Why Pernod Ricard’s Tormore divestment illustrates a shift in its Scotch whisky strategy

Certain whisky distilleries stand out from the crowd, and for various reasons. Anyone tracing the course of the River Spey along the A95 between Grantown-on-Spey and Craigellachie in the Scottish Highlands would need to be very unobservant indeed not to have noticed Tormore, the distillery recently sold by Pernod Ricard to Elixir Distillers. Tormore is, by the standards of malt distilleries, huge. Its look-at-me neoclassical/modernist design (by architect and Royal Academy president Sir Albert Richardson) encapsulates the buoyancy of the Scotch whisky industry at the time of its construction in the late 1950s. Once cruelly described by whisky writer Dave Broom as “looking like a modernist homage to a Victorian hydropathic hotel”, it is – visually speaking – polarising, but was lauded by Elixir Distillers co-founder and owner Sukhinder Singh as “one of the most visually stunning distilleries in Speyside”. Singh’s assessment is perhaps unsurprising, given that Elixir Distillers has just spent a considerable, if undisclosed, sum of money to acquire Tormore, including the distillery, brand and whisky stocks. The deal - with Pernod whisky and gin arm Chivas Brothers - comes only months after the group agreed to buy The Whisky Exchange, the London-based drinks ecommerce and retail business run by Singh and his brother Rajbir. For the Singhs, the Tormore acquisition is a logical next step in the transformation of their business from one that sells booze to people, to one that makes the stuff. Prior to the Pernod acquisition, Elixir Distillers was already selling Scotch (and rum) under brands such as Port Askaig, Elements of Islay and Single Malts of Scotland. Those franchises involve the blending and bottling of sourced or third-party whiskies, but Elixir is also building its own malt whisky and rum distillery, Portintruan, which is due to open near Port Ellen on Islay in 2024. It may be well over a decade before the first fully mature Portintruan whisky hits the market – but Tormore, with its considerable whisky inventory, offers the potential for a swifter return. Tormore divestment the latest shake up in Chivas' Scotch roster The rationale for Elixir Distillers acquiring Tormore is clear enough, but what should we make of Chivas selling off another malt distillery? The second largest operator in the industry behind Diageo, the company has gradually amassed a large number of plants via M&A activity – Campbell Distillers in 1974, Seagram in 2000, Allied Domecq in 2005 – but it’s also disposed of a fair few over the years as well. Glen Grant was sold to Campari for EUR115m in 2005 (a condition of the Allied deal), and the company has sold not one, not two, but three distilleries to whisky entrepreneur Billy Walker: BenRiach in 2003 and GlenDronach in 2008 (Walker subsequently sold them, plus Glenglassaugh, to Brown-Forman in 2016), then GlenAllachie in 2017. At the time of the GlenAllachie deal, a Pernod spokesperson told me that all 14 of Chivas’ remaining Scotch distilleries (13 malt plus the Strathclyde grain plant in Glasgow), were considered to be “core assets”. Well, not any more. The broader picture here seems to be a combined consolidation and renovation of the company’s Scotch whisky production base. In April this year, Chivas announced an GBP88m (US$110m) investment into its Aberlour and Miltonduff malt distilleries which, when complete by mid-2025, will increase production by 14m litres of pure alcohol (lpa) per year. There’s a sustainability element to the Aberlour and Miltonduff expansion programmes, reflecting Chivas’ goal of achieving carbon-neutral distillation by 2026 through the use of new bio plants and high-efficiency Mechanical Vapour Recompression (MVR) fan techology for pot still distillation at both sites. Blends vs malts - Scotch whisky in 2022 Beyond that, the expansions reflect two complementary strands of the Scotch whisky industry in 2022: the abiding dominance of blends, which still account for the vast majority of Scotch whisky’s global volumes, and the increasing influence of malts, which currently offer greater growth potential, and at far higher average prices. Miltonduff is all about blends. The new distillery, to be built adjacent to the existing plant, will add 10m lpa production capacity – roughly double the capacity lost at Tormore, which was also mostly used for blending purposes. Importantly, Miltonduff is a key malt for Ballantine’s, currently on a tear of spectacular post-COVID growth, with sales up 23% in the first half of fiscal 2022. Aberlour is all about malts. Capacity will double to 7.8m lpa, reflecting rising demand for a single malt that is a category best-seller in France, but also making inroads in Asia as well. Upgraded visitor facilities will aim to enhance that reputation further. Tormore may be surplus to requirements, but the net effect of Pernod’s actions over the past few months will be to increase, not decrease, Scotch whisky distillation capacity for the company as a whole – using more modern techniques and operating on fewer sites, which will boost efficiency in the long term. The caveat is this: blends continue to drive Scotch whisky, and blends are all about balance, consistency and complexity – the art-meets-science combination of different flavours, aromas and textures to make a coherent whole that transcends the sum of its many parts. At a time when more and more distilleries have their production ring-fenced for bottling as single malts – Pernod-owned The Glenlivet being an obvious example – what impact will site reduction have on the options open to the blenders of Ballantine’s, Chivas Regal, Passport and 100 Pipers? In short, will it affect quality? Only time, and the consumer, will tell. As for Tormore, one of the most looked-at distilleries in Scotch whisky is now poised to acquire a new level of fame – not just via the polarised aesthetic opinions of passing motorists on the A95, but in the glasses of malt whisky fans around the world. Many will be happy to raise a glass to that.