...where distraction is the main attraction.

Friday, January 18, 2019

Single Malt Scotch in America: Prices Begin to Stabilize

Welcome to Part 2 of 2019's Scotch Stats! We're in America now, so things are going to get huge.

First off, there's The Spreadsheet or The Price List or The Sleep Deprivation. There are now 225 whiskies on the sheet. And there are at least 225 stories to be found within it. Today I will spare you, and tell only a few tales, including the one in the post's title.

Here's where The Spreadsheet's numbers come from:
I use Wine Searcher's Average Wine Price system, selecting only US retailers. Their site has an explanation behind how they arrive at their averages. To summarize, their averages don't include auctions; all prices are adjusted to 750mL bottles; the highest and lowest 20% prices are removed in order to correct for pricing errors and grievous retailer choices. Aside from the ability to view pricing history, Wine Searcher's big draw (for data and consumer purposes) is their large data set. For instance, if you search for Johnnie Walker Black Label or Talisker 10 they'll actually stop their listings at 500 because they have so many retailers in their system. 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.

My spreadsheet has gotten so extensive that I encourage you to check out my shared Google Doc at this link. It should be easer to follow and scroll through than it is here.



About the spreadsheet:
I'm using a methodology similar to the last time around. There are 225 whiskies (99% of which are official bottlings) listed in total and, thanks to spreadsheets, I have data back to 2007 for 115 of them. Each time I assemble one of these annual posts I include more whiskies. This year I added only those that had at least three years of US pricing history. Whiskies with ten or fewer retailer listings were retired in 2019, but were kept on the list for historic pricing purposes. They received a blank gray field for their efforts. Whiskies with fewer than 20 listings are marked "scarce" in the notes column. Don't be too surprised if all the "scarce" whiskies are retired next year, like the entire old Benriach range was this year.

Because directly comparing a 12-year price change percentage with a 3-year price change percentage with an 8-year price change percentage is crap math, I'm using the same metric as I did during previous years to measure the increases: Multiple of Inflation (or MOI).  MOI takes the total price change and divides it by the US's inflation (CPI) rate over the related period of time (12, 8, 6 or 3 years).

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

Unlike last year, I'm ditching the MOI in my charts because I'm approaching the information from a different angle this year. Weighted calculations were laboriously factored into my formulas to correct for the different time spans involved in the averages.

If this is your first time seeing The Spreadsheet, I encourage you to pour yourself something delicious and then click over to the spreadsheet and dig in.



Now, for some pictures to go with the words.

THE STORIES!


The Rise and Pause of the NAS

Here's the headcount of the whiskies from the spreadsheet:


Yes, those tall black bars are NAS single malts. It is now the largest age category. The infection has set in. Nearly every official range has at least one single malt without an age statement. Some brands have multiple NASes. Some are made entirely of NAS whisky. And the prices?


There's a lot going on in this chart, especially the right side of it. But look over at the left side. The average price of the 52 NASes is higher than than the average 8-10 year old whisky, higher than the average 11-13 year old whisky. Let that soak in a bit...

...

...Okay, that's enough time, because something interesting has happened to the NAS category:



On the surface, it appears as if the average price has barely moved over the past three years. But within these numbers is another story.

Out 52 NAS whiskies, 21 dropped in price between 2016 and 2019, while another 15 rose in price less than 5% during that time. Leaving out the two Dalmore NASes, this category actually averaged a drop of more than half a percent over the past three years.

You'll see more low or negative numbers for NASes further down this post. I think we will need at least one more year of data before it can be determined if the category is truly trending down in price. But it's fair to say that it has at least plateaued, and that plateau is only being held up by a few pricier outliers.

Luxury is expensive


Yes, this chart again:

Those tall bars on the right get taller and the bars on the left get smaller every year. The prices for 25-40 year old whisky are rising at such a fast rate that they screw with my line graphs.

Like so:

Or this:

40 year old whisky has become irrelevant. A $5,000 whisky is superfluous for 99.9% of the whisky drinking public. 99.9% of us are ignored in its production, release and marketing. It wasn't always like this, but it's come to this because 40 year old whisky's price increases have been operating on a different plane than all other single malts.

Speaking of which.

EDRINGTON DRUGS


I guess the Internet Way to write about this is to toss up a ¯\_(ツ)_/¯ and say "Macallan gonna macallan".

And that is valid. But I'ma write a little more about Edrington.

As I noted in reviews last year, Macallan's and Highland Park's branding has recently devolved into unfocused, confusing gibberish. But that hasn't stopped them from hoisting up their prices every time a marketing exec creates a different range, names it after something he just saw outside the window, then hoovers a line.
The "Average" in this table is the per year per whisky per owner. Yes, The Egregious Group is on a whole 'nother level.

The Main Story


But you didn't come here to read all that. Or did you???

Different charts tell different stories, and all can be true. There's a chart like this...
...which shows little steadying or plateaus other than with the NAS category (as mentioned earlier) and some straightening out with the younger categories.

All the percentages in this chart are compounding. A whisky whose price goes up 3% each year for 12 years won't be $136 at the end, but rather $142.58. It's not lies, nor damned lies. It's statistics. And it's why money market accounts used to be hella lazy awesome during different economic times.

But if I take the overall increase for each of the 225 whiskies, then split out the average annual increase for each available year compared to its first year on the spreadsheet (2007, 2011, 2013 or 2016), and then create a weighted average of all of it, I hopefully get a chart like this:


See things starting to even off now?

