Distillers in high spirits as the whiskey sector enters golden era

After two decades of steady growth, the big players agree that whiskey has turned the long corner

 

Irish whiskey’s renaissance has matured to the point where multinationals and domestic players have committed to spending almost €400 million on building new distilleries or expanding existing ones. So what is driving overseas consumers to our national drink, and is it just a fad?

After years of waiting in the wings, Irish whiskey appears to be centre stage with consumers, who bought a total of 6.5 million cases – almost 60 million litres – last year, up from about four million in 2008. Most in the industry calculate its expansion at about 20 per cent a year.

Bernard Walsh of craft producer, Walsh Whiskey Distillery, agrees that it has entered a new golden era, though, he adds, “it has taken it around 20 years to become an overnight success”.

The overall category, he explains, has been growing steadily, and mainly quietly, for more than two decades. The International Wine and Spirits Report, whose statistics are regarded as the most reliable, has ranked it as the fastest-growing spirit in the world every year for the last 23.

That growth began off a low base. At its nadir in the 1970s, Irish whiskey would have been lucky to make half a million cases – and most of what was exported went into Irish coffees, an American invention that helped it through some dark days.

The consolidation of the industry’s remaining players into Irish Distillers in the middle of that decade and its subsequent takeover by Pernod Ricard in 1988, helped halt the decline and begin the long process of turnaround.

A number of factors set the drink back on the road to recovery. John Quinn, brand ambassador for Tullamore Dew, now owned by Scottish group, William Grant, says the fall of the Iron Curtain in 1989 opened new markets populated with young consumers looking for something different to the vodkas and scotches that their parents drank. At the same time, Pernod Ricard put its marketing muscle behind the category, and selected Jameson as the flagship brand, giving it momentum in the US, from where much of the growth of the last 23 years has come.

Demand has now reached the point where the industry’s players all seem to be drawing up plans for new capacity. Irish Distillers has just spent €200 million expanding its facilities in Cork. According to its production director, Peter Morehead, €100 million went on doubling the capacity of Midleton to 64 million litres. It spent the other €100 million on a new warehouse and maturing facility at Dungourney, the nearby east Cork town that takes its name from the river from which the distillery draws its water.

Dedicated distillery
William Grant, meanwhile, is returning production of Tullamore Dew to the Co Offaly town that bears its name. Quinn says it is investing €35 million in a new distillery there, which will begin production in late 2014, 60 years after the original plant closed its doors in 1954. Irish Distillers produces Tullamore Dew under contract for the Scottish group, but demand is growing such that the group has decided it needs its own dedicated distillery.

Among distilleries of more recent provenance, Walsh Whiskey has joined forces with Italian player, Illva Saronno, maker of Tia Maria and Disaronno, to build a new €25 million plant at Royal Oak in Co Carlow, where it intends to add to its existing brands, the Irishman and Writer’s Tears.

Separately, Lord Henry Mount Charles recently got planning approval for a €12 million distillery in the grounds of Slane Castle. Cooley produced Slane Castle’s whiskey before it was sold to Beam.

And John Teeling, who founded and built up the Louth company before selling it to the US giant, is going in again with a €35 million plan to reinvent the Great Northern Brewery in Dundalk, home of Harp Lager, as a distillery.

Not far from Cooley’s base in Co Louth, Diageo has spent €45 million on Bushmills, the world’s oldest licensed distillery, in Co Antrim. Since the drinks giant took over Bushmills in 2005, close to €400 million has been spent or committed by the various players, more than €300 million of it in the last two years, and about one-third of that figure in 2013.

Anyone who invests in distilling is taking the long view. The Irish Whiskey Act, 1980 requires the spirit to be matured for at least three years, but the reality is that nothing is sold for a minimum of five to seven years while, at the higher end, products are aged for 12 or 18 years, or even longer in some cases.

Morehead says Irish Distillers is looking at 2020 and beyond. “We have been running at full tilt for some time.” So who is buying it all? “The US has been especially strong – growth there is in the low 20s [per cent] – Canada, Russia, South Africa and Europe are all strong markets,” he notes.

