Research in Focus - Connoisseurship and 'Terroir' take Malt Whisky to Record High
The close affinity between Scotland and France dates back as far as the 13th Century and the Auld Alliance. In those days, it was primarily shared enmity and suspicion of England that bound the two nations together: Some might say still does. However, a rather more positive cultural attribute that Scotland shares with France may well have helped foster one of its recent export success stories.
As a new report from just-drinks and The IWSR articulates, many see similarities between the connoisseurship that characterises much of both the single malt Scotch whisky market and wine culture. "It is no coincidence that, within the second-largest single malt market – France – there exists an established wine culture and the associated appreciation of 'terroir', regionality and ageing," the report states.
It is not just the popularity of malt whisky in France that points in this direction. As the report details, a fine wine boom preceded the significant expansion seen in malt whisky in Taiwan and Japan. "The growth of the wine culture in these markets is thought by some to have laid the groundwork for the later growth of malt," the report continues.
It is clear that malt's popularity - and the consumer interest in the category - is borne out of its broad variety of tastes and characteristics, which is in no small part attributable to the geographic diversity of the malt-producing regions, much like we see in the wine market.
The major producing regions - Speyside, the Highlands, Lowlands and Islay - all have distinctive styles. This not only allows some consumers to find the taste that appeals to them but more often gives the aspiring malt connoisseur the opportunity to explore the contrasts and range of flavours available, and this fuels consumer interest.
While geographical diversity itself provides product differentiation, the barrel-ageing system uses a variety of wood finishes, for example Bourbon or Sherry casks, which further adds to the broad diversity of tastes and styles on offer. Other production variations expanding product diversity further include the still shapes, the water used, the distillation processes and the use of peat in the malting process.
Ironically, while all this gives malt whisky much common ground with fine wine, sales in France have been in decline, although the report points out that sales have primarily been dampened by a tax increase and the difficult economic environment. Malt whisky sales fell by 3.2% between 2011 and 2012 to 813,250 cases, representing the continuation of the long-running trend that has seen the French market shed some 100,000 cases since 2007. However, low-priced malts declined faster than the premium and super-premium segments.
France is, however, one of the very few black clouds on malt's horizon. Across many other markets, recent progress has been robust and the future look rosy. The single malt market hit a new high in 2012 of 7.8m cases, having grown by 46.7% between 2003 and 2012.
North-west Europe, the single largest region, only saw a modest 0.4% increase over the decade, but the Americas posted a 6.3% CAGR over the ten years. In 2012, the US was the largest malt market in the world at 1.4m cases, representing an increase of nearly 12% from 2011.
Asia has witnessed the fastest growth over the decade, posting a CAGR of 20.2% to 1.5m cases. Most of that growth came from Taiwan, which overtook France in 2012 to become the second-largest global market for malt, although the just-drinks/IWSR report points out that "most countries in the region are experiencing healthy growth".
Of course, as delimited wine regions trading on their unique provenance also find, rapid expansion in demand can present challenges. By their very definition, these are not commodities with a tap that can be turned on or off. As demand mushrooms, the unique product attributes that have made the growth possible can represent a bar to capitalising fully on this demand.
According to the report, there is "a real danger" that, if there is a rapid expansion in demand for malt - as it predicts is "all too likely" in large markets such as India, China and Russia - coinciding with continued growth in the US and Travel Retail and a recovery in Western European markets, then there will be shortages.
"Shortage of supply means there will be a real focus on extracting maximum profit from every bottle," the report states.
Of course, a degree of product scarcity and maximising unit profitability need not necessarily be viewed as negative. Premiumisation has been a growth driver in the malt category for the past decade and most believe will continue to be. "Most within the industry agree that there is significant scope for price increases and more premium offerings," the report continues.
However, the report also warns that product scarcity could result in some missed opportunities. "The downside of this possible development is that the industry will find it difficult to open new markets, however attractive. This may risk losing opportunities in, for example, Latin America to other products." It will also "spell the end of own-label supply", the report continues.
However, the malt category is a "hotbed of innovation", and the report concludes that there is a "wealth of innovative solutions" that could help the category continue to prosper in spite of the tightening of supply, such as broad umbrella brands sourcing supply wherever possible; more blended malts and single grain whisky; and "real development" of the super-deluxe end through special finishes, ages, production techniques, exclusivity, vintages and very special grade packaging.
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