Prices are still going up, so why does this chart do the flattening thing? It's because price increases have been easing off, bringing the averages down. Thus the lines aren't heading towards the stratosphere (sorry Edrington). Some may even be slanting slightly down. Most are just pointing rightwards.

Here's a chart that shows the average ACTUAL year-to-year increases.
click to embiggen
The magic year is 2016, peak craziness. It is at that point, for the vast majority of whiskies in the spreadsheet, that a calming of price increases began. By 2019 most whiskies, and half the categories, were increasing by a rate lower than inflation.

This doesn't mean the prices are going down, except with the NAS category. It means the line is starting to flatten out, as shown in the previous chart. The 8-10, 11-13 and NAS categories' prices essentially did flatten out between Jan 2018 and Jan 2019. One wonders if 14-16 will follow suit by next year.

Of all companies, Diageo (yes, Diageo) has shown the most promise. They're the largest owner, and have the most whiskies on the spreadsheet. Their entire portfolio's average price has gone down 1% since 2016.

So......what's the cause? I don't know. As mentioned in Monday's post, single malt exports to the US are certainly not hurting (which also leads me to believe that prices are not going to drop soon). Are corporate executives — at companies other than Edrington — beginning to sober up and drift towards reason, easing off the acceleration? Could this be a reaction to the pricing of American whisky? Is the overproduction from the past decade about to come home to roost? Or is there something else on the horizon?

It's possible we're at the beginning of a new era of the Scotch business. It's also possible there are many years of more-of-the-same ahead. Either way, I'd be happy to see the end of the price hikes. Now can someone tell the independent bottlers about this?

6 comments:

  1. "Is the overproduction from the past decade about to come home to roost?" Yes, I think this is at least a key if not the major driving factor. There's a lot of youngish whisky kicking around Scotland that will need to be bottled and sold as soon as it reaches a reasonable age/maturity level (and some of it will be released even before that point, if they need to clear out the warehouse space). It's not going to be needed for blends; the extra capacity everyone added in the last decade or two was more or less always destined for single malts.

    The companies also know that competition from the US whiskey industry will only become more pronounced in the years to come; millennials are firmly entrenched in bourbon/rye and increasingly priced out of scotch. (You also asked whether they're skipping blends in favor of single malt, and my experience says yes, unless it's a Japanese blend.)

    And uncertainty about trade, not only with the EU (Brexit) but with single malt market numero uno, probably also has these companies treading more cautiously.

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    1. Hi Susannah, thank you for your comments!

      I've been involved with a half dozen local whisky clubs over the past eight years. Most of the attendees are in their 30s, some are in their 20s. No one I've met of that age group started with blends. Many start with bourbon, but some jump right into single malts due to the allure. Though what you and I are saying is anecdotal, I have a feeling it's pretty widespread, at least in the middle and upper-middle classes. Starter malts are $50+ now, and that's a tough price for the majority of the drinking public. This is where bourbon (produced by the big companies) wins.

      I'm fascinated to see where the overproduction takes us. If the Asian market never lights up like the industry had hoped, there will be plenty of barrels in Scottish warehouses...

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  2. 1. Epic rant, Michael! (yes, I didn't come here to read it but YES, it's exactly what I needed to read :) You are definitely "my kinda" geek, anorak, what have you? I have numerous spreadsheets going - for price history, mash bills, distillery ownership, etc.

    2. I haven't been "into" spirits long enough to have substantial opinions, only intuitive "gut feelings" at this point. I suspect there is another "whisky loch" in the future, only the industry is armed with actuarial scientists and computers this time, so they'll never show it but rather find creative ways to "dump" the excess stock without diluting the more mature stock.

    3. I agree that many younger people are into whisk(e)y these days, but I still think it's a really tiny niche that really geeks out. The majority are likely involved on the level of fashion for fancy cocktails, whatever's en-vogue. I suspect the hipsters will eventually move on to Kahlua or organic vodka with chia-seed and kombucha cocktails. Or they'll be priced out of any quality spirit and go with absinthe, the way proto-hipsters did a century ago. Overall younger generations don't even like alcohol (they prefer narcotics), this has been in the news.

    Just thinking out loud here :) Would be interested in your thoughts on this.

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    1. Hi Anonymous. I agree that single malt whisky is small compared to most other spirits fans in general, though there's a lot of money behind it. And there's an excess of terrible uniformed articles about single malt scotch in larger media sources, mostly because old scotch is expensive, and luxury is theoretically a sexy thing to write about. There may be a whisky loch in the future, but yes this time big business is involved so the outcome will be different, or at least it will be managed, this time.

      Also, organic vodka with chia-seeds and kombucha sounds like a long night on the toilet.

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  3. And maybe a "data point": a few years ago I bought a "Kirkland Signature" 16-year old Highland Single Malt from Costco (in Chicago), 40% abv. These are all by Alexander Murray, no distillery statement. It was a cheaper way to try a 16 for me. It was good enough for the price. A couple of years later I found an 18-year old, now at 46%. Still drinking that one - tastes like the same juice but now a tad more substantial (2 years and 46%). About the same price, though. Now they have 20 year old bottles, otherwise same [lack of] info on the label. And very comparable prices, not the way you'd expect with an official bottling. My guess: they have access to LOTS of this stock, which is aging. They are not selling enough to run out. IMHO "whisky loch" may already be upon us, just being well managed and covered up. What do you think? :)

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    1. I've been trying to figure out what distillery Kirkland has been getting their single malt from. I think it used to be Tullibardine which had a business relationship with Alexander Murray. For a long time Tullibardine couldn't give its whisky away for free, but then they rebranded, created prettier packaging and increased their prices. The illusion of luxury worked.

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