Scotch weathered the financial storm better than many of its peers. Following the inevitable slowdown of 2009, its volumes essentially flatlined in 2010 as sentiment throughout the industry started to turn bullish once more. But the category operates on a completely different timescale than most other alcoholic drinks, measured in decades rather than years. And it is within this context that the consistent – and to an extent accelerating – drive to expand production capacity in existing distilleries – or the process of building new ones from scratch – is highlighting key players’ optimism about the category’s long-term prospects. What better way to demonstrate it than by putting their money where their mouth is?
Comparing Scotch whisky production capacity figures from 2005 to the latest set for 2010 paints a clearly buoyant picture. Total production capacity jumped from 560 million litres in 2005 to 719 million litres in 2010 as key players look towards a lucrative decade-long horizon and beyond.
Diageo is, unsurprisingly, leading the way. Accounting for around 60 million litres of malt distillery capacity in 2005 – a leading 27% share of the overall market – the spirits behemoth further reiterated its dominance to account for 87 million litres in 2010 – more than 30% of total malt distillery capacity in Scotland. Speyside is only the latest of the focus areas for the company which only recently applied for planning permission for the redevelopment of the Dailuaine distillery complex. These plans will see a £9.5 million upgrade of the existing bio-plant which will in turn deal with whisky by-products from a number of the company’s other distilleries and thus offer further opportunities to expand production at its current facilities.
Hosting 17 of Diageo’s 28 malt whisky distilleries in Scotland, Speyside is fast becoming the epicentre of the Scotch industry’s aspirations. The Roseisle distillery – only finished in 2010 and boasting the title of one of the newest major malt whisky distilleries to be built in Scotland from scratch – cost £40 million and is indicative of Diageo’s commitment to the category’s future.
The remaining key players are not far behind. Pernod Ricard increased its malt capacity from 113 million litres in 2005 to 127 million litres in 2010, while William Grant raised its capacity from 50 million litres to 66 million litres over the same period. William Grant built the Ailsa Bay distillery, which was completed in 2008, while Pernod Ricard increased capacity at Glenlivet and Edrington followed suit with Macallan. Mothballed distilleries are also reopening, for example Braeval which was reopened by Pernod in 2008 after six years, while increasing working hours at a number of sites is another avenue to increased production.
The signing of a series of trade agreements with a rising number of key emerging markets – India and Panama are two of the latest – as well as the granting of geographical indication (GI) status are currently paving the way for Scotch manufacturers to massively expand their sales base over the medium to long term. According to Euromonitor International, blended Scotch whisky is expected to post a total volume CAGR of 1.6% over 2010-2015, while the figure stands at 1% for single malt varietals. Latin America and Asia Pacific will account for the bulk of these sales as aspirational consumption and westernisation will reshape their respective markets. The example of single malt whisky, which is expected to witness a skyrocketing 16% total volume CAGR in China and a 19% total volume CAGR in India over 2010-2015, clearly highlights the category’s potential. The whisky industry is hence merely preparing to meet demand at a time when the focus is shifting away from mature Western markets.