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Wednesday, January 13, 2016

Scotch Ain't Dead Yet, Part 2: The very much alive pricing of single malts in the USA

In Part 1 of this series, I included a section that highlighted the drop in whisky exports to the US in 2014.  Declines happened in volume, value, and price per liter.  Price per liter for scotch whisky exported to the United States dropped by almost 2%.  But keep in mind, that includes both malt and blended whiskies.  Because malt whisky's price/liter (worldwide) went up 1.45% that year, it's quite possible that prices on exported single malt to the US went up a little.

But all of that is a really macro, big picture, view of prices.  What we as consumers see on the ground here doesn't reflected those changes.  For instance, between 2008 and 2014 the worldwide exports of malt whisky increased in price by 12%.  During that time, the prices we saw at American retailers tripled that rate.  So, why are our prices going up faster?  Keep in mind that the numbers I'm getting from the Scotch Whisky Association are for the value declared at the time of export from the UK (and it's in GBP not USD).  By the time we see the bottles on the shelf the importers, distributors, and retailers have further increased the price for their own profit.

Now we've just begun 2016.  That "almost 2%" drop I mentioned above was for all whiskies exported to the US in 2014.  In the first half of 2015 (*hinting at Friday's post*) scotch whisky exported to the US dropped almost another half percent.  But the single malt prices we see every day continue to rise.  I will be focusing on this single malt price inflation today.

As I wrote last year, here's some background on the data below:
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 350 450 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 encourage you to check out my shared Google Doc at this link.  There's a lot of info to be seen and it's probably more directly useful than the rest of this post, so enjoy!

A few words about my methodology:
There are some important changes to the data this year, compared to last year.  Firstly, there are more whiskies!  While 3/4s of the products listed measure prices going back to 2007, there's a large number of products for whom there was either no data for January 2007 or it was unreliable.  Last year I had selected January 2007 data because '07 was the first year of the so-called whisky boom, and it was the earliest data that Winesearcher listed.  For the whiskies new to this list, I am going with their January 2011 data for three reasons.  Firstly, 2011 was the second (and largest) whisky boom year.  Secondly, I already had the 2011 prices listed for the other whiskies, which I used to show periodic price increases.  Thirdly, 2011 is the earliest data that Wine Searcher now lists.

Because mushing together a 9-year price change percentage with a 5-year price change percentage is not responsible mathematics, I am including a new metric to bring the numbers closer together: Multiple of Inflation (or MOI if you like).  MOI takes the total price change and divides it by the US's inflation (CPI) rate over the related period of time (9 years or 5 years).  For the whiskies that start with the Jan2007 data, the inflation was 14.5% (or $1 in Jan2007 would be worth $1.145 today).  For the whiskies whose data starts with 2011, the inflation was 5.5% (or $1 in Jan2011 would be worth $1.055 today).

The color-coding is based on the MOI, as follows:
Dark blue = price actually decreased, thus a negative MOI
Light blue = price increased between 0 and the actual rate of inflation
Green = price increased between 1 and 2 times the rate of inflation
Light pink = price increased between 2 and 5 times the rate of inflation
Fire Truck Red = price increased between 5 and 10 times the rate of inflation
Black = price increased more than 10 times the rate of inflation

Please feel free to peruse this list here or on the Google Doc to your very heart's desire (I think you can bookmark the Google Doc as well).  You're also welcome to ignore the analysis below, but there are a lot of fun graphs down there, including two that are shaped like pie.


I will start with 2015 as that is more immediate (and new-ish!).  Plus I'll be able to compare exact percentages.

The Consumer Price Index (CPI) inflated all of 0.5% in 2015, so a January 2015 dollar is worth $1.005 today (January 2016).  Meanwhile, if I take the average of all of the 161 whiskies in the spreadsheet above, I find that the average single malt had a price increase of 3.95% in 2015.  That is eight times the rate of the CPI.  That's a lot and that's fast.  If a whisky's price moved eight times the rate of inflation for the past nine years, that would be like having your $40 whisky from 2007 now going for $86 in 2016.  But there really is no "average" single malt.  There are different age statements, companies, and distilleries.  So here's how 2015's price boost breaks out:

click to embiggen
This shouldn't come as a total surprise to many of us.  Old whiskies continue to go up in price very quickly.  What's happening here is a separation in pricing tiers.  The NAS, 8-10yos, and 11-13yos increased at almost the exact same rate (1.70% to 1.78%), while the further right/older you go on the chart the quicker the price balloons.  17 to 24 year old whiskies are being established on one level, 25 to 29s on another, and 30+ on its own.  These are tiers of luxury.  We'll return to this subject throughout.

Here's a breakdown by distillery:

Note: distilleries with only one whisky on the list were removed for accuracy and clarity purposes
And here's the same chart using the MOI metric rather than percentages, just to get you used to it.

Yes, Talisker and Macallan lead the way, by quite some distance, with Highland Park in third.  All three of these distilleries have a number of long-aged whiskies on the list and, without exception, all greatly increased in price.  I don't have much of an explanation for Aberfeldy and Hazelburn, but it's nice to see their results.  For the record, 30 of these distilleries had price increases greater than the CPI, 8 has increases less than the CPI.

