Whisky: A Cask of Profits?

The past decade has witnessed substantial progress in the whisky market, particularly for the most luxurious brands. According to the Knight Frank 2020 wealth report, the value of rare whisky has risen by 564% in the last decade making it the best performing luxury asset for that period. It was considerably higher than classic cars, which came second at a 194% rise in value. Furthermore, Rare Whisky 101, a company which provides services in valuations and consulting to whisky collectors and investors, operates an index which tracks the price performance of the top 1,000 bottles of rare whisky. Its value rose from 223.00 GBP in 2012 to 958.72 GBP in 2021, a 342.03% increase in just over eight years. Edward Robinson and Charles Wells of Bloomberg Wealth state that this growth has come largely from surging demand for the spirit in Asia and have found that this demand is still increasing.

 

Although the manufacturing process of scotch whisky is a long one, its profits are often worth the wait. The beverage is stored in oak casks which transfuse flavours into it, with the maturation process taking three years minimum. However, most whisky is left for much longer, especially the high-end brands. In addition, cask prices typically start at 11,000 USD and can reach 700,000 USD, with many distilleries being very exclusive with their client lists, according to Robinson and Wells. Moreover, storage costs and auction fees usually reach 15% of the total investment cost.

 

There is sufficient evidence that this heavy investment is worthwhile. Indeed, in 2019, a 1926 Macallan bottle sold for 1.5 million GBP at auction and in February 2020, another 1926 Macallan sold for 825,000 GBP. Macallan is a renowned luxury whisky brand owned by The Edrington Group, an international spirits company based in Scotland. According to Andy Simpson, the head of Rare Whisky 101, a 20-year-old cask can yield 230 bottles. Therefore, it is clear why investors are willing to wait long periods for the end product.

 

However, investment in luxury whisky also poses risks. The casks occasionally leak and break down, degrading their contents. Moreover, the industry has attracted some convincing counterfeiters. Even Andy Simpson, despite being an expert, has been tricked in this way, suggesting that investors and collectors alike should approach their choices with caution.

 

In addition, non-luxury whisky has also experienced tremendous demand and has significant growth potential. For example, Suntory, a Japanese whisky manufacturer, previously sold a whisky brand called The Hakushu. In 2018, due to overwhelming popularity, the firm’s stores of the drink were depleted. With this whisky taking 12 years to age, Suntory will be selling it again in Japan from 30 March; each bottle will be sold at 8,500 JPY (59 GBP).

 

Another whisky producer with seemingly positive forecasts is Lark Distillery, which is based in Tasmania. Its bottle prices range from 139-299 AUD (77-166 GBP) and thus is in the same bracket as the Hakushu. Despite its export strategy having been put on hold because of COVID-19, the firm remains in a strong position based on its activities over the past six months, Tony Featherstone from Financial Review reports. In October 2020, he states that it had 770,000 litres of whisky under maturation, which is worth 107 million AUD. In 2021, its revenue is forecast to double to 12 million AUD as new releases sell out and e-commerce sales grow. In addition, MicroEquities Asset Management’s CEO, Carlos Gil, thinks that Lark has international growth prospects, due to consumers interest in premium, unique brands.

 

Ultimately, if investors choose to hedge their bets on whisky over the coming year, they have two choices. Firstly, they can purchase assets in rare whisky. Although this produces a long wait for returns and has its risks along the way, recent profits have been impressive. However, due to the exclusivity of client lists, this is a difficult market to enter. Alternatively, one can invest in less luxurious brands, such as Suntory and Lark, which have shown signs of growth and profitability for the coming year.

 

By Robert Armstrong-Jones

Sector Head: Gregor MacDonald

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