In Part 2, I'm going to take a look at the unusual 2016. Since it'll be 10-11 months before the 2016 Statistical Report posts, I will be using a number of other sources to provide analysis on the export markets. These sources will be cited as I go along. Oh yes, I promise there are visuals below, eventually!
FIRST HALF OF 2016 - A MIXED MESS
- In 2013, the Top 20 export markets made up 75.6% of the value of the entire export market.
- In 2014, the Top 20 made up 76.8% of the export market.
- In 2015, the Top 20 represented 77.8% of the whole export market.
But there's a trend that the Top 20's results are much rosier than the rest of the market:
- In 2013, the top twenty markets' value was up 3.9%. The rest of the market was down -11.5%
- In 2014, the top twenty lost -6.1%, while the rest of the market lost -10.9%.
- In 2015, Top 20 value loss was -0.6%. Remainder of the market lost -8.26%.
I reference all this to say that, the Top 20 export markets make up a substantial enough portion of the entire Scotch market, but their results are reliably much rosier than the market as a whole. Yet, as a result the top 20's gains are making it a larger and larger portion of the marketplace.
When compared to the first of 2015, the Top 20's first half of 2016 saw:
- A gain in volume of 3.9% for the top twenty markets.
- Meanwhile, those markets saw an increase of only 1.0% in value.
- This difference was due to a -2.8% change in price per unit. Thus the price of exported scotch went down as a whole.
But this is not the whole picture. The price of exports to the United States rose almost 13% in that same time period. If one was to remove the US from the list, the other 19 top markets saw a volume gain of 5%, a value change of -1.9% and price/unit change of -6.4%.
Yes, the US has that much influence over the export market. And it had a weird first half. Its volume continued to decline, this time by 3% (unit-wise, the third largest drop of any market), but its value went up by 9%. It went from representing 24.5% of the Top 20's value, to 26.6%. And this was entirely due to the sharp increase in its export pricing per unit.
(NOTE: Just before I finished this very post I discovered that one of my sources did list the full market's percentage results for the first half of 2016, so I rewriting these last few paragraphs at the last minute. Yay!) As listed above, the Top 20 markets do make up a very large part of the market, but they were again, much rosier than the full market during the first half of 2016:
- The full market saw a volume gain of 3.2% compared to the same period in 2015.
- But it saw a 1% loss in value compared to that same period in 2015.
Once again, the big markets led the way. The Top 10 saw a volume gain of 4.7%, a value rise of 3.8% and a price per liter change of -0.9%. But the 11-20 markets saw a volume gain of less than 1 percent, a value change of -8%, and a price change of almost -9%.
It's India that's almost entirely responsible for the first half's success. India saw huge gains in both volume and value (41% and 28%). If one were to remove India's gains from the list, the Top 20's volume increase would be all of 1 percent, and the rest of the market would be almost even when compared to the first half of 2015. That's good news for India, Scotch's largest emerging market. But not great news for everyone else.
So, looking at the first half of the year, I can imagine that many in the industry were anticipating another year of value losses and perhaps worrying about another decrease in volume sales.
SECOND HALF OF 2016 - BUT THEN...
On June 23rd, the United Kingdom voted to leave the European Union. In 4 days, the Pound lost 11.4% to the Dollar and 8.4% to the Euro. Two months later it was down 19% to the Dollar and 15.3% to the Euro. And it still hasn't recovered. The GBP was cheaper, thus so were UK exports.
Coinciding with the drop of the Pound, Scotch whisky sales saw an impressive rebound in the second half of the year. The Scotch market's exports rose 6.8% in value, while volume shipments were up 4.8% during the latter half.
This resulted in an total 2016 gain of 3.3% in value and 4.1% in volume, inching above 2014's totals. Meanwhile blends saw a tiny uptick of 0.3% in value and 2.2% in volume, though those amounts stayed south of 2014's numbers.
But as usual, the big numbers are not the whole picture. For instance, blended whisky exports continue to have problems. The Behemoth Known as Johnnie Walker (representing more than 1 out of every 5 whisky bottles sold) had a very good second half. But JW carries so much weight that it appears very likely the rest of the blend market saw a drop of more than 1 percent and a volume gain of less than 1 percent in 2016.
Meanwhile the year end gains were also heavily loaded. Here's my quickie table of year end of Export Values:
Of course, you're ready to reference my above paragraph about the big drop of the GBP against the USD. But it was during the first half of 2016, before the Brexit, that the US saw a 13% increase compared to 2015's first half. So the second half of 2016, during the big Pound plunge, saw no GBP/liter movement, and may have even seen a slight drop.
The rest of the value market numbers are unbalanced as well. The Top 10 countries (which make up 61% of the value market) saw gains of £142.5m, while the entire rest of the market saw an £18.5m decline. That decline itself isn't evenly spread around either. European Union countries, aside from France, had a very good year, while Asian and African countries (other than UAE and India) had a poor year. It's those latter regions that make up Scotch's emerging marketplace.
In the end, the US remains the big spender that controls the market. And the first half boost in US GBP/liter was responsible for a lot of the movement. Much of the rest of the value gains were connected to legitimate increases in export volume:
Curiously, despite the GBP's weakening after the Brexit, the total market's GBP/liter went down 0.8%. And when one subtracts the US from the picture, the rest of the market's GBP/liter dropped 3.7%.
When one takes the GBP's pounding (sorry) back into consideration, one can see why importers were buying up more Scotch. It was much cheaper than it was in 2015. At some points in 2016, it was almost 20% cheaper (via the Euro) to import into the European Union compared to the same period the year before. Thus every single major European market imported more Scotch in 2016 than 2015.
SO WHAT HAPPENS NOW?
I don't know.
Political circumstances in the West are, shall I say, different. Somehow the Dollar remains strong, despite the US's structural integrity being in one of its most shaky states in the past 150 years. Meanwhile nationalist parties are making headway in most EU countries. And then there's the United Kingdom. There's going to be some sort of effect on all UK exports whenever the country does leave the union. Something sizable will happen to the Pound and Euro on that date as well. Meanwhile, a successful Scottish independence vote in 2018 could just possibly affect all Scottish goods. None of that is "whisky", but all of that heavily influences capital 'W' Whisky.
Whisky's losing streak was undoubtably stopped in 2016, but the gains do not lay a steady foundation for a winning streak. I'm a bit stunned by the US export pricing numbers. Did Scotch companies see the bloating being done by importers and distributors, and thus reacted so as to not leave money on the table? Scotch price tags here certainly did not go down after the Brexit vote, so another year (say, 2017) of 12% increases on export prices would be pushed to the consumers. How much more are they willing to test this irreplaceable market?
Rebounds in ailing markets like South Africa, South Korea, Thailand and Taiwan should help keep 2017 from sinking too badly. And India really is rising. I wouldn't be surprised if they unseat the US as the second biggest volume marketplace by 2018. But, as usual, so much depends on the purchasing habits of Americans.
How about I take a look at 2016 American single malt prices? I'm going to pour myself a dram of Old Grand Dad 114 for this next one. I recommend you do the same.