Two Scotch brands to return to production as whisky sales soar
It’s Britain’s most successful food and drink export – and today there came more evidence, were it needed, of the booming demand for Scotch whisky.
Diageo, the world’s largest spirits company, has announced it is reopening two “lost” distilleries that have been closed for 34 years.
The pair – Port Ellen on the island of Islay and Brora on the east coast of Sutherland – will resume production in 2020.
What is especially striking about the announcement is that, producing just 800,000 litres of whisky annually, the two distilleries will be among the smallest operated by Diageo.
That Diageo is still prepared to spend £35m reopening the two sites gives an indication of the kind of returns they are expected to generate.
Prices of rare Scotch whisky have been soaring in recent years.
The Rare Whisky Apex 1000 index, tracking the value of 1,000 of the world’s rarest whiskies, rose by 42% between July 2016 and the end of July this year – and it has risen by 195% over the past five years.
The prices commanded by whiskies distilled at these two sites have risen even more strongly as stocks dwindle and their rarity value increases.
A 37-year-old bottle of Port Ellen whisky currently sells for around £2,625, while a 44-year old bottle of Brora whisky sold at auction for £14,534 in May this year – going for more than twice the reserve price.
Diageo will use detailed historical records to ensure whisky produced at the sites will be as close to the character of the original as possible.
Nick Morgan, head of whisky outreach at Diageo, said: “This is a truly exceptional moment in Scotch whisky.
“Port Ellen and Brora are names that have a uniquely powerful resonance with whisky lovers around the world and the opportunity to bring these lost distilleries back to life is as rare and special as the spirit for which the distilleries are famous.
“Only a very few people will ever be able to try the original Port Ellen and Brora single malts as they become increasingly rare, so we are thrilled that we will now be able to produce new expressions of these whiskies for new generations of people to enjoy.”
This is news that will delight Scotch whisky fans, but no one should doubt this is a hard-nosed business decision.
While Diageo admits it has been prompted partly in response to demands from whisky aficionados, who have been calling for years for the distilleries to reopen, the move also reflects strong growth in the single malt market.
Distilling Scotch whisky is a long-term commitment and – apart from tourists visiting the sites – Diageo will see no return on its investment for at least a decade after the distilleries have reopened. So, in making the decision, it will have had to look ahead and try to predict demand for its products from 2030 onwards.
Past failure to predict demand helped drive the recent surge in prices. Bluntly speaking, the world is drinking whisky faster than companies like Diageo can distil it, while hoarding by collectors has also contributed to demand outstripping supply.
While the US remains the biggest export market for Scotch whisky, buying £856m worth last year according to the Scotch Whisky Association, much of the increased demand has come from European markets such as Germany, Poland, Spain and Italy during the last 12 months.
Further afield, Asian markets including India, Singapore and the United Arab Emirates are all enjoying strong growth – both in terms of volumes and in terms of consumers “trading up” to more expensive brands.
And, within that, single malt is the fastest growing category. While fewer than one in 10 of all bottles of Scotch whisky exported is a single malt, single malts accounted for 26% of all exports by value, with exports of single malts topping £1bn last year for the first time.
The big question is how long the boom will last. The reason distilleries like Brora and Port Ellen closed in the first place is because, in the early 1980s, most of the developed world – including the US, Canada, Japan, France and Britain – was tipped into recession by a spike in oil prices following the Iranian revolution.
That resulted in global whisky demand collapsing by around 15% just as heavy investment in the early 1970s had resulted in a supply glut.
Globalisation and the end of communism have created new markets and new generations of whisky lovers in countries such as China and India.
Diageo is calculating that things are different this time.