Ian Buxton

Comment - Spirits - Bearing up to Polarisation

By | 26 July 2012

This month's sermon from Ian Buxton looks at the ongoing issue of polarisation in the overall spirits category. He starts and finishes with two quotes, from two wildly disparate sources.

"For he that hath, to him shall be given."

Now it may not be exactly the point the Bible was trying to make, but looking at recent news of the whisky market I couldn’t help bringing the words of Mark 4:25 to mind.

Shareholders and employees at Loch Lomond distillery could be forgiven for casting envious glances west to Islay where their counterparts at Bruichladdich will shortly be enjoying the fruits of the company’s sale to Remy Cointreau. Remy’s significantly larger size will, we’re told, bring investment and increased sales and, with that, greater job security.

Contrast that with the workers’ doleful demeanour and the “hostile” atmosphere at Loch Lomond, where 16 jobs have been transferred to agency positions, with a consequent loss of pension rights and benefits and the remaining employees warned of potential redundancies

Both companies make whisky and some white spirits (a little gin on Islay, a loch full of vodka at Alexandria). And, curiously, neither are members of the Scotch Whisky Association (SWA) with whom both have had their differences in the past. But, there, the similarities cease.

Noted for its high profile - but niche brand - Bruichladdich trades at the premium end of their market. The largely anonymous Loch Lomond, meanwhile, is single-mindedly a volume producer, aiming at the value sector. Its Glen’s Vodka is the UK’s second largest spirits brand by volume, with the High Commissioner whisky appearing at number ten.

Until recently, the company has been very successful at what it does but, in the last year the company admitted to staff that “over that time we have lost around 3m litres of blended whisky sales from our two biggest customers.”

Just to put that in context, it would take Bruichladdich around two years working flat out - which on principle it never does - to make that much spirit. Yet, only last month, Bruichladdich was celebrating a 24% growth in turnover and talking of sales jumping by a further healthy margin.

And it’s not only Bruichladdich. The even-smaller and even more recently-rescued Glenglassaugh distillery near Portsoy turned its first profit this year, three years ahead of schedule and is confidently projecting further sales success. The company unapologetically charges premium prices for its boutique single malts.

So, what’s going on?

Clearly there’s a polarisation here – the rich are getting richer etc. William Grant & Sons’ UK distributor, First Drinks, makes this clear in its latest UK spirits market report 2012. “In the continued economic downturn," the report states, "consumers are going out less, but when they do go out they are still likely to ‘treat and trade up’. Consumers are looking for best value as opposed to just best price.”

That can’t help producers such as Loch Lomond. The First Drinks report goes on to identify the importance of authenticity as a key trend: “We see a revival of interest in craft, tradition, heritage and provenance” – exactly the factors that play to Bruichladdich's and Glenglassaugh’s core strengths but leave High Commissioner floundering.

And, given their differences, while there was a certain irony in the SWA trumpeting Loch Lomond’s suggestion that the proposed introduction of minimum unit pricing for alcohol in Scotland would further damage the company, a projected rise in the price of a bottle of High Commissioner from a scarcely-credible GBP8.79 (US$13.80) to around GBP14 can hardly have been greeted with acclaim by the embattled distillers.

Minimum unit pricing will have no effect on the price of premium single malts, other than arguably to make them look slightly better value. So they’ll be dancing in the streets of Portsoy and Bruichladdich when that message sinks in.

With First Drinks reporting a rise in the total UK whisky market by 12% in value in the past year, and single malt growing 50% by value and 31% by volume, it’s clear who is taking the high road to a profitable future – and, by comparison, where the low road might lead.

Or, in an altogether more secular voice, I hear fading in the distance the words of the old musical hall song:

“It's the same the whole world over, it's the poor what gets the blame, it's the rich what gets the pleasure, ain't it all a bloomin' shame?”

Sectors: Spirits

Companies: Remy, Cointreau, SWA, William Grant

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