Whisky: the golden ticket to a booming economy

Whisky is a great unifier; the world cannot get enough of it. A new report published by the Scotch Whisky Association says that this little tipple is so popular that it is has grown to become a crucial part of the UK economy

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A whisky cask. Findings by the Scotch Whisky Association suggests that it contributes over £5bn to the British economy and provides over 40,000 Britons with a job

New research has shown Scottish whisky is more important in terms of the value it brings to British shores than industries such as iron, steel, textiles, shipbuilding and computing. Whether that says more about the state of British industry or the excessive drinking habits of the populace is a topic for debate, but what is indisputable is that Scotch contributes more than £5bn to the British economy and provides over 40,000 Britons with a job.

If that’s not enough, on top of helping to support the British workforce, Scotch whisky is experiencing unprecedented levels of growth, with around 30 new distilleries being planned or built across Scotland, claims the report, with capital investment reaching £142m in 2013, up 31 percent since 2008.

“[It] shows just how significant the Scotch whisky industry is to the wider UK economy”, says David Frost, Scotch Whisky Association CEO. “Given the scale and impact of the Scotch whisky industry, we believe the government should show its support.”

Industry power
Naturally, the organisation was happy to offer up a number of interesting ways it felt Westminster could support the Scotch whisky industry. One thing it recommended was for the Chancellor of the Exchequer, George Osborne, to lower the excise duty by two percent. Frost claims it is “unfair on the industry and consumers, and detrimental to the economy, that almost 80 percent of the average price of a bottle of Scotch is taxation”, so the Chancellor clearly has one more thing to consider in the coming weeks.

Whisky veritas

Key findings of the Scotch Whisky Association report:

  • The overall economic contribution of the Scotch whisky industry to the UK is £4.96bn
  • The direct economic impact the industry has is £3.3bn, up 21 percent since 2008
  • Scotch whisky producers spend £1.8bn a year on suppliers. 90 percent of this is in the UK, including £1.4bn in Scotland
  • The industry supports 40,300 jobs in the UK, up from around 35,000 back in 2008
  • Every job in Scotch whisky supports a further 2.7 British jobs
  • Scotch whisky workers are around four times as efficient in production as employees in aerospace, life sciences and the digital sector

It is unlikely Osborne will act on the requests. Though the association may feel it is the least the government can do, considering it played its part in keeping Scotland in the UK, along with its Scotch. The Scotch Whisky Association made its opinion on Scottish independence crystal clear in the build-up to last year’s referendum, openly backing a ‘no’ vote. One independent producer and member of the organisation, William Grant & Sons, even donated £100,000 to the Better Together anti-independence campaign.

So, while it is still yet to be seen if the UK Government will reward the whisky industry for its valiant efforts in helping to keep the country unified, its coffers lined, its citizens in jobs, and the world supplied with quality liquor, the Treasury did at least offer praise for all its good deeds: “Scotch whisky is a huge British success story – to support the industry we ended the spirits duty escalator and froze the duty on whisky and other spirits at last year’s budget”, a spokesperson said. “That means a bottle of Scotch whisky is now 42p cheaper than it would have been if the escalator had continued.”

The government was also eager to point out it had introduced the spirits verification scheme, which is aimed at helping protect the integrity and reputation of Scotch, by helping consumers in the UK and abroad identify genuine products and avoid fakes. However, they needn’t have bothered with this last step, as the Scots have been tirelessly working away on their own, more ingenious method that does much more to limit the size of the Scotch black market than any government scheme they can conjure up down in London.

The genuine article
In order to call your whisky ‘Scotch’, the drink must have gone through a very particular process. The most important being that the whisky is prepared, as one would rightly guess, in Scotland. It also should be made at a distillery using a combination of water and malted barley, aged in oak casks for a minimum of three years, and retain the colour, aroma and taste derived from the raw materials used in its production and maturation, according to the official Scotch Whisky Regulations.

