If you ask me CBC – malt whisky’s rocky evolution
Malt whisky continues to outpace the growth of blended Scotch and its leading brands are putting in stellar performances. But as a new report from just-drinks explains, a closer look reveals a category still underperforming with issues of pricing, image and availability threatening its future. Chris Brook-Carter reports.
If prizes were given out for the sheer volume of column inches a spirits category commanded in the consumer press, then malt Scotch whisky would undoubtedly be the toast of the drinks industry.
This relatively niche category continues to garner interest and enthusiasm well beyond the limits its actual size warrants. Some of this hype is justified. Some of it, however, as the latest report from just-drinks - Global Market Review of Malt Whisky - suggests, is not.
There is little doubt that the overall picture for the malt whisky industry is a positive one.
The Scotch malt whisky category continues to rise steadily. According to the report, the sector grew in volume by 5.2% in 2006 to stand at just over 6m cases, making it worth an estimated US$2.4bn. Moving forward, just-drinks and IWSR estimate that volumes for 2007 are expected to reach 6.3m cases and by 2012 they'll hit 7.5m cases. Malt's growth comfortably outpaces that of blended Scotch, which is up 2% per annum over the same period.
This rise is mirrored in the performance of most of the major malt brands. Glenfiddich remains the category leader, rising by 5.8% year-on-year selling just under 1m cases, with predictions that the 1m case mark will have been topped in year ending 2007. The Glenlivet has grown strongly with a 13.2% rise year on year, while The Macallan has risen by 15%.
There have also been strong performances from smaller bases by brands such as Bowmore, Highland Park, Balvenie and niche players such as Arran, Bruichladdich, Speyburn, Old Pulteney and others. And actually, in many cases, it is this upswell of smaller brands that is giving the category its vigour, and, coupled with the strong top three this is where the momentum is coming from.
The evolution of the category is also showing a continuing shift to premium. The bottom-end blended malts are likely to come under pressure as stocks tighten, forcing the base price up. It is also noticeable that distillers whose single malts play in the mainstream market are looking to maximise the value on their brands and are starting to edge prices up.
But though the overall category looks in rude health the picture at a market-by-market level is more confusing. Whilst the BRICM markets continue to show great promise, Spain and Japan show positive signs and Taiwan is up 16%, other markets perform with less success.
The US remains something of an enigma to malt whisky with the category really not reaching full potential in the world's leading premium spirits market, whilst France and the UK remain sluggish, with success reliant on the effectiveness of discounting at key times of the year.
Within the brands too, the picture isn't quite as clear cut as first you'd think. Yes there have been many successful new entrants and the top three brands are performing well, but when the top ten is examined, it is clear that these top three brands are moving faster than the category, as such some other brands have not been so successful.
Malt whisky it should also be noted still only accounts for 7.3% of the total Scotch whisky market and these statistics give rise to the question of whether malt whisky can be even be regarded as a true spirit category.
Can malt, in volume terms, be said to be the equivalent of premium vodka for example?
If malt is to grow, it is perhaps time that it both distances itself from blended Scotch and establishes itself as a separate premium spirits category with a wider competitive set. This however, will not be easy as there are still challenging hurdles to be overcome, not least the issues of pricing, image and stocks.
Work still needs to be done to try and drive price and value up in the UK and France, while the US remains a market of untapped potential.
Malt is evolving and is in a healthier position than it was two years ago with stronger brands and a more diverse number of players. But, in many ways the battle is now just starting.
As one industry source said: "Malt has developed as a category, but has only done so mathematically". In other words it has benefited from a varied set of situations where people have either turned against blends or found a new fashionable drink. The issue is now how to build brands.
There is little to suggest that the continued fragmentation and variation of message that so dominates the industry at present will not continue for the forseeable future, with some brands choosing to market their brands as 'luxury' products, whilst others reinforce the provenance of the liquid while finding new brand-centred ways to differentiate themselves from all the others who have chosen the same route.
There are dangers in both: the over-extending of the luxury notion could bring about a subsequent loss of identity, whilst the sameness of the production-oriented strategy could lead to weak brand identities.
This fragmented look is either exciting and vibrant, or worryingly vague for those who long for an over-arching idea to bring an element of coherence to the sector.
Perhaps the big, over-arching idea is education, making an overly complex category simple and understandable.
Despite all the brand owners we talked to for this report mentioning education, they also agree that the majority of consumers do not understand what single malt is. Malt, despite being undervalued, is still at a high price point and is a risky purchase for many consumers. It might be time for the industry to accept that shifting the public consciousness is not the job of each brand, but a collective responsibility.
This is an extract taken from a speech given by just-drinks at the recent World Whiskies Conference to mark the launch of the 2008 Global Market Review of Malt Whisky . For more details of the report visit: /maltwhisky/
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