UK: Whisky sector chasing hopes of an upturn

Fife distillery Eden Mill slid into administration last week before being acquired by the entrepreneur Tony Banks who immediately pledged that his Ruby Capital company would invest in developing its international credentials. Former care homes owner Banks knows a thing or two about the challenges of building a business, but the Falklands War veteran will find he’s fighting on a few fronts when he embarks on his whisky campaign, The Daily Business Magazine reported on November 22.

A flurry of distillery openings in recent years has been accompanied by a downturn in the sector which is likely to put more pressure on those fledgling businesses to survive, let alone thrive. As Eden Mill’s administrator Begbies Traynor spelled out, the downturn in “the global whisky market is being driven by changing consumer behaviours, rising operating costs, falling export sales and reduced demand for alcohol in general.” It’s not exactly the recipe for success.

These symptoms have led to an outbreak of falling profits and sales. Glenfiddich producer William Grant & Sons lost its chief executive soon after reporting profits down 30% on a 6.5% lower turnover. Edrington, owner of The Macallan, posted a 26% slump in pre-tax profits and a 10% fall in core revenue. Last week Speymalt Whisky Distributors – trading as Gordon & MacPhail reported an 18% fall in sales.

The sector’s woes are being felt around the globe and among the industry’s leading players. Diageo, producer of Johnnie Walker whisky, paused production at the Roe & Co whiskey distillery in Dublin, as well as production and barrel filling at its at its whiskey distillery in Kentucky, in order to “support our efficiency and productivity goals.” Brown-Forman informed investors that it would be laying off about 12% of its global workforce and closing its Louisville-based cooperage.

Diageo’s troubles have been reflected in a woefully under-performing share price, though it was given a lift on the surprise appointment of former Tesco boss Sir Dave Lewis as chief executive.

Lewis got the nod over interim CEO Nik Jhangiani who stepped in after the abrupt exit of Debra Crew in July and will resume his role as chief financial officer. In more buoyant times Jhangiani might have been a shoo-in for the job, so the decision to bring in an executive from another sector was an indication of the board’s assessment of the wider challenges the company faces.

On his appointment, Diageo chairman Sir John Manzoni spoke about the “evolving consumer environment”, a clear reference to what are seen as structural and not merely cyclical changes in the market.

Diageo’s best-performing business is outside the spirits category. Guinness, the Irish stout, is the stand-out brand and it is Guinness 00 which is doing particularly well in a market that is moving away from alcohol. It is the brand that sponsors the Six Nations Rugby tournament and other sporting events where Diageo sees value by association with a healthier lifestyle. Introduced in 2020 it now accounts for £50 million of annual group sales and more than half (53%) of all sales via the Ocado channel.

It is tipping the balance of priorities at Diageo, still the world’s biggest spirits company, and now turning to its former supermarket supremo to put a brake on sliding sales of whisky. It hopes to benefit from Lewis’s experience in marketing and brand building with global consumer businesses.

Lewis will take up the role in the new year by which time he and the rest of a nervous Scotch whisky sector, will know if the Chancellor has lost all sense of time and place by imposing further costs on the industry.

Given the dedication to reducing whisky tariffs around the world, not least by the current Scotland Secretary Douglas Alexander, it would be seen as another massive betrayal by Rachel Reeves if she were to embarrass her Cabinet colleague by hiking duties on whisky in the Budget.