Review of the year 2006 and the Prospectives for 2007

Review of the year 2006 and the Prospective for 2007:

Foreword:

At the beginning of January 2007, www.whisky-news.com will celebrate its first year! I want to thank all the 18’000 visitors of my website (325 visitors in January and 3400 in December 2006) and I hope you will continue enjoying it even more during 2007!

The website will remain independence and will continue to provide you with all the news about the whisky and its industry. One article is almost ready to be published, more Distillery in Focus will be published, more book reviews as well as more tasting notes. My plane ticket is already booked for the Feis Ile and there will probably be one additional trip to the Speyside too.

I wish you all the best for the new year 2007 and lets let Scotland and the rest of the world produce some very nice whiskies for our pleasure!

Slainthe

Patrick

The past and the future:

2006 has been a year of growth and innovation. Whisky sales have increased, driven by the increased consumption in South-East Asia, Eastern Europe, China and America. Companies are also lurking towards India, one of the largest whisky markets in the world. Unfortunately, the taxes are so prohibitive (up to 500%), that Scotch whisky is not competitive with the whisky produced locally. Some companies, like Beam Global Spirits are making spirits in India, by mixing Indian grain whisky with Scotch single malt. India is so keen on whisky that Mallay, an Indian Tycoon, might soon take over one of the major Scotch whisky Company, Whyte & Mackay. With sales going very well, the stocks of old whiskies are getting scarce and prices are going up quite a lot. Some sources mention an increase in whisky prices by 20 to 30% during the last 6 months and it might continue on the same growth next year. In order to provide premium and super premiums very old blends and single malts to their new customers, distillers are forced to buy back their old casks of malt whiskies. As a consequence, bottles from single casks of famous and sought after distilleries, such as Bowmore, Ardbeg or Macallan have increased tremendously. For independent bottlers, like Douglas Laing, Duncan Taylor or Signatory, buying old casks is extremely difficult and expensive. They will have to rely on their own stocks for the next years.

In parallel to the increase in sales, the production will increase to meet the demand. Several distilleries will be put at maximum production, like Macallan, Highland Park,Talisker, or Lagavulin. Lagavulin is already at maximum production for a few years and Diageo, like other groups are experimenting with new barley strains like Troon, Oxbridge and Appaloosa in order to increase the maximal output of the distilleries by increasing the yield of alcohol produced per tonne of barley. An increase in yield would allow producing more alcohol without changing the production process. Other alternatives, such as the use of fast fermenting yeast could eventually be experimented to reduce the mashing cycles, if mashing is a limiting step.

The high demand in whisky in pushing the prices up, but a second element will contribute to the price increase next year: the price of the barley. In 2006, the barley crops were bad, not only in Scotland and UK, but also in exporting countries (e.g., Denmark). The price of barley will go up next year and for malted barley, even further up. For distilleries depending on maltsers for their barley, like Edradour, will have no other option than to pay if they want to produce all the whisky they intend to sell in a few years. The price of the barley will be high, but the amount of barley might be insufficient.

Since it takes several years after the production of the spirit before you can sell your whisky, increasing the production in 2006 or in 2007 will not be able to satisfy the demand for 2007.

The year 2006 was rich in innovation, with many products on the market and one trend was young single malts. Traditionally, whiskies were left maturing for 10-15 years before being bottled. In 2004, Ardbeg started to bottle a 6 years old whisky, The Very Young, and in 2006, the Still Young, an 8 YO whisky was bottled. For the Feis Ile 2006, Bowmore bottled a 6 YO whisky, Edradour the Ballechin and Bruichladdich, the PC5, a 5 YO Port Charlotte. Young whiskies were previously reserved to the Italian market who appreciate(d) young whiskies, like the Glen Grant 5 YO or the Macallan 7 YO. If matured in good first fill casks, a 5 YO whisky can appeal to a large and global panel of whisky enthusiasts. If the industry wants to satisfy the demand as quickly as possible, shortening the maturation time might be an interesting solution, as long as quality is delivered to the customer. A shorter maturation time will allow a faster rotation of the casks and decrease the required storage surface. The more whisky you produce, the more storage capacity is required. Most of the distilleries can’t store all the whisky they produced and many casks have to be laid down in other distilleries or “storage center”. In addition, the longer you have to store your spirit, the more casks you need. Not only Scotch whisky production and sales are increasing, but also the bourbon in the US, so the supply of fresh casks should not be a problem. However, the demand in casks is so high that the quality of the wood used now for the new barrels might not be as good as before, since the forests are so extensively used, that they can not regenerate fast enough. For example, the sherry casks are expensive and difficult to obtain.