By looking at the distillery chart, you can start to get an idea which companies are behind the overall price increases...

Note: owners with only one whisky on the list were removed for accuracy and clarity purposes
What this chart doesn't take into account is how many single malts each owner has on the price list.  So if I weight the numbers by taking that into account, we can see who is responsible for the overall price increase:

So, perhaps all companies and all distilleries are not equally guilty in price gouging...

That was 2015, a relatively small period of time.  Let's take a look at the entire window captured in the pricing spreadsheet, from 2007 (or 2011) to today.

Again, the idea is that there is no "average" whisky here because whiskies from different distilleries, different owners, and with different age statement increased at different rates.  Let's start with the Increase-by-age-statement chart.

Though another year passed and I added that 2015 data and I altered my methods, this year's chart looks almost identical to last year's chart.  Though it's more balanced than the 2015 graph, we're still seeing the movement towards the luxury pricing tiers by scotch whisky producers, distributors, and retailers.  Of the 19 whiskies on this list that are 25 years or older, eleven of them doubled in price.  A few even tripled and quadrupled.  Is this really due to scarcity or is it a psychological ploy?  Only the producers know.  And if people are paying the price, then the increases will continue.

Meanwhile, if you look at the left half of the chart, you can see an effort has been made to keep the prices of younger whiskies from inflating too much.  Starter single malts creep up in price slower in order to not scare off too many regular customers, thus establishing the first pricing tier.  Of course, every party involving the pricing are making it difficult for anyone who wants to move up to the next rung of a favorite distillery's range.  A once a year splurge no longer buys what it used to.  So why splurge on whisky?

But again, not every distillery is upping its prices at the same rate.

Even if you enlarge this chart it's still pretty crowded, but I included for completists.  To clear up the data, I'll include only the distilleries that have multiple products in the list...

Good news first.  There are eleven distilleries whose single malts' prices increased slower than the rate of inflation.  Yay!  If you're looking for a midpoint on the chart, it's Glenfarclas whose rate matches the overall average of 2.7 (which is in the 28-32% range).  Most of the distilleries to the right of Glenfarclas, especially those with the biggest increases, will probably not be much of a surprise to many of us.  Most of the distilleries with the largest average price increases are the distilleries that have established long-aged (read: ultra-luxury) single malts on the market: Macallan, Talisker, Glenfiddich, Highland Park, Glenlivet, Balvenie, etc.  Now let's see how this reads when comparing the distillery owners...

First of all, kudos to the 1/3rd of the owners who have raised their prices slower than the rate of inflation!  It's unfair to lay equal blame on Arran, Bacardi, or LVMH(!) with the likes on the right side of the graph.  J&A Mitchell (Springbank) sits as low as it does because their regular range (included in the list) hasn't changed in price much, though their limited edition items (not in the list) have almost doubled in price.  Meanwhile, J&G Grant (Glenfarclas) sits at the average/mean again.  Emperador inherited the sins of United Spirits.  Diageo doesn't crack the top three since, other than Talisker, the rest of their distilleries' increases were relatively moderate.  William Grant has Glenfiddich's and Balvenie's older bottlings.  And then there's Edrington.  Edrington, Edrington.  It's not like they have only two whiskies on this list unfairly bringing their average.  They have fourteen.

So if I take all these years and all these whiskies then find out who's responsible for what part of the price boost pie by weighting the amount of products from each producer...

Edrington's products make up 8% of the whiskies of the list, but are responsible for 24% of the overall price inflation.  Meanwhile, The BenRiach Distilling Company's products make up 7% of the list, but are responsible for 2% of the total inflation.

To be fair, again, the responsibility for these price increases does not fall entirely on the producers.  Importers, distributors, and retailers leave their own (sometimes) invisible footprint on the final price.  Some of these companies feel like they can inflate the price of brands which are marketed as luxury.  This is why one can find a bottle of Macallan 18 selling for $195 and $325, or Glenfiddich 40 selling for $3500 and $5000, at stores in the same city.

The one question I leave you the consumer with is how do you put a price on the importance of this brown liquid?  What's your breaking point?  How do you feel about the pricing tiers separating you from your favorites?  Okay, yeah, I know it sucks.  But do you think these price changes are motivated by actual market conditions?  Maybe that was more than one question.

I think the price of scotch is a problem that extends to the blends when it comes to the aged brown spirits available worldwide.  Can producers maintain an illusion of luxury or romance when the quality is not competitive at the price point?  I'll look at this further on Friday's post and then wrap it up with some stats from the first half of 2015.


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  2. Beautiful, thanks! One element that would add to the picture is if you would be able to also add plots where you weight each whisky by its market share (e.g., cases sold in 2015, or average number of cases sold 2007-2015). For example, Edrington is leading the price increases but that's due to their many super aged whiskies. On the other hand, Highland Park 12yo and Macallan 10/12yo did not change that much in price, and their sales are orders of magnitude above those of, say, Highland Park 25yo.

