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Whisky Investment Guide
Whisky Investment Guide
Whisky Market Performance
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Whisky Investment Guide
Whisky Market Performance
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Whisky Market Performance
Whisky assets are increasingly a topical conversation piece for broadsheets and investments gurus alike. Prices have, in recent years, exploded and there are seemingly no signs of this pace receding. In fact, the number of consumers of whisky worldwide has recently breached the 500,000,000 mark and, with continued growth looking likely, it would appear that another blistering decade of performance is on the horizon. Accessing this market, which is often new to investors, can be difficult owing to the extensive networks required when acquiring the best casks. VCL have an exceptional track record in portfolio selection, asset management and client care.
Whisky Supply vs Demand: a perfect imbalance
As an industry, Scotch single malt production is older than income tax. For decades, the market for Scotch was a domestic one- with the UK having a lesser population and fewer still that could afford to drink it. As such, there was plenty to go around. This is no longer the case.
Scotch single malt today is a global spirit and part of the very fabric of society worldwide. Statistics show that whisky now outsells Tequila in Mexico and Cognac in France. Whilst the industry has increased production levels by as much as 60% over the past decade, just 800million (approx.) litres of whisky are produced annually in Scotland, and just 40m litres (approx.) retained as single malt. This level might be considered small when viewed against the backdrop of 500m generic whisky/whiskey consumers worldwide. The consequence is a hugely oversubscribed market for Scotch single malt with a perfectly inverse supply/demand imbalance.
2019’s Scotch whisky export value demonstrated clearly that demand is continuing to increase- export levels had increased by 4.4% (£208m) on 2018’s levels, setting a new record. Indeed, the theme continued as bottle exports reached 1.31bn, up 2.4% compared with 2018. Today, Scotch Whisky accounts for over 20% of all UK food and drink exports and is sold in around 180 markets worldwide.
Whilst the USA is still the largest export destination by value for Scotch Whisky at £1,069m, it is India that is now coming to prominence. Although Custom Duty on whisky imported into India is 150%, it is now the second largest export destination for Scotch Whisky by volume with 131m bottles, up 16.1% on 2018. The ISWAI (International Spirits and Wine Association of India) expects the government to reduce the customs duty to a reasonable level, in turning opening India to yet greater volumes of Scotch Whisky.
With demand for Scotch single malt higher than ever and supply levels approaching their zenith, it’s clear to us that prices are heading in the right direction.
WATCH
The size of the Scotch whisky market
If you look at the export value of whisky to the UK economy, it's worth just under £5bn. Exported to 180 markets around the world, and 42 bottles exported every second. If you look at the whisky market as a whole, Scotch is the pinnacle.
Global Whisky Exports Continue to Rise
Perhaps the most important factor affecting the Scotch single malt market has been the Covid19 pandemic. Owing to it being a supply chain-based industry, whisky production for new fill came to a halt during 2020. However, with 20% of consumers drinking more and explosive retail sales, the stock levels have been further diminished and the supply/demand dynamic is now even more heavily geared towards profits within cask investment. This demand has been supported by the influx of new investors to the market, migrating away from risky stocks and low interest bank-based products towards the safety of tangible treasured assets.
Consequently, billions of pounds are being ploughed into distillery expansion to allow for greater production and tourism (2m people visited distilleries during 2018)- at the heart of this, Diageo’s £150m investment programme including the Johnnie Walker global visitor experience. These conglomerate parent organisations expect consumption levels to continue to increase and are prepared to invest heavily to accommodate these bourgeoning levels. This sentiment was echoed by Mike Kempton-Smith, an associate director in asset-based loans at Barclays Corporate Banking in Scotland, stating “With exports continuing to grow in 2019 by 4.4 per cent, ever closer to the milestone £5bn figure, global demand continues to develop, with growth in 106 markets last year”.
It is a universally held opinion that the whisky industry is destined for significant growth over the coming decade and we believe that cask investment will increasingly become a more commonplace feature within commodity based portfolios.
Whisky Tops the Knight Frank Luxury Investment Index
According to The Wealth Report 2019, rare whisky was the best performing luxury investment asset during 2018, achieving a meteoric rise in value of 40% after featuring for the first time in the Knight Frank Luxury Investment Index. Perhaps more impressive is that this growth was not an isolated yearly spike. Over the past decade it has outpaced everything from coins (190%) to classic cars (193%) with a blistering performance of 586%.
Its continuing dominance was reaffirmed in late 2018 when a new record was set for the most expensive bottle of whisky ever sold- a bottle of 1926 Macallan fetched $1.45million at auction.
Over the past five years it is the stand out investment vehicle, having outperformed gold, property and British stocks.
Clearly HNWI’s are prepared to pay top prices for rare and ultra-exclusive whiskies, with many collectors evolving from singular bottle investment to entire casks that can cost seven figure sums to acquire. With the sizeable profits available, there has been a noticeable increase in people educating themselves on the market. Most whisky investors wish to build their collections of casks and bottles and, in doing so, diversify away from risky stock markets and low interest bank based assets.
