A Postcard from Japan

By volume, Scotch whisky's main role in Japan is as an ingredient in ‘Japanese' blended whisky. But as Ian Fraser discovers, there's a real opportunity to inject value with bottled-in-Scotland whiskies like single malts in this sophisticated and knowledgeable market.   

"As the eighth-biggest market for Scotch whisky by value and the fourth-largest by volume, Japan is far too important a market to ignore," says Kenny Macdonald, co-founder and director at Dràm Mòr Group. He says this is why Dràm Mòr, the indy bottler he established in Dumbarton in 2019, recently signed a distribution deal with Tokyo-based Rudder Ltd, which already numbers Lindores and Glen Wyvis among its brands. 

"Japan is alluring because of its sheer size," says IWSR's Asia-Pacific Research director, Tommy Keeling, "but it's a hard market for foreign brands to penetrate". Reasons for this include intense competition from Japanese whisky, at both the ends of the market, and the fact the country's mass-market brands contain surprising amounts of bulk Scotch – a category that accounts for some 60% of total exports to Japan. 

Other challenges include a distribution system that is largely sewn up by local drinks giants Suntory, Asahi, Kirin and Sapporo, the cultural differences, and the geography.

Japan is a mountainous country that is 3,000 km long. "It's very fragmented and it's difficult to access everywhere," says Asian-Fusion director Simon Murphy, who previously worked for Whyte & Mackay, Burn Stewart, LVMH and United Distillers. 

He points to another issue: the Japanese are actually quite abstemious on a per capita basis. "Japanese drinking rituals and drinking etiquette are unusual. They make a song and dance about the ceremony of drinking but they don't drink that much compared to say the Chinese or Taiwanese." There is also the fact that in izakayas, the hybrid bar-restaurants where the majority of whisky is drunk with soda in ‘highballs', drinkers are not particularly brand loyal. 

On the plus side, the Japanese whisky market has shown consistent growth over the past nine years and is also highly developed, with a strong community of aficionados. "With emerging markets, you have to go back to square one and explain how single cask whisky works," says Macdonald. "The Japanese aren't like that. There are plenty of ‘geekarati' who want to investigate niche drinks, and in a country as big as Japan, you only need a tiny percentage of people like that to do very, very well."  

David Ferguson, development director at Ayrshire-based Lochlea Distillery, says: "The level of consumer education is phenomenal. That helps a brand like ours where we are trying to tell a detailed story about being single site and growing all our own barley. That level of detail is really well received in Japan. You don't have to start with whisky 101."

Ferguson recently attended the Modern Malt Whisky Market 2023, a whisky fair in Tokyo where he was struck by the comparative youth of the participants. "They were mainly 25-35 year-old young professionals with decent jobs, a bit of disposable income and a real thirst for knowledge. They were asking a lot of technical questions which, as a whisky geek, I enjoy answering."

The total whisky category in Japan is 22 million nine-litre cases but "Japanese" whisky accounts for more than 77% of this. Two Japanese brands, Suntory and Nikka (owned by Asahi since 2001), dominate, selling 8.5m cases in Japan, or 40% of the market by volume.

Altogether Scotch sells about three million cases or 13.6%  of total volume, though the picture is of course muddied  by the fact no one knows what percentage of the liquid sold as "Japanese whisky" is actually Scotch.  

Following pressure from Japanese single malt distillers, the Japan Spirits & Liqueurs Makers Association (JSLMA) has introduced new rules which clarify what can be labelled ‘Japanese whisky'. From 1 April, such whisky produced by JSLMA members must be made from malted barley, use local water and be fermented, distilled, aged and bottled in Japan, while also being aged in wooden casks for three years and bottled at a minimum 40% ABV. 

However, the rules are voluntary and the large Japanese producers may struggle to comply overnight given their current practices and volumes. "I suspect one reason sales of Scotch have gone up in the last two to three years is that it's become difficult for Japanese companies to procure bulk Scotch in Scotland, as a result of the supply shortages," says Murphy.

Single malt Scotch whisky sales are relatively low compared to other leading Asian countries. Quoting 2022 figures, Murphy says: "Japan is about 150,000 cases of single malt Scotch, Taiwan is 600,000, and China is about 250,000 and growing." 

In Japan the top-selling brands are Macallan (which benefits from being roughly 33%-owned by Suntory), Glenlivet, Talisker, Ben Nevis (100% owned by Asahi), Glen Turner, Tomatin and Lagavulin. 

"They like peated whisky, for whatever reason," says Murphy. "Brands like Lagavulin, Caol Ila and Talisker do well." In recent years, however, they have been facing increasing competition from Japanese single malts such as Hakushu, Akashi, and Yamazaki - especially since Yamazaki Sherry Cask 2013 Edition was, controversially, named as ‘the world's best whisky' in Jim Murray's Whisky Bible in 2014.

The scarcity of aged single malt is a global issue for the industry, but the consequent shift to NAS (non-age-statement) whiskies is problematic in Japan. More than elsewhere, Japanese have a strong penchant for age statements.

The biggest-selling blends in Japan are White Horse, Dewar's, Johnny Walker, Teacher's (100% owned by Suntory), Ballantine's and Chivas Regal.  "White Horse has historically always been the biggest brand in Japan. That goes back to the 1970s when, as part of Distillers (now Diageo), it was one the first companies to get out and travel around and visit places. It got out to Japan first," says Murphy.

Despite very high debt to GDP levels, David Ferguson says Japan "seems more immune to current economic problems than Europe." In the long-term there's the country's shrinking population to worry about with The Japan Centre for Economic Research forecasting it will fall from its current level of 125.7m to 87m by 2070, and to 49.7m by 2120. But for now, Ferguson is more concerned with other issues such as how the country's generally conformist society precludes ‘guerilla marketing'. As he says: "Monkey Shoulder's cement mixer is probably not a thing in Japan."