Andy Morton

Comment - Scotch Boom Opens Door to Boutique Distillers

By | 3 January 2013

Scotch exports have overtaken Scotlands oil exports

Scotch exports have overtaken Scotland's oil exports

More proof came last week, if any more was needed, of Scotch whisky's continuing appeal around the world.

According to the latest Scotch Whisky Association figures, exports of the drink now contribute a third more to the Scottish economy than the black gold of North Sea oil. Tellingly, the average value of each bottle of Scotch exported has risen every year since 2007.

On the ground, this has led to massive investment projects by the leading distillers, including a US$1.55bn injection from Diageo and a $62.2m project from Pernod Ricard

At a smaller level, it has sparked a rash of small-scale 'boutique' start-ups who are keen to piggyback on the Scotch explosion, and it seems many more are likely to follow.

In Thurso, the Wolfburn distillery is just weeks away from production, while the Annandale distillery in the Scottish borders will open this summer, The Herald reported this week. A distillery on the Ardnamurchan peninsula in the Scottish Highlands, owned by bottling company Adelphi, is aiming to start production by the end of the year and, in the Outer Hebrides, the Isle of Harris distillery has set its sights on a 2014 launch.

Individually, they won't produce more than 250,000 litres a year. But all will be hoping to emulate the success of Islay distilleries Kilchoman, which opened in 2005, and Bruichladdich, which was sold to Remy Cointreau last year for US$90m, 11 years after the site was reopened.

Despite the growing demand, it can still take a lot of effort to find investment for new distilleries in Scotland. Isle of Harris owner Simon Erlanger is only part of the way to finding the GBP10m (US$16.3m) he needs to get started, with investors wary of the long lay off between starting production and getting product on the shelf.

Meanwhile, Doug Clement has just secured GBP2m to open his long-planned Kingsbarns distillery in Fife. “I had loads of initial interest,” Clement says. “But when it got down to the nitty gritty and investors found they had to wait ten years for returns, it put a lot of people off.”

Clement finally got the money he needed from “a well-known person”, the identity of whom he plans to reveal next week. But, his project got a much-needed boost from a new Scottish Government grant that could be a watershed for the boutique trend.

Clement describes the GBP670,000 Food Processing Marketing and Cooperation grant as being “key” in getting his mystery investor on board. However, it is a grant he would not have been eligible for if not for a rule change in March that got rid of a ban on drinks companies applying.

“I've had a lot of other distilleries calling me up looking for advice on how to get it,” says Clement, who believes he is the first distiller to be awarded the grant.

Scotland's tourism industry is another string to whisky's bow, not least because its core European, US and Asian visitors dovetail nicely with Scotch's main export markets. The Isle of Harris and Kingsbarns sites have advanced plans for visitors centres and Erlanger, a former Glenmorangie marketing executive, is working closely with the Harris Tweed authorities in the branding of his bottles.

At Kingsbarns, near St Andrews, Clement is banking on another global Scottish brand.

“It's all about golf tourism,” says the former caddie, who admits he has much more experience in the sport than he does in making whisky. “We have the biggest hotel in Scotland here, the Fairmont at St Andrews, as well as a lot of golf operators, and they all said, if you set up a distillery we'll send you the tourists.”

Clement hopes there will be more independent distilleries in Scotland in the near future, despite the competition it could bring. “In the past, every farmer had a still, but then it was outlawed and the whole process became industrialised,” he says.

“In the US there are 400 or 500 small craft distilleries, but in Scotland they are all on a much grander scale. It would be great if in the future there were more.”

Sectors: Emerging markets – BRIC, Spirits

Companies: Diageo, Pernod, Ricard, Remy, Cointreau, Scotch Whisky Association, Glenmorangie

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