What is it about whisky? It’s enigmatic to the point of ecstasy. It is possibly the only true, ahem, liquid investment.
Property is, to quote the 1980s comedy Airplane!, up, down and all over the place as of January 2022. Quantitative easing, the printing of money by central banks to combat the pandemic, will grind to a halt this year. Inflation is soaring. As are interest rates.
Fortunately, whisky has been outperforming markets since, we well basically, people started selling it.
Whisky also has the benefit of being widely tradeable and is consumed in almost every country in the world today. It has repeatedly generated double-digit growth for its owners over recent years, and for those lucky enough to have bout some, it has doubled in value in 8 years. Owners have trebled their money at 12 years.
Over the past decade, according to trade broking data, maturing Scotch whisky has outperformed the FTSE – dividends included – and paid better returns than even London property.
These returns from maturing Scotch whisky, still in the barrel, have also been remarkably steady. Since the financial crisis a decade ago, barrelled whisky has never returned less than 60% after all costs when sold at six years old.
In that time it has never paid less than 107% at eight years old, and never paid less than 189% at 12.
The most patient whisky cask holders made the biggest returns. Interestingly, this is not about rare bottles of Scotch, inflated at auction by collectors or speculators.
Nor have these returns come from the top-end of single malt whiskies. This is a simple commodity – blending whisky still in the barrel, traded and held inside Scottish bonded warehouses with no value-added tax (VAT) or duty to pay.
The chart above shows you the average returns across the hundred or so different blending whiskies traded by distillers, bottlers and brand owners, while it’s still inside the barrel.
These repeated gains, time after time, have been driven by consumer demand for the unsung workhorse of the global whisky business which is blended Scotch. What is blended scotch – it is in bottles of Cutty Sark, The Famous Grouse, Ballantine’s and the kings of them all Chivas Regal and Jonnie Walker
This smoother drink can mix dozens of single malts with 60-70% of a plainer grain whisky. Easier on the palate, it’s much easier to brand and to sell at high volume. That’s why blended whiskies account for 9 out of 10 bottles of Scotch sold worldwide today.
And the world drinks A LOT of Scotch whisky:
- If you thought that the French drink a lot of Cognac, you may be interested to find out that they drink forty times more Scotch, importing more whisky from Scotland than France exports brandy worldwide.
- Mexico now spends very nearly as much on Scotch as it does on tequila.
- Canada has been making whisky for over 200 years. Yet Ottawa’s House of Commons keeps choosing single malt Scotch as its official whisky.
- Japan’s whisky industry is gaining favour with single malt drinkers, but it relies on Scottish supplies of ‘new spirit’, buying well over four-fifths (!) of all the Scotch exported younger than 3 years old.
Scotch sells for higher prices than any other type of liquor worldwide. It accounts for 4% of global spirit sales by weight but three times as much by value.
What’s more, the Scotch industry sells 93% of its output abroad, giving maturing whisky strong potential to help defend UK investors against a weak Sterling and a resurgence of UK inflation.
Scotch whisky’s export success comes thanks to over a century of deep global branding and marketing. Drinkers everywhere recognise and enjoy Scotch as a high-status, aspirational but affordable luxury.
Johnnie Walker, for instance, is the world’s No.1 spirits brand today, it was first heavily marketed in the 1870s.
By 1909 it was already being sold in its distinctive rectangular bottle, with the sloping label and ‘walking man’ logo. By 1920 it was on sale in 120 markets worldwide.
Winston Churchill knew Scotch’s huge value. As Britain’s war-time prime minister, he ordered supplies of grain to Scotch distillers to re-start in 1944, as soon as victory looked certain.
Because, as Churchill told Parliament:
“Scotch takes years to mature and is an invaluable export and dollar producer.”
Churchill could have been speaking today.
- Scotch whisky today accounts for 25% of all UK food and drink exports, with total sales of £4.7 billion last year.
- Export demand sees more than three cases of 12 bottles each leave Scotland for overseas markets every second.
- Global sales have grown 1.5% per annum by volume over the last 30 years and are more than twice as fast by value.
- Demand has deepened as it spreads, with 27 national markets now buying more than half a million cases each every year – up from 14 in 1985.
Who buys and drinks all this Scotch?
Big, blended Scotch brands sell best to a less fickle, far steadier, and more affluent consumer market. The middle classes, wherever they may live — from China or India to Brazil or Russia, these people can afford to enjoy a good Scotch.
This key demographic will only grow larger as today’s newly-made spirit slowly matures into valuable 12-year old Scotch, swelling more than 6% across the world’s middle- and high-income nations on World Bank forecasts.
Solid, consistent demand which more than a century of global branding has created, plus the slow magic of sherry, bourbon and cognac barrels, all stored in Scottish warehouses, seeping the malt or grain spirit they contain those complex flavours of vanilla, heather and toffee, so loved by whisky drinkers the world over.
The longer it stays in the cask, the mellower and mature the whisky becomes – and the more money whisky drinkers will pay to savour it.
That’s why, according to the four decades of trade-broking data, maturing Scotch bought new and sold at 12 years old has never yet lost money. As the industry has consolidated over the last quarter of a century, more cautious production means prices have become more stable and seen steadier appreciation.
Around 3 billion litres of raw spirit are now slowly maturing in barrels in Scottish warehouses. HM Revenue & Customs (HMRC – the UK’s taxman) keeps a very close eye on these warehouses too. HMRC has a deep interest in ensuring that all production is properly stored and accounted for – so that full duty is paid when the whisky is finally released for blending and bottling.
Now you can buy young spirit, untouched by speculators, and unknown to almost every investor before it matures and gains in value. Visit www.whiskycaskclub.com and speak to our whisky cask partner, based in Singapore