volume sales are treading water. They go up and down a little bit each year, percentage-wise, but don't appear to move too much. In fact, they're within 0.09% of where they were in 2008.
But here's the thing, even though the handsomer of the whisky siblings, MALT, is growing quickly, the other sibling, BLEND, is still really really huge. So even the smallest percentage decline in blend sales can drag everything else down with it.
As in, "Whoopie, malt sales increased by 4.7 million liters in 2014!" "Yeah? Well, blend sales dropped 16.7 million liters that year."
Or, "Yay for malt whisky value jumping £103 million in 2014!" "That's quaint. Blends lost £424 million in value in 2014."
I don't know what lunatics are having that conversation, but the point is that blends lost a lot of drinkers in 2014, and no matter how many of them moved to single malt it's nowhere near enough to make up for the loss. Blends are the gravity behind the fall. Even the value per liter of blends dropped 7.4% in 2014 (almost 12% since 2012), while malt went up 1.5% in 2014 (32% since 2010). I'll write about this further in Part 3 on Friday.
AGED MALT WHISKY STOCKS
With malt sales still growing nicely and the price/liter nudging up, it's clear what's in demand. How's that supply going?
Here's the bad news:
Here's the good news chart......or maybe not?
EXPORTS TO THE UNITED STATES
Whew, I had to sweat to find a segue there. But it's a good one, because here is another driver of the downturn.
If one reads the industry commentary about which export markets were responsible for the drop in sales, you'll hear about the cutbacks by the Chinese government and the embargo with Russia. These are pretty good excuses. But those two markets added together carry but a fraction of the export weight that the Yanks do. The USA remains the biggest whisky export value market by far (nearly the size of the next three markets combined). And whisky exports to America stunk in 2014.
Volume, down 6.7% (or almost 9% from the 2011 peak). Value, down by 8.6%. Even the price/liter dropped (for the first time on this chart) in 2014, by 1.9%. Those volume and value declines account for almost a quarter of the the entire export drop in both categories.
Because the SWA doesn't provide more granular data than this, one can only speculate what's going on. As you'll see in Part 2, retailers' single malt prices continue to rise, so I'd be willing to bet that blend sales have also fallen off sharply in The States. And maybe people aren't buying the more expensive bottlings whose prices are rising exponentially faster than the rest. You'll see what I'm talking about in Part 2 on Wednesday.
Yes, 2014 was a crap year for the scotch whisky industry. The biggest export market had a bad year (as did the former third largest, Singapore). Export value, volume, and price/liter fell noticeably. UK consumption continues to vanish into oblivion. And export losses were entirely due to a 16.7 million liter (£424M) decline in blend sales. Meanwhile, sales of malt whisky continue to blossom, stemming a bigger mess. Optimism has spurred a major increase in malt production, which will either fuel a future boom or give whisky drinkers A LOT of long-aged whisky to consume over the next two decades.
That rough year wasn't without precedent, in fact export volume fell more precipitously in 2012. Even single malt sales fell in 2012 (and again in 2013). Export volume had a bigger fall in 2008 than it did in 2014. What happened in 2014 that has drawn attention is the fact that exports' value fell along with the volume. That doesn't occur frequently, but value also fell in 2013, 2004, and to a greater degree in 1998. These are things that happen in markets. There are good years and there are bad years. 2014 was a bad year, but what remains to be seen is: Are we seeing a trend? One year does not equal a trend nor do two years. The "Scotch Boom" was hyperbole, and perhaps we should wait before we announce doom as well.
On Wednesday, I'll take a look at single malt prices in the US, which *spoiler alert* continue to rise. So sharpen them pitchforks. On Friday, I'll mix all this stuff together, sprinkle it with some helpful 2015 data, and bake a whisky cake full of analysis. You may need to wash it down with a glass of something. I hear bourbon's pretty popular.