How has Covid-19 affected the whisky investment market?

The Coronavirus has impacted all areas of the world economy and the Scotch whisky market is no different. Ordinarily there would have been over 130 distilleries in Scotland shipping 1.3 billion bottles to approximately 200 different whisky micro-economies. However, owing to the manually driven nature of whisky and its supply chain, Scotch whisky production has come to a complete halt. Rather than producing the world’s supply of the amber nectar, the industry has devoted its entire expertise and time to the production to alcohol hand gel. For this, we should all be grateful.

With hotels, bars and restaurants closed during the lockdown, sales figures and revenue have dropped but the industry has made some gains. According to recent studies, 1 in 5 are now drinking more and this is evidenced in retail sales figures of alcohol. In the first week of lockdown, retail alcohol sales by value were up 11% year-on year, and by 14.1% in the second before declining to an increase of 9% by mid-June, according to the Wine and Spirit Trade Association.

Conversely, the cask market and its investment sector have fared incredibly well. With no new fill whisky production the market for pre-existing casks has had to fill the void created by the increasing trade in retail alcohol. For this reason, investment grade casks from many well-known distilleries have increased in price at an exponential rate- wholesale prices for The Dalmore, for example, had increased by some 60% by the end of Q2 2020. Indeed, on 28th May, 2020, at the height of the lockdown, two bottles of 62-year old The Dalmore were sold by Sotheby’s for more than half a million dollars combined, breaking previous records.

In addition to the increase in retail sales volume, whisky casks have experienced an upsurge in price as an ever-greater number of investors and institutions seek out the financial protection of commodities. Finite and tangible assets offer buyers complete autonomy and can sometimes benefit from a reduced correlation to macroeconomic factors. Consequently, savvy investors will often view them as a safe haven- the world always needs commodities.

Scotch whisky cask investment meets all of the requirements of a safe commodity asset- tangible, finite and fully insured. Unlike the stock market, price increases in rare and old whisky are not based upon market sentiment and optimism, as is often the case for shares. Presently, listed companies that are almost completely devoid of profit are still moving wildly up and down in price. Alternatively, price increases for rare and old whisky are almost always the result of consumption levels and the ensuing scarcity factor. As a result, this organic growth offers a great deal of stability in an investment world dominated by the perpetually fluctuating growth patterns of equity investment.

As Scotland’s biggest export, the industry is keen to make up for losses made during the pandemic. The Scottish whisky industry has inferred that once the distilleries are open and back to full production, prices for new fill liquid might increase by as much as 20% to compensate for the losses incurred during the lockdown. The result would no doubt have a ripple effect outwards with prices for all casks of investment grade whisky experiencing a similar uplift.