“We have reached the summit. A flood on the market will follow, prices will be cut, and this is going to affect smaller companies as well.” These are the words of George Forsyth, Ardmore’s assistant distillery manager in a recent interview on The Spirit Receiver. According to him, we’ve reached the hilltop, and from here it’s all downhill. On the other hand, aficionados feel prices are just going up and up, and the Scotch Whisky Association claimed just last week that “There is now clear evidence that the recent decline in Scotch is slowing”, and using the very same data, Scotchwhisky.com declared that “SCOTCH WHISKY EXPORT DECLINE CONTINUES“.
Who’s right, who’s playing it down and what’s really going on?
Photo Credit: ratskeller-leipzig.de
How is the industry REALLY doing?
I submit to you that while the industry looks at total sales figures, the real story is in another figure altogether, one that has not been made available to you for analysis.
The SWA only releases two figures: Number of 70 cl bottles and the total value of exports to every country on the list. Sadly, these numbers do not tell the full story, as the real story isn’t just how many bottles are sold, but what KIND of bottles are sold. Is the consumer buying more premium whisky or downgrading to cheaper bottles and lower grade whisky? In other words, is the final consumer spending more or less on his bottle of whisky?
How would we deuces that, you ask? It’s actually easy, you look at the value per bottle, in other words, you divide the value by the number of bottles sent to that market. One figure is in millions of Pounds, the other in millions of 70 cl bottles. Easy! I’ve used the first half numbers from 2013, 2014 and 2015 to try to make some sense of the numbers.
Before getting to the figures I’ll say that the annual halfway reports look at the top 20 markets. However, over those three years, we have only 15 countries that are on the list for all of these periods, so we’ll use those figures. Eight countries: Thiland, Italy, Venezuela, Panama, Latvia, Turkey, Poland and Japan do not have full figures for all three years, and have, thus, been left out of the analysis.For sake of the discussion, I’ll be rounding off the numbers, but you have the exact figures in the table below:
2013-2015 Midyear figure. Data sourced from SWA, comparative analysis by MaltandOak.com
It seems that South Asia is shifting to premium, while European, South American and South African markets are on the reverse track. South Koreans are buying 40% fewer bottles, but they’re actually spending almost 23% more on each bottle they buy, so there seems to be a shift from quantity to quality going on there. Same is true for India (8% fewer bottles, but 35% more value per bottle) and Taiwan (4% rise in number of bottles, but a 22% rise in value per bottle).
However, the United States, which was traditionally a significant growth market, is buying some 13% fewer bottles of Scotch, with a value decline of almost 6% per bottle, while France, traditionally the number two market, has seen a mild rise in quantity (4.44%) coupled with a mild fall in per bottle value (right around 2%), again pointing at consumers de-premiumizing their purchases. In Germany and Spain the value decline is much more significant (16% and 24% respectively), while in Mexico and Brazil the bottom fell out with a massive switch in both countries from more premium to lesser value scotch.
In other words, this is now the picture:
2013-2015 export market by change in value. Data sourced from SWA, comparative analysis by Malt and Oak
Basically, when you look at the markets premiumizing vs. those shifting to lower value, you can’t help but notice that those in green – while rising significantly in the shift to premium whisky – sell only 88.7 million bottles, while those opting for cheaper, and thus less premium whisky, are responsible for 266.1 million bottles, making up basically 75% of the export market.
The figures over that past year have been a little better with a slight overall rise in per bottle value of 4.32% from last year (after declining 3.43% the year before) leaving a net gain of 0.75% over the whole period, but even so, if we look at the 2014-2015 figures, we’ll see that while Germany made up some ground, Taiwan lost over half of its overall gain, suggesting that markets are quite volatile and there is really no single trend beyond this: These numbers do not reflect a healthy industry. Despite the cheery face put on by the SWA, it seems that western consumers have had enough of the rising prices of single malts, and are “downgrading” to cheaper products. Moreover, they are replacing scotch with “malternatives” such as Bourbon in the US and rum in Europe. It also seems that the Far East and South Asia is on a different trend, but I wouldn’t count on it, as previous years have shown that demand in China can be fickle, Taiwan can reverse trends, and all in all, it’s only one quarter of the market that’s moving to premiumization. All in all, this seems like good news for consumers, and would, indeed, point to a hilltop being reached.
This is even clearer, if we put things in a ten year perspective (I’m just looking at the US, as it’s near the top of the list), in 2004 the per bottle price was £2.86, in 2011 it was up to £4.43 and it topped at £6.33 in 2013, having dropped to £5.96 in 2015 (down from £5.99 in 2014). This would seem to clearly show that while the “malt decade” has been rather good to the industry, consumers in the west are unwilling to see prices rise any more. Like the awakening to Scotch, which has taken longer to reach the Far East, there seems to be a little less price sensitivity there at the moment, but I expect that will happen there too, as we have seen to be the case in Taiwan, which has cut back on the 2014 high, albeit not yet to 2013 levels.
Conclusion
Yes, there’s a decline in whisky exports from Scotland. Yes, the decline is ongoing, although its rate slowed a little in the first half of 2015.
Or has it?
There are 30 million less bottles exported in 2015 than in 2013, and they sold for 195.5 million Pounds less. Period. In 75% of the market, value per bottle has decreased, suggesting that consumers are not only buying less scotch (i.e switching to alternatives), but the Scotch they are buying, is less premium. Is the high end run in single malt prices at an end? I don’t know, but if these trends continue, the industry may be in a lot more trouble than the officially released numbers of only volume and value may suggest!
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Being interested in whisky and infographics this article caught my eye. Immediately I wanted to fiddle around with the numbers myself (those can be found here SWA first half year exports 2015 and here SWZ first half year exports 2014)
However, while doing so I noticed some mistakes:
– There are not 15 but 17 countries with significant data
– Typo for India; H1 2015 Number of bottles isn’t 21,9 but 29,1, which makes the change in value per bottle not 34,98% but 1,6%
– Typo for Germany; H1 2013 Market value isn’t 89,4 but 83,4, which makes the change in value per bottle not -15,84% but -9,8%
– Typo for Spain; H1 2013 Market value isn’t 84,8 but 81,8, which makes the change in value per bottle not -24,07% but -21,3%
This causes the concluding numbers to be different, however in general the conclusions stil hold.
Yes, Rolf
Thanks for spotting the typos.
The number typos are from going the wrong direction on the number’s keyboard 🙂
I have corrected the data in the excel, and as you say, the final conclusions still hold.
Michael
I’d suggest that currency movements would also be playing a role here, particularly in the matured markets. Some examples:
-The decline in the value of the euro against the pound over the last couple of years could partially explain the lower exports to Spain, Germany, the Netherlands, and France.
-There was a big drop in sales to the US in ’13-’14 as the USD declined against the pound, but in the 14-15 period, the USD has strengthened, and the decline in exports to the US appears to have stabilised over the year.
-Same pattern for Singaporian dollar and sales.
-Brazilian Real has been in near-constant decline for the best part of 5 years (declined 20%-or so last year) as have exports to this market.
-Mexican Peso smashed throughout ’13-’15.
That makes a lot of sense as another factor, and surely exacerbates the consumer side price hikes. Let’s see if the decline in the decline can become actual growth…