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Monday, January 11, 2016

Scotch Ain't Dead Yet, Part 1: Export Volume and Value

Reports of Scotch's demise are greatly exaggerated.  For some of us the idea of an industry collapse brought more than a little schadenfreude and many hopes for a decline in prices.  For others, including the authors of a truly baffling online petition for the Scottish government to protect the industry, there was fear that 1982 was upon us again and dozens of distilleries would fall.  But there hasn't been a crash or a precipitous crippling plummet or even a belly flop.

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
Though I include this mostly for completists, one can very clearly see the spikes in 2007 and 2011, the boomiest of the "boom" years.  But one can also see the dips that follow during the succeeding years.  Because there's very little point of reference here, I'll take a look at the gains since 1980 and add in the value and price per liter:

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.

UK citizens are not drinking the very whisky made in their country.  And by the looks of this trend, they're very determined to not drink it.

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.


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.

To quote from last year's post, "Reading books and magazines and interviews, a whisky fan will come upon quotes that single malt whiskies make only up 5 or 7 or 8 or 10 percent of whisky sales."  And, man oh man, not only were those stats false a few years ago, they're not even relevant now.  If we're talking about value (as corporate financial reports occasionally do), malt whisky has now crossed the 25% marker.  It's no longer a niche, no longer a nerdy little corner of the market.  I wouldn't doubt if malt sales wind up doubling over a period of 8 years (2008-2016).

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.


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:
Sadly, the SWA data doesn't provide granular data for ranges on whisky older than 10 years, but I can say the following: the amount of >10year stock in 2014 is 37% lower than it was in 2008. Let me see if I can find some positivity here......the annual rate at which the volume of >10yo stock being drained has dropped since 2010.  In fact, the volume drained/bottled in 2014 was almost 10% less than was done in 2010.  Thank you, NAS bottlings!  Sorry.  :(

Here's the good news chart......or maybe not?
That is a truly insane boost in production.  The amount produced in 2014 is double what was in 2004.  I'm talking 142 million liters more.  And that's just in 2014.  Whisky sales are not, nor ever have been, growing at that rate.  So, when you hear concerns from people within the whisky industry about a whisky glut, this is what they're talking about.  I mean, whom do the suits think is going to buy all this whisky?  The Americans?


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.


  1. I love this series, Michael, thanks for keeping it going!
    This chart, using SWA statistics, shows France as the leading consumer of whisky, at least by volume. I don't think the value chart is shown there. So how does this mesh with your assertion that US is the largest export market, by far? What are those French drinking? And are they affecting the overall shape of the industry?

    1. They're drinking blends apparently. The export GBP/liter to the US is almost triple that of the stuff going to the French.

      Here's the reason for the "biggest whisky export value market by far" quote:
      1. USA £748.2M
      2. France £445.3M
      3. Taiwan £201.8M
      4. Singapore £200.6M
      5. Spain £166.1M
      Here's an SWA link to those numbers.

      The French export market has been pretty stable over the past few years, such as a 3% value gain in 2014, and 0% in 2013.

  2. It's a shame we can't get the 2015 numbers yet. I have to mentally transpose what was going on a little while ago to get this to line up.

    I wonder if the slightly out of phase rise in bourbon has ended up hurting scotch. Ultimately people are only going to drink so much and bourbon represents far better value on the lower end than most scotch blends, so I can imagine a lot of people shifting over as the quality of scotch has decreased and the price has increased. The Suntory buyout of Jim Beam would make sense in that context since it gives them exposure to multiple categories that can be expected to balance each other in future.

    1. Yeah, a lot this will be in part 3. This is why Diageo wanted a piece of Bourbon, though they're too late to the game. There's a little bit of 2015 data which I'm working on getting it to make sense for part 3 as well. But the full set of 2014 data didn't arrive until less than two weeks ago.

    2. Given what's in the report, I can't say I'm surprised they held off on releasing it to the public. Gums up a lot of the narratives they've been trying to get out.

      I bet some of the execs at Pernod Ricard have been kicking themselves for selling off MGP back in 2007 - talk about awful timing. I think they're the only big conglomerate with no direct exposure to bourbon now.

    3. Yeah, they missed out on some serious $$$ and general market positioning by selling LDI/MGP. I'll bet the indie whiskey (especially rye) market wouldn't be the same had they held on.