    Given the depletion in stocks of aged whiskies, perhaps a lot of the price increase in the older whiskies is due to decreased supply. There's probably a formula somewhere but I don't have the time & energy to get into it. In other words, at steady state the price of a 25yo should simply reflect the cost of time and angels' share. But since we are not at steady state the price includes an element of scarcity. This should continue to hold, I expect that the prices of old whiskies will keep creeping up for the next 10 years or so - it could stop sooner, if the demand comes in line with the reduced supply. The steady price increases for 2015 in this tier show that the prices have not reached a ceiling yet, that the demand did not reduce to the level of supply for these old whiskies. (edited for typos)

    It's been years since I bought an old distillery bottling, most of my 15 yo+ whiskies come from independents these days. We have seen some price increases among them as well, and I expect that this will continue for a few years. This would be another interesting area to explore: have the prices by age group gone up for Signatory, AD Rattray, G&M, others? Is there a shift in the distilleries on offer, or in the age of the whiskies?

    1. Thank you, sir. Indeed, there are lot of things I find wanting in this section's graphs. There are a couple of changes I'm going to attempt next year.

      Regarding Edrington, yes they're at the top of the list because of all of their older bottlings. I'd say that they're also testing the ceiling for their 12yos too; $40-$45 whiskies now selling for $55-$60. Some of us don't personally value those whiskies at that level so we've pulled out. But upper middleclass drinkers new to single malts won't see a problem with it because they only know what they're seeing now.

      As you mention, the top two(?) tiers will likely continue to rise, supply issues or not. People who freely drop $500 or $3000 on a single bottle of whisky today don't feel the squeeze of an extra hundred here or there the way the rest of us do. Retailers love those guys!

      I wish I could show the increase in indie whisky prices, because like you almost everything I buy is from the independent bottlers. Aside from maybe G&M and Signatory, the indies feel the supply squeeze so much more than the OBs. Anecdotally, holy cow have the prices gone up a lot the past two years.

  3. So another big picture conclusion comes to mind: the "premiumization" (beautiful word!) of Scotch, seems to me now, is more born out of necessity than out of sheer greed. The two tectonic trends of the last ten years are: 1) decrease in consumption/sales of blended Scotch, and 2) increase in consumption/sales of malt whisky. The industry is playing catch-up, which has a medium-term component (8-12 years) and a long-term component (15-25 years). In response, they needed to
    1. Increase production (check)
    2. Slow down moderately the depletion of medium-aged malts, without greatly disturbing the sales/market - so they come up with NAS malts, and gently increase the prices of 10-12yo.
    3. Slow down seriously the depletion of old malts - so they market this as "premiumization/luxury/life-style/what have you", and increase the prices like you showed.

    In final analysis, it seems to me, they are fully aware that they are peddling goods, and they are not evil, or out to skin us. It's just that they had a nice party prepared, but not all of us RSVP'd, and then we showed up with an extra guest, too.

    1. I wouldn't say they're evil. They're not distilling kitten limbs. I don't think. The entire business is now a corporate machine and the cogs in that machine have announced that their attention is expansion. The US and Europe are not sites of whisky growth. We're the Old World now.

      Anyway, the supply issue is curious to me because not every distillery is kicking ass on sales. After seeing the growth rates for Glenlivet and Glenmorangie far outpacing the US/World averages, that means quite a lot of distilleries/brands never had a boom and may have even had some losses. But that won't keep them from nudging up prices to seem like they're in the same league as the successful kids. I wish WISH someone would anonymously leak some distillery-specific supply and sales numbers. Lots of fun charts would follow!

  4. Great analysis, thanks for all your hard work in pulling this together. Very clearly presented, and a well thought-out analysis.

    As you say, the macro results are not surprising - nor are many of the worst offenders for specific price increases. Wine-searcher is a great resource, and I use it myself for price ranges on my whisky analysis site.

    Of course, like everyone, I am particularly sensitive to changes in my local market. It thus really sticks in my craw that the good entry-level "budget" Balvenie 12yo Doublewood (which went up ~29% over your 9 year tracking period) actually went up >23% in less than a year here at the LCBO in Ontario, Canada (from summer of 2013 to the summer 2014). At least its been pretty stable since then, but I don't have data for pre-2013. That said, it is clearly over-priced by wine-searcher price standards (both US and global ex-Canada).

    Keep up the good work - I'm looking forward to the next installment!

    1. Thanks selfbuilt! I've heard so many gripes about the LCBO, it just doesn't sound fun. I'm not entirely sure I follow their logic with pricing in general. Maybe it has to do with liquor taxes? I'm kinda horrified that Balvenie 12yo Doublewood is edging $60 now. That's an old favorite, always reliable, and my first review on this site. I wonder if they're getting low on supply and they're trying to control sales. (Note: This is NOT a rumor, just a guess, y'all.) Anyway, I'm like an old man in a rocking chair I say, "I remember when I used buy that for $40 waaaaaay back in 2012."