The sector’s net annual contribution of £3.8bn to UK trade makes case for duty cut, says SWA.
In February, Scotch Whisky Association (SWA) CEO David Frost made a speech in which he voiced his concern about the impact of global politics on Scotch.
He spoke of the Russia/Ukraine conflict, of ‘poor economic management in the Eurozone, Argentina and Venezuela’, concluding that ‘it’s clear that we will have to work harder to keep exports growing in future years’.
He was right on all counts.
‘Work harder’: SWA CEO David Frost
In recent years, there has been a worryingly naive belief within the boardrooms of Scotch firms that that every market will grow at amazing rates and fall in love with Scotch.
Their sunny outlook was correct – for a while. When the opposite began to occur, it was time for Plan B.
The question is: what is it?
Some of the circumstances working against Scotch were unforeseen: the clampdown on corruption/corporate entertaining (are the two the same thing?) in China, economic sanctions imposed on Russia in the fall-out from the Ukraine conflict.
But it is a fact of life that no economy grows in a steadily upward direction, there will always be fluctuations, booms will inevitably be followed by slowdowns. The best you can hope for is that they will then plateau before the next boom starts up again.
The get out clause for Scotch has long been that, as one market begins to falter, resources can be put into another to take up the slack.
At the moment, however, the Scotch industry is still casting round for likely contenders to perform this role.
India? It is beginning to move in the right direction, but remains mired in tax issues and internal politics.
Africa likewise has massive potential, but remains politically volatile, while Japan is slipping back into a deflationary mode.
In terms of Scotch’s major markets, that leaves the US – and it is increasingly being targeted.
In March, Paul Ross, Edrington Americas CEO, admitted that the firm was ‘under-represented’ in the US and that it was now treating America ‘almost like an emerging market, to rebalance our global footprint’.
There are two things to be taken from this. First, why hadn’t Edrington noticed the US before? It’s quite big, after all. Second, this talk of an unbalanced global footprint suggests that there has been a slowdown – or that one is anticipated – elsewhere.
Don’t get me wrong. Targeting the US makes perfect sense for Scotch. The irony is that, while it is the spirit’s number one market in value terms, in the grand scheme of things Scotch under-performs in a market of its size and maturity.
The trouble is that the US market is also seeing a revival of interest in Bourbon, indications that Canadian whisky is stirring itself from its torpor, and the rise of small-scale local whiskey distillers.
Stir in Irish and Japanese and there’s a lot of liquid fighting for a share of the American whisky drinker’s pocket. In addition, if anecdotal evidence is anything to go by, that consumer is used to cheap whisky and is virulently resistant to price hikes. So, while aiming for the US is the right thing to do, it won’t be straightforward.
At least the US economy is showing signs of life – whereas in Europe a wholly misguided obsession with ‘austerity’ rather than focusing on fiscal stimulus has caused economies to stagnate, resulting in the very people who you need to buy whisky being forced out of the market.
The outcome of austerity has wiped out most of Europe – especially the south – and the UK for Scotch.
Frost is right to be worried about geopolitical risk. With Scotch reliant on exports for 90% of its sales, the industry should be too.
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