Diageo, one of the largest conglomerates in the world, is currently experiencing a bottle shortage. This has caused prices to spike and left many consumers frustrated. The company has not released an official statement, but it is believed that the shortage is due to a recent increase in demand for their products.
The impact of Covid-19
One of the major issues impacting Diageo, as well as other manufacturers, is the supply chain issues caused by the pandemic.
Covid-19 has had a major impact on the global economy, and many countries are experiencing supply chain issues due to reduced international transportation capacity. This is impacting Diageo in particular because they rely heavily on imported goods from bottling plants in China (as well as other parts of Asia).
Shipping prices have skyrocketed in recent months, as has the cost of goods. This has made it difficult for Diageo to maintain their usual production levels and has led to shortages of some products in certain markets. As such, there have been disruptions in production at their factories that have led to the current bottle shortage. Diageo is doing all they can to address the situation, but unfortunately, there is no easy solution. The company is doing its best to mitigate the issue by working with its suppliers to get bottles shipped as quickly as possible, but it will likely take some time before the shortage is resolved.
Increased cereal prices
In addition to the rising cost of aluminium, many drinks conglomerates are grappling with the increase in prices of the required cereals needed to produce certain alcohols.
For example, Diageo distributes Bulleit Bourbon, which has been impacted by the price of corn. Additionally, shortages of the unique bottles with which Bulliet is supplied in have resulted in Bulleit’s US organic net sales dropping 19% in the period.
The company has announced that it will be increasing the prices of all its products in order to offset the rising cost of production. Whisky lovers are not happy with this news and have taken to social media to express their displeasure. Diageo is not the only company affected by these shortages; other conglomerates such as Jack Daniels and Jim Beam are also facing similar problems. However, Diageo seems to be taking the brunt of the backlash because it is one of the largest distributors of whisky in North America.
Another issue facing Diageo is logistics – getting products from the factory to grocery stores and other retailers for consumer purchase. This has always been an area of concern for conglomerates because they have to deal with many different retailers who all have different requirements for their deliveries.
For example, some stores require fully loaded trucks for delivery, whilst others only need a few pallets of items on an infrequent basis. This can lead to difficulties in finding enough drivers or equipment available to fulfill these needs, due to other working commitments.
This means that sometimes it’s difficult to find enough drivers or equipment available at all times in order to meet these needs because they may be out delivering other orders instead.
This is particularly true during the pandemic where worker shortages have become more common due to illness or fear of contracting COVID-19 whilst working in crowded areas such as warehouses and distribution centres.
The impact of shortages and prices increases
Currently, Diageo is raising prices in some markets, including the US, as a result of shortages. The company is also ramping up their advertising campaigns for lines in which they have significant stock, such as Johnnie Walker.
The ripple effects of the pandemic are being felt throughout the supply chain, with companies in all industries struggling to meet demand. As we’ve seen with food shortages and price hikes, the impact of COVID-19 is far-reaching.
Diageo is just one example of a company that is feeling these impacts. Other companies such as Coca Cola, PepsiCo and Anheuser-Busch InBev are also dealing with product shortages.
Increasing prices but decreasing volume
One of the more interesting side effects of the current shortages is, whilst there has been an overall increase in alcohol sales, the total volume of high-end alcohol sales has decreased.
For example, overall US scotch sales rose 11%, but the US single-malt scotch sales fell 5%. This is partly because of the shortages mentioned above, but also because the amount of alcohol being laid down to mature into high-end products is decreasing rapidly.
Distillers are choosing to allocate more of their product for bottling and sale now rather than laying it down in barrels because consumer demand is so high.
The problem with this is that there will be a lag time before the market catches up to the increased demand for scotch and other aged liquors, leading some consumers to seek out alternatives such as Japanese whisky or bourbon instead.
Some companies have taken action by offering deals on their older products or releasing new variants earlier than planned (e.g., Maker’s Mark Cask Strength). However, the long-term effects of this trend remain unclear at best.
Recovery from COVID-19 will take longer than expected due to multiple factors, including an increase in alcohol consumption during the pandemic as well as possible changes in consumer behaviour post-pandemic.
Does this mean the end of high-end whisky?
Simply put, no.
This situation, in another form, has already played itself out. The whisky loch of the 1980s resulted in a huge surplus of whisky, which resulted in producers cutting production, shutting distilleries, and laying off workers. This had the knock-on result of cutting the amount of 30-year-old whisky available in 2010. However, this situation did not result in the end of production of expensive whiskies. It merely created a short-term shortage. In the same way, the current situation will eventually resolve itself.
It is true that we are facing a global recession and consumer spending may be curtailed for some time to come as people try to pay off their debts, but there is an old saying in business: “the only constant is change.” There is a finite amount of whisky produced every year, and it takes time for the aged product to come to market. A single cask might be held in bond for 12 years before release. This means that if you want to buy an old bottle, there will always be sellers trying to sell those bottles at a premium. The main reason for this is the huge global demand for Scotch whisky, which shows no signs of slowing down, and the lack of supply. In addition, there is a growing trend for super-premium expressions with no age statement (NAS), which are held on to by distillers in order to provide further value through future releases.
There is every chance that the current curtailing of the production of high-end whisky will simply create more opportunities for investors down the line as the current crop of whiskies age and more expensive, premium releases are made available.
So, if you’re in the market for a bottle of Scotch, there’s no need to worry about being left behind. In fact, purchasing cask whisky laid down during the past few years could be one of the shrewdest investments you make.