An other trend was the peated whiskies, with Bunnhabhain, Edradour and Glen Scotia who bottled their first peated whiskies. The peated Bruichladdich and BenRiach are more and more available, with their selection of peated whiskies expanded. It has also been rumoured that other distilleries traditionally "unpeated" have produced some batches of peated barley and these products should come soon.

Wood finish, i.e., a maturation in a sherry, bourbon or wine casks for a few months or year after a “normal” maturation in an ex-sherry or bourbon cask, was commonly used in 2006. It allowed young companies like Arran distillery to offer a wide range of products (e.g., Sauternes, Champagne or Cognac finish) with a limited age range of whiskies. Some companies might be tempted to reduce the amount of 16+ YO whisky casks for the blends and limited edition single malts bottling and to promote more actively some younger spirits with different finish. Here and then, some distillers have produced some virgin oak whiskies, i.e., whisky matured or finished in casks which have not contained any alcoholic beverage, as it is normally done.

The forthcoming years will be as dynamic as the last one. New distilleries have or are being built, such as Blackwoods distillers in the Shetlands, Ladybank, Fife, Kilchoman in Islay or Glengyle in Campbeltown, and new ones are planned: Port Charlotte in Islay and one by Diageo in the Borders. Some distilleries are dormant, e.g., Imperial or Tamnavulin and might be of interest for new entrepreneurs.

In the last few years, a few distilleries have re-opened, like Alt A’bhannie, BenRiach Glencadam, and Tullibardine. Almost all the production of BenRiach and Tullibardine went into the blends for Chivas and Whyte & Mackay, respectively, and only one bottling of single malt for each distillery was proposed to the consumer. Now, with the impulse of Billy Walker at BenRiach or John Black at Tullibardine, the whisky connoisseur can finally start to enjoy the beauty of these two distilleries. There products are very good, with some truly wonderful whiskies. All the packaging has been redesigned and they are now actively promoted and supported. Bruichladdich and Jim McEwan continues to be one, if not the most innovative company. The have produced the first quadruple-distilled whisky of the millennium, the usquebaugh-baul (X4), made celtic malt blend (a vatted Scotch and Irish malt, Celtic Nations), made the first mat single malt bottle for their Blacker Still) and started a whole series of multiple-finish (ACE) whiskies in the Murray McDavid range. John Glaser with Compass Box created a unique whisky, the Spice Tree, a whisky matured in oak casks filled with oak chips in order to further increase the interaction between the wood and the spirit. This will remain a unique whisky, since the Scotch Whisky Association, has forbidden this practice. The whisky and wood interaction is very important for the maturation of the whisky. Arran will be the first scotch distillery to use a rotating cask system in their new warehouse to improve that contact. The other distillers and bottlers have not remained passive in the meantime and a lot of new concepts and ideas are growing in the marketing side of the business. The LVMH group is now promoting its single malt whiskies (Ardbeg and Glenmorangie) as a De Luxe product, with the Ardbeg 1965 or Glenmorangie Châteaux Margaux sold in a Glass box with white gloves. Signatory with their Bowmore 1970 or Springbank 1970 or Duncan Taylor with their Bowmore 1966 have started to sell their expensive and exclusive malt whiskies in superb wood polished boxes, following the trend observed since a few years in the Cognac market.

As a result, the prices start to make the products quite exclusive and too expensive for the majority of the consumers. Several whisky suppliers have noticed an erosion in the sales in Europe in the whiskies over € 200/ $250/ £150/ 300 CHF.

Money is not so much a problem for the rich Russians or tycoons in South-East Asia, China or Japan and most of these bottles are now sold in those countries. As written in an article in Whisky magazine, about 75% of the 30 YO Macallans were sold in Taiwan. At the last McTears Auctions in Scotland, most of the lots were bought by Russians. In any case, the main production will be bottled in the 10-16 YO range, the highly competitive segment, where the prices will remain affordable to most of us.

The interest in whiskies is still growing and more and more whisky fairs are held everywhere in the world. The magazine, (e.g., Whisky Magazine or Whisky Botschafter) are doing well, new website have been created by whisky enthusiasts, whisky companies and retailers are improving their websites and more whisky dedicated books are published. Charles Mclean is still prolific as ever, Jim Murray has released his Whisky Bible 2007 and Misako Udo has found a publisher for her excellent book, “The Scotch Whisky Distilleries”, a compendium of all the details about every single scotch distillery there is in Scotland.

I wish you All a very happy year 2007! Let’s wait and see what the whisky industry has in store for us!

Slainthe!