Our role in the Scotch whisky industry

WhiskyInvestDirect sits at the interface between producers of Scotch whisky and investors. In this article, we explain what we provide on both sides of the scale, and what our role is in the industry as a whole.

Clients of WhiskyInvestDirect will be familiar with what we provide to independent investors in the Scotch whisky industry: ease of access via our 24/7 trading platform; flexibility with the option to sell at any time; diversification with the ability to buy volumes as low as one litre of pure alcohol; and transparency with prices displayed publicly on the live order board.

But a business like this, giving private investors access to an industry that has historically been closed off to individuals, can only work if there is demand from both ends. So what service does WhiskyInvestDirect provide to the distillers we work with, and where do we fit in the industry as a whole?

 The main benefit we offer to distillers is a chance to offset the working capital required to produce whisky. Scotch whisky must be aged for at least 3 years, and is usually matured for much longer, so producers of whisky typically have a long wait before generating revenue from what they make.

In times of lower demand, WhiskyInvestDirect can buy spare capacity from distillers cheaply (since the capacity would otherwise be wasted). This means we can provide spirit to our clients at very competitive prices, while also allowing distillers to generate revenue immediately and offset the capital requirements of aging their own whisky. Furthermore, they earn consistent revenue from us by storing the whisky in their warehouses, a cost that we pass on to our clients in the form of the monthly custody fees.

We also allow distillers to be conservative with the whisky they keep for their own business. One of the great problems in the industry is the threat of overproduction – producers must estimate demand 8 to 12 years in the future to judge how much spirit to distil and mature, but if they make too much, and demand 10 years down the line does not meet expectations, it can lead to a glut. This phenomenon happened in the early 1980s and was known as the 'whisky loch'.

WhiskyInvestDirect allows distillers to keep back the minimum for their own bottlings, safe in the knowledge that if they need more of their spirit, they can bid to buy it back from our clients. Of course, they must compete with other blenders and bottlers who want the spirit for their own business, and this competition helps WhiskyInvestDirect clients get better prices when selling through Bulk Trade Bids.

We saw this kind of activity occurring throughout 2022 and much of 2023, a time when there was large demand over supply across the whole Scotch whisky industry. In the 2 years from December 2021 to December 2023, the trade bought back over 5.6 million LPA from WhiskyInvestDirect clients, and early adopters of the platform have been through the full cycle of the industry, buying stock when supply exceeds demand, and selling at a profit when demand is high.

The savvy (or cynical) businesspeople among you will have noticed a question – why does WhiskyInvestDirect need clients? Why don't we just buy low in times of supply over demand, sell high when demand rises, and take the profits into the next cycle?

The answer again comes down to working capital. WhiskyInvestDirect could indeed do this, but would be limited by the funds it had available initially to purchase maturing spirit. By selling that spirit on to our clients, we free up that capital to buy more whisky and grow the size of the market.

This in turn increases our purchasing power for future new lines of stock – by offering to buy in bulk from distillers rather than just a few casks at a time, we are able to negotiate much better prices and pass these savings on to our clients.

Our clients make the bulk of profit on the maturation of whisky they hold, while we make a smaller profit on commission fees and custody fees, but on a larger volume than we would have been able to acquire on our own. In this way, everyone benefits, even distillers who are able to offset the costs of their own production, and plan more efficiently.

Long-term clients of the WhiskyInvestDirect platform will have seen the full cycle of demand in the industry, buying stock at great prices in earlier years and then selling in 2022 and 2023 when demand was at its highest. Over the last few months, we have seen prices in the industry soften, and it is clear we are entering the next phase of the cycle. In the coming months and years, WhiskyInvestDirect hopes to bring as much new stock to the platform as possible while supply is high, and the more investment we receive from our clients, the more opportunities we will be able to offer.