What is Scotch whisky?
Whisky gets its name from the Gaelic ‘uisge beatha’ meaning ‘water of life’. For the purposes of this article we will discuss Scotch whisky, that is, whisky made in Scotland. Some other countries produce whisky, notably Japan and Canada. Ireland and the U.S. also produce whiskey but this is usually spelt with an ‘e’.
Scotch whisky is made from water and malted barley and to be legally called ‘Scotch whisky’ it must have been produced at a distillery in Scotland.
Five main categories of Scotch whisky:
- single malt whisky,
- single grain whisky,
- blended whisky,
- blended malt whisky,
- blended grain whisky.
Demand – One billion bottles
Although it has always been a popular drink, single malt whisky has seen an explosion in popularity and demand since the 1990s. Japan, China, Russia and countries across Europe are all now thriving markets for Scotch whisky, in particular the single malts. Due to the long processing time involved in manufacturing whisky, the whisky industry has been unable to predict this growth in demand. If you add to that the fact that many whisky distilleries have sadly closed down in recent years you are left with a picture of growing demand twinned with dwindling production. As with any commodity, these are ideal conditions for the canny investor. Some of the most famous distilleries to close down include Brora, Dallas Dhu, Glen Flagler, Rosebank and Port Ellen.
The FT.com had an article in January 2012. “It’s no surprise really, considering that in 2009 exports of Scotch whisky topped one billion bottles for the first time in the industry’s history”.
The FT noted that sales into Asia rose by 17%, 181 million bottles worth £480 million, while the more established markets such as South Korea and Japan increased 26.5 % and 32.9 % respectively. Meanwhile that goliath China is still in is infancy and growing along with India.
Andy Simpson, founder of Whisky Highland, says that if you’d bought the current best performing 250 bottles of whisky in 2008 at auction in the UK they would have cost £42,508. In todays’ market they would be worth £94,884, an increase of 123.21 per cent.
The variety of most interest to the investor is single malt whisky.
A single malt Scotch whisky must be distilled at a single distillery, made from water and malted barley without the addition of any other grain and be distilled by batch distillation in pot stills. The Scottish whisky industry is currently seeking legislation to ensure that it is also bottled in Scotland, but this is still ongoing.
Single malts are normally matured for 10 years or longer. It is important to note that, unlike wine, whisky does not continue to mature in the bottle. A 10 year old whisky is still a 10 year old whisky, even if you have had the bottle for 50 years. Maturing only continues in the barrel given access to air and the barrel timbers.
The more lucrative vintages of whisky are currently Glen Mhor, Glenury Royal and Glenesk, according to The World Whisky Index.
Why invest in whisky?
One of the most loved brands is Macallan of Craigellachie in the Speyside region of the Highlands. Their limited edition 50-year-old bottle of Macallan sold for £11,750 at auction and that very same whisky could have been bought for £200 in 1983. Still £200 in 1983 was a whack of cash but if you use the inflation calculator it is worth £526 now so £11,750 is a fantastic investment.
Of course £11,750 for a drop of whisky is beyond most peoples reach. So too is the massive £32,000 paid for a Dalmore 62 Single Highland Malt Scotch Whisky at the Pennyhill Park Hotel in Bagshot, Surrey, in 2005. However both of these can give you an idea as to what good whisky does actually sell for.
The whiskies that are best for the investor as they are usually quite in demand are aged in the cask for between 10 and 60 years and usually are limited editions. Once bottled, the whisky can be stored indefinitely.
Which whiskies should I buy?
Single malt for sure but if you are not a whisky connoisseur and are simply looking for an investment, the world of whisky can seem complicated and baffling. Just as with fine wines, the breadth of choice available (different ages, regions, soils and water etc.) is breathtaking. Worldwide there are around 2500 different brands of Scotch whisky, and each brand will produce a variety of different types.
Whiskies from ‘lost distilleries’
Since the 1980s many whisky distilleries have gone out of production and there is a massive demand for their increasingly rare products. For the most part these lost distilleries were small, remote operations that have been closed down by force of economics. Their production has been taken up by larger, more centralised operations. More information on the lost distilleries of Scotland can be found here. maltmaniacs.org
In 2007 whisky investments set up the world whisky index. This operates like a stock exchange and investors can build themselves a portfolio of whiskies as well as check out the prices of individual bottles. This is a great tool for investors, allowing them to follow the market and help decide on which whisky represents the best investment.
Whisky investments latest figures, released at the end of 2010, show an increase in value of all their portfolios of 7.9%.