Comment - Spirits - The Glenlivet and the Art of Timing
Was the timing of Chivas Brothers' investment in The Glenlivet luck or judgement?
Some journalistic questions are not so much serious enquiries as a ticking of the boxes – you ask because you have to, but you already know what the answer’s going to be.
And so it was, at the opening of the Glenlivet distillery expansion a few weeks ago. A little context might help here: bear in mind that the diggers moved onto the site in Speyside in the summer of 2008, as the global financial markets were inching inexorably towards meltdown.
So, I asked Chivas Brothers' CEO, Christian Porta, if he’d known what was coming in the autumn, would he still have added another six stills, eight washbacks and a ginormous new mash tun, expanding production capacity by 75% at a cost of GBP10m (US$15.1m)?
What did I seriously expect him to say? “Er, actually, no, because our capital budgets would have been slashed and we’d have stuck the plans in the back of a filing cabinet for the next decade or so.”
So, for the record, he didn’t say that, but instead gave the only response that was really open to him, involving phrases like “growing nicely”, “very good return on investment” and using the word “yes” a lot.
But, had the economic crisis hit in the Spring rather than the Autumn, would Paris really have signed off on GBP10m of investment, plus the cost of casks, maturation and so on? We’ll never know for sure, but I have a sneaking feeling that the number-crunchers would have liked the look of that filing cabinet.
Anyway, let’s take Porta at face value, accept the inevitable positive spin and delve a little deeper. Because what might look at first glance like a piece of lousy timing might, counter-intuitively, be an excellent opportunity for Chivas.
The spirit now issuing from those shiny stills in that swanky new still-house is all destined to be bottled as The Glenlivet – nothing will go into blends, and there’s no trading of casks with other operators. But, it won’t actually hit the retail shelves and bars of the world until 2022 at the earliest, since the distillery’s current youngest expression is a 12-year-old - we’ll come back to this point.
This is long-term planning in the extreme, and it would be a nonsense if short-term concerns over market declines and balance sheet health were to distract Chivas from its ultimate goal of supplanting Glenfiddich at the top of the single malts tree.
Yet I’d go further still. A world emerging from recession, in which spooked distillers have scaled back production, is arguably the perfect time to do the precise opposite and make use of any extra production capacity available.
According to industry sources, good quality malting barley was changing hands for up to GBP400 a ton before the economic crisis hit – but now it’s roughly half that. If you can invest when it’s cheaper to do so and your competitors are cutting back, so much the better for the top and bottom lines when the good times are rolling again.
And, what of the subtext to the Glenlivet expansion: Porta’s oft-stated but vaguely timed desire to make the brand the world’s best-selling single malt, overtaking Glenfiddich?
Yes, the gap has narrowed in recent years but, at about 300,000 cases a year, it remains wide indeed and, despite a recent slowing in growth, the Macallan is still snapping at the Glenlivet’s heels.
How will this picture change in the years to come? We can’t be sure, except for one thing: the expansion won’t have any effect whatsoever for another 12 years at least.
But, can we even be sure of that? Porta says he is content with the Glenlivet’s stock position until the new whisky kicks in during 2022, unless the brand’s growth is way over Pernod’s own expectations.
And if that does happen? Then why wait until 2022 at all – why not, instead, make use of a somewhat controversial option to bring supply and demand into closer alignment? To be clear, why not replace the current 12-year-old with a 10-year-old, for example?
Heresy? Not necessarily. Anyone with half an idea of the way maturation affects single malt (and that includes me) knows that the number of years whisky spends in cask gives only the roughest of ideas of its overall quality.
It’s one of the reasons why the Glenrothes, for instance, uses vintage years – thus freeing itself at least partly from the potentially misleading tyranny of age statements. When a cask is ready, it’s just ready – why should waiting another year or two for the sake of “le marketing” make it intrinsically better or more worthy its price?
The risk, of course, is a backlash from the whisky cognoscenti, and I can already hear their shrill cries of outrage at what some would no doubt label as cynical opportunism.
The best way to win the argument? Get the quality right, ride out the short-term wave of bad publicity and continue with the job in hand of driving the Glenlivet’s long-term growth.
Will it overtake Glenfiddich? Maybe one day, although I have my doubts – but targets like that are great motivational tools if nothing else.
And, in the end, was the timing of the Glenlivet expansion a courageous decision borne out of a bullish assessment of future growth potential, or just plain chance? Now there’s a question – although I fear I already know the answer.
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