More markets are opening up: Quinn pinpoints South America in particular. “The Latin Americans tend to look north for their trends and the interest there is phenomenal at the moment,” he says. However, there are challenges to cashing in on that, specifically that producers need to spend money up front and then wait several years for a return, unlike many products, where it is easier to meet growing demand. This has created a certain amount of difficulty in another emerging market, Asia, where consumers, especially the Chinese, are drawn to prestige products and brands. Their very nature means that stocks of the premium, longer-matured whiskeys, are limited. The only way the industry can exploit the opportunities is to do what it is doing and boost capacity.

That exposes it to the biggest risk of all: that the demand will evaporate by the time that the extra capacity comes on line. Everybody in the sector dismisses the notion that the growing taste for Irish whiskey is just a fad. Given that they are collectively investing €400 million, that response is hardly a surprise. They have a number of arguments. First, the existing momentum is showing no signs of slowing. That is based on what the industry is seeing in existing markets, with no account of what could happen once it gets a firmer foothold in largely untapped regions, such as Latin America and Asia.

That brings them neatly to the second point, whiskey’s potential. That can be measured in a number of ways, Walsh points out that 100 years ago, it sold 12 million cases a year. These days, he says, Scotch sells close to 90 million cases, generating about €5 billion in revenues. “So you have six million cases versus 90 million, that should give you an idea of the potential that is there,” he says.

Big players
Finally, they say, some of the global industry’s big players, Beam (Cooley), Diageo (Bushmills), Pernod Ricard (Jameson, Powers, Paddy), William Grant (Tullamore Dew), and more lately, Illva Saronno, (Walsh Whiskey Distillery) have recognised its potential and are putting their marketing machines behind it. Quinn says none of these would be investing if they did not take it seriously in the first place.

Most of them also have scotch in their portfolios. Thanks in part to Guinness’s takeover of Distillery Company in 1986, Diageo is a particularly large player in Scotch whiskey, with brands including Johnnie Walker, one of the world’s biggest sellers. Beam owns a similarly popular brand in Teachers, while Pernod Ricard has Chivas Regal. For obvious reasons, William Grant is more rooted in whiskey’s cousin. It owns Glenfiddich, The Balvennie and, of course, Grant’s.

Scotch is whiskey’s most obvious rival, although given the former’s strength in global markets, it’s hard to argue that the latter poses any real threat to it for the moment. Quinn says that it is in these multinationals’ own interest to ensure that both categories continue growing in the future.


Whiskey’s downfall
The Irish angle

Ironically it was an Irishman, Aneas Coffey, who helped sow the seeds for what became whiskey’s downfall. In the mid 19th century, the former excise man invented the column still, a more efficient and cheaper means of producing the drink than the traditional pot still used in Ireland.

The model – known as the Coffey still – was adopted in Scotland but not here, where traditional techniques continued to hold sway. Irish whiskey continued to thrive into the early 20 century, when it dominated the global market, selling 12 million cases around 100 years ago.

However, the arrival of prohibition in the US in 1919 cut off one key market for 12 years. Once it was repealed in 1931, developments much closer to home helped do further damage. The economic war, sparked by de Valera’s decision not to make payments due to Britain for the land settlement agreed in the early 20th century, resulted in heavy tariffs being placed on Irish goods, including whiskey.

This affected sales not only in Britain, but in many of its territories, including India, which was then, as it is now, the world’s biggest whiskey market. Scottish distillers, with more efficient technology, began to cash in, particularly in the US.

They were more willing to react to changing consumer tastes by introducing blends and premium products. Many of the higher end, more mature malt scotches on sale today date back no more than 80 years to the point in the last century when Scotch began to displace whiskey.

The Irish, unwilling to adapt, continued to retrench and sales shrank to between 400,000 and 500,000 cases a year, roughly what a modest craft distillery would produce today.

What was left of the industry came together in the mid 1970s to form Irish Distillers in a bid to halt what had become a near fatal decline.

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