On paper, it seems like a relatively simple process, but it is actually incredibly hard to perfect. Still, it is this apparent simplicity, as well as the high mark-up for the genuine article, that has led to a large counterfeit market developing. In fact, counterfeit Scotch is estimated to cost the whisky industry approximately £500m each year. And while a connoisseur could easily spot a fake, those of us with a duller palate could easily be fooled into paying top dollar for a sub-par product. Luckily, there is no need to worry about being short-changed, as help is at hand from one of Scotland’s top universities. Professor Kishan Dholakia, a leading scientist at the University of St Andrews, has developed an ingenious method for identifying fake Scotch, helping to protect the industry from producers who falsely label theirs as the real thing.

Doing it right

The Scottish whisky process is deceptively simple:

Barley – Though whisky can be made with any grain, single malt Scotch must be made with barley. Crops are chosen for their high sugar content, and are then dried and ground. Peat smoke can be added

Water – Scotland is famed for its water purity, and water is the most important ingredient for imparting flavour to whisky. Initially, it is mixed with the dried barley to make a substance known as wort

Yeast – A yeast culture is used to ferment the wort, with the choice of yeast being a great secret within each distillery. The yeast feeds on the sugar and produces alcohol. The resulting substance is known as a wash

Finishing touches – The wash is distilled twice to purify it, before being matured in oak casks for at least three years. Casks that have held other drinks, like bourbon and sherry, can be used for flavour

“We take a sample (a teardrop to a few millilitres) and shine light on it”, explains Dholakia. “The constituents of whisky for each brand can differ slightly, resulting in an individual signature (spectra) for each whisky by looking at the Raman and fluorescence signatures. By creating a database, we can then compare a given sample with the exact spirit it should yield and see if we have an authentic sample.”

So far, however, he and his team have been unable to perform their testing worldwide, limiting the number of samples as well as confining the size of their database to those they have managed to get done in the lab, and those taken at a number of specific sites in the field. However, what the samples lack in quantity they make up for in their quality; the tests Dholakia’s team has done have shown extremely positive results, with a 95 percent success rate.

The impressive results the team has achieved have led to further investment, with a handheld version of their device being developed with the help of a British SME that will help take the clever technology to the next level.“We imagine one could take this device to the field, at any site, load a sample and do a spot test”, says Dholakia. “This will deter and reduce what is a very high and growing concern for the whisky industry.”

Not only will this innovation help the producers of this multi-billion-pound industry secure the profits they deserve by limiting the number of counterfeit goods in circulation, it is also great news for those interested in investing in this highly lucrative market, protecting them from fraudsters hoping to make a killing out of the rare whisky market, which has grown in recent years to become an increasingly attractive asset class.

Golden investment
When asked about investing in rare bottles of alcohol, the variety that often springs into most people’s minds is vintage wine, not whisky. However, the recent rise the whisky market has seen is not just due to an overall increase in sales, but the growth in demand among high-net-worth individuals and other more moderately financed enthusiasts from Europe, Asia and the US. All are looking to get their hands on the rarest of whiskies, held by collectors from around the world.

To help facilitate this burgeoning market for vintage Scotch, individuals such as David Robertson, one of the men behind Rare Whisky 101, are on hand to provide interested persons with the necessary information to create a whisky portfolio that can yield real results. Rare Whisky’s Icon 100 Index is designed to help investors follow the price of the rarest of whiskies.

Robertson has over 13 years of professional experience within the industry, but in reality he has been involved with it for a lifetime. Born near the famous Royal Brackla Distillery, where his father worked, you could easily argue Robertson has whisky in his blood. He went on to study the art of brewing and distilling at university. In short, there is no better man to provide investors with the insight they need to navigate a market that has seen investment-grade bottles selling at unprecedented levels.

In a recent interview, he claimed the explanation for the recent whisky boom comes down to simple economics: “There’s not a lot of rare whisky, but there is a burgeoning middle class all over the world who love to treat themselves and want to have a nice life. Single malt whisky fits in that nicely.”

