Does Scotland's distillery boom risk a whisky glut?

Nearly 140 Scotch whisky distilleries now open...

Is the SCOTCH WHISKY industry cruising for a bruising again or have past lessons now been learnt? asks Tom Bruce-Gardyne for WhiskyInvestDirect.

The business of Scotch whisky was nothing if not cyclical over its first 150 years as a global commodity. Now ever-more distilleries are firing up their stills for the first time.

Are we heading for another whisky loch, set to depress the price of existing barrels as the late Victorian and then late-1970s' gluts did?

Since it came of age with modern brands of blended whisky in the late 19th Century, the industry always struggled to keep production in synch with demand, condemning it to periods of boom and bust.

Planning is made harder by the minimum three years in oak that spirit must spend before it can even be called Scotch. That makes life much trickier than it is for vodka or gin, which can be sold virtually hot from the still – and in truth, the average time-lag for Scotch whisky is probably closer to five or six years thanks to older premium blends and single malts. 

Adding to the woes of industry forecasters are all those sudden world events from US Prohibition (1920-33) to the recent complete collapse of Venezuela's economy – formerly a top ten Scotch market – working to dent demand. On top of this, there is no real consensus among whisky firms about future demand, with individual brands performing to their own rhythms.

None of this has put off the stampede of new entrants. Far from it in fact, as global demand to drink Scotch whisky sets a run of new all-time records.

The number of active malt-whisky distilleries in Scotland soared from around 96 in 2000 to 126 as of 2017. In a year or two there may be as many as 140, which begs the question where will it end?

The list includes new ventures from big players like William Grant & Sons (whose Ailsa Bay opened in 2007) and Diageo's Roseisle distillery (opened 2010). But the vast majority are fresh to the business – and that's one key reason we aren't likely heading for another whisky loch any time soon.

Eden Mill near St Andrew's has been filling just eight barrels a week since it began distilling in 2014. Down the road in Cupar, tiny Daftmill has averaged a mere 100 casks a year since 2005. These smaller, one-distillery brands exist because you can now be a stand-alone producer of single malt whisky in a way that was pretty well impossible a few decades ago.

In the past, when it was all about blended Scotch, it would have been impossible to enter the market with a solitary distillery and hope to swap fillings with your rivals. Independent operators can also now play the 'craft' card, making a virtue of their small size and promoting themselves on social media just as effectively as some of their much bigger rivals.

There are 25 such new distilleries dotted around Scotland. Their collective capacity comes to just under 11m litres of pure alcohol, only a third of the 32m litre capacity of Aisla Bay, Roseisle and Dalmunach combined – the latter being Pernod Ricard's new Speyside distillery that opened in 2014.

In other words, the fate of the Scotch whisky industry as a whole remains in the hands of the corporate giants, just as it ever was.

Diageo's predecessor DCL doubtless claimed it knew what it was doing when it ordered its distilleries to plough on at full-speed in the mid-1960s. There were icebergs ahead, and the whisky loch of the late 1970s took nearly thirty years to drain.

But much larger again today, Diageo is very much incentivized by its stockpile of maturing Scotch to maintain and let its value grow. Fine-tuning production to match demand means making sure that its brands are well spread, so that, for example, the fall-out from Venezuela can be mopped up by Mexico or India.

In short, the surge of new distilleries may look scary to potential investors worried about new producers leaping on the bandwagon and glutting the market. But in truth these smaller players are helping create more buzz, growing the category to attract new consumers.