Top tips

Basic considerations for those looking to invest:

  • Always consult a licensed financial advisor before investing
  • Aim high. Rare Whisky 101 has a minimum transaction fee of £10,000
  • Consider funds like the Hong Kong-based Platinum Whisky Investment Fund
  • Look out for limited releases and special editions from the major distilleries
  • Store bottles upright in a cool, dry place, and resist the urge to open them
  • Follow auctions to stay abreast of brand and location trends among buyers

Liquid liquidity
For those thinking the idea of Scotch being a viable alternative investment option is a little far-fetched, perhaps it is worth considering that, according to the founders of Rare Whisky 101, investment-grade bottles are rarer than classic cars and certain types of wine and, therefore, have the potential to appreciate in value over time to a much greater extent.

Take the Macallan ‘M’ decanter by Lalique, for example. It’s a unique specimen, matured for over 70 years; a ripe old age for anyone, let alone a single malt. Adding to its value, the delectable contents are contained inside a one-of-a-kind crystal decanter, which took 17 expert glass blowers to construct and countless attempts to get right. The bottle, therefore, is truly unique, an aspect that is also reflected in the price, with it fetching $628,205 at a Sotheby’s auction in Hong Kong early last year.

Although the vast majority of bottles are unlikely to command that kind of money, it does not mean, with the right foresight and knowledge, the profit margins need be any smaller. The skills required to turn a profit, however, are good taste, a keen eye, a lot of patience and, most importantly, a very steady hand, according to Rare Whisky 101 co-founder Andy Simpson. “It’s a tangible asset and, at the end of the day, there’s a risk to handling it”, he says. “It’s glass, when all is said and done, but, if it has a good seal on it, that bottle of whisky could outlast you and I.”

As the data shows, fine whisky can be an incredible market to invest in, if you know what you are doing. It is one that is more than capable of providing participants with a great return on their investment, should they do the relevant research. However, when you’re buying a bottle of whisky good enough to warrant a price tag of £4,000 and above, the real challenge will be restraining yourself from pouring a wee dram.

Sleeping dragon
Whisky, and Scotch in particular, is clearly experiencing a bit of a boom. But, for all of its success in recent years, the Scotch market is no more impervious to downturns than any other. As is the case in many industries, Chinese consumers are propping up much of the luxury goods market, with their economy one of the few continuing to go from strength to strength, helping to draw more and more citizens into the country’s rapidly expanding, wealthy middle-class.

However, even China has had to concede that it cannot continue in this vein forever, instead aiming for a more sustainable rate of growth in the years ahead that will help secure its economy’s future stability. The whisky market, for the time being, is yet to feel the effects of this shift in policy and may never have to, at least not to any drastic degree, but it is something for investors and producers in Scotland and the world over to be mindful of, with reports the Far East is losing its appetite for Scotch and Bourbon. In reality, the Chinese are not necessarily shifting gears. Rather, they are changing tastes, moving towards the premium end of the consumer market. “Chinese people are increasingly interested in the craftsmanship and knowledge, not just the big fat brand”, explains Sam Fischer, President of Diageo in China and Asia.

This is great news for the whisky industry as a whole, but particularly for the premium and high-end producers, who will be hoping the increased demand will continue to flourish in Asia and elsewhere. For now at least, the world clearly agrees with the great Mark Twain: “Too much of anything is bad, but too much good whisky is barely enough.”

Tasting notes

How to truly appreciate a top-class whisky:

  • To enjoy a single malt Scotch, start with an immaculately clean, tulip-shaped glass
  • Pour a small amount and gently swirl it, examining the colour as it brushes the sides
  • Add a small amount of water, no more than one or two drops, and allow it to mix
  • Take a tentative sniff, move away, then smell again for around 20 seconds
  • Pay attention to the smoke, salt and fruit aromas, which differ with each whisky
  • Finally, drink the whisky in small sips, noticing both the initial flavour and the finish