20130908 bh report: scotch whisky
DESCRIPTION
20130908 BH Report: Scotch WhiskyTRANSCRIPT
BH Report: Scotch Whisky 2013/9/8
Context
• I think I was about 12 when I had my first sip of Scotch - I saw a tiny 50ml bottle of Macallan 12 years old in a random discount store. Despite having absolutely no prior knowledge about it, I bought it for ¥500 and tried it secretly at home (maybe because it has such a beautiful color). Ever since, I have been a fan
• Scotch is by no means an "everyday drink", but it is something I see everywhere, and I feel like I am seeing more and more of it lately. This is especially true for lesser known single malt whisky This was particularly confusing to me because on one hand, I see media coverage stating that people
are deserting hard liquors (including Scotch) and moving more toward lighter drinks, or even non-alcoholic beverages
• In this report, I intend to answer following key questions:
– Is Scotch Whisky production/stock getting bigger, or is it shrinking
– Who is consuming Scotch ?
– What's the major 'trend' [in particular, in the US] ?
Summary of findings • Each year, roughly 1.8 billion bottles worth of Scotch is produced – this is
equivalent of ~350 bottles per Scottish population – This represents roughly 1/6th of the stock
• Cyclicality exists, but both stock and production have been on upward trajectory for the past 20-30 years
• Only ~30% of the 'consumption' comes from whisky older than 10 years; roughly half of the consumption is from 3-4 years old whisky, which are mostly sold as lower priced blended whisky
• Past decline in UK consumption (-2.2% CAGR in '80-'11) has been offset by growing export (1.1% CAGR) resulting in net growth (0.8% CAGR) – Export represents ~93% of consumption today
• Scotch is exported to large number of countries and top export countries span Americas, Europe and Asia- top 20 countries account for ~77%
• Even among the top 20 countries, there is large variance in terms of the level of penetration and the average quality/price of each bottle E.g., – France (largest importer) consumes more per population than US (2nd
largest), but consumes lower priced bottles
• Scotch Whisky overall sales volume in US has been flat, but price increase has driven market growth in the last 10 years
• Price increase driven by the combination of shift toward more premium/single malt whisky (driving ~57% of price increase) and inflation (~43%)
Scotch Whisky production/stock
Trends in the US
Consumption/ Export
Agenda
• Whisky production and stock
• Consumption/ Export
• Trends in the US
Whisky production has been on the rise in long term, though cyclical...
0.0
0.5
1.0
1.5
2.5
2.0
20
06
20
05
20
04
20
03
20
02
20
01
19
99
19
98
19
97
19
96
20
00
19
94
19
93
20
11
20
10
19
95
20
09
20
08
19
92
19
91
19
90
19
89
20
07
19
87
19
86
19
85
19
84
19
88
19
82
19
81
19
80
Annual production of Scotch whisky1 (billion 70cl bottles2)
19
83
This is equivalent of ~350 bottles per
Scottish population
1. Includes both malt & grain whisky 2. Estimate conversion from LPA (Litres of Pure Alcohol) assuming average 40% strength Source: Scotch Whisky Association
... and stock has been increasing for the past 25 years
12
10
8
6
4
2
0
19
88
19
87
19
86
19
85
19
84
19
83
19
82
19
81
19
80
Year end stock of Scotch whisky1 (billion 70cl bottles2)
19
92
19
98
19
97
19
96
19
95
19
94
19
93
+1.2% -3.3%
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
91
19
90
19
89
This is equivalent of ~2,200 bottles per Scottish population
1. Includes both malt & grain whisky 2. Estimate conversion from LPA (Litres of Pure Alcohol) assuming average 40% strength Source: Scotch Whisky Association
Back-up: Breakdown of stock/consumption by vintage
8%
12%
14%
13%
16%
11+
6-10
5
4
3
2
1
16%
2011 year end stock
<1
15%
6%
Breakdown of stock by vintage
(2011 year end)
Breakdown of consumption by vintage
(2011)
11+
6-10
5
4
3
2
1
2011 consumption
29%
7%
13%
20%
28%
2% 1%
• Roughly ~16% (1/6th)
gets added to stock
each year
• Only ~15% of the stock
is above the age of 10
• Hardly no consumption
for age 1-2 (consistent
with the law requiring
Scotch to be at least 3
years old)
• Roughly half of
consumption from age
3-4
=> Mostly lower-priced
blended whisky
• ~30% from age 11+
=> Premium blended +
single malt
Source: Scotch Whisky Association
Agenda
• Whisky production and stock
• Consumption/ Export
• Trends in the US
Declining UK consumption is offset by growing export; resulting in net consumption growth
0.25
1.25
0.75
0.00
1.50
0.50
1.00
19
87
+0.8%
19
86
19
85
19
84
19
83
19
82
19
81
19
80
Consumption of Scotch whisky1 (billion 70cl bottles2)
Export
UK consumption
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
19
88
20
03
20
04
20
05
20
06
20
07
20
02
20
09
20
10
20
11
19
90
19
89
20
08
'80-'11
CAGR
+1.1%
-2.2%
1. Includes both malt & grain whisky 2. Estimate conversion from LPA (Litres of Pure Alcohol) assuming average 40% strength Source: Scotch Whisky Association
~83% export ~93% export
Scotch exported to large number of countries; top export countries spread across Americas/Europe/Asia
80
20
100
60
0
40
2011 Export (bottles)
1.3 billion
%
Top 20 countries ~77% of exported bottles
Wide distribution of bottles per population & price per bottle
Country
# of bottles imported (million)
# of bottles imported per
population Value of import
($ million1)
Import price per bottle
($)
France 205 3.1 857 4.2
USA 130 0.4 1,048 8.1
Spain 75 1.6 415 5.5
Singapore 63 12.2 509 8.1
India 56 0.0 84 1.5
Germany 50 0.6 239 4.8
South Africa 49 1.0 265 5.4
Brazil 47 0.2 159 3.4
Thailand 36 0.5 80 2.2
Mexico 32 0.3 129 4.0
South Korea 31 0.6 228 7.3
Venezuela 28 1.0 133 4.7
Australia 27 1.2 111 4.2
Japan 25 0.2 119 4.8
Taiwan 23 1.0 248 10.9
China 22 0.0 106 4.8
UAE 21 2.4 131 6.2
Greece 17 1.5 113 6.8
Poland 16 0.4 67 4.1
Italy 16 0.3 74 4.7
Top 20 969 5,116 5.3
World 1,264 6,756 5.3
% top 20 77% 76%
1. Assumed 1 GBP = 1.6 USD Source: Scotch Whisky Association
Even within top 20 countries, the level of penetration and the average quality/price level vary
Import # of bottles per population
<0.4 bottle 0.4-1.0 bottle >1.0 bottle
Uncommon Common
USA South Korea
Spain Singapore
Taiwan UAE
Greece
Japan China Italy
Germany South Africa Venezuela
India Brazil
Mexico
Thailand Poland
France Australia
Import price per bottle ($)
>$5.5
$4.3-5.5
<$4.3
Pricey (more premium?)
Inexpensive (less premium?)
Distribution of top 20 Scotch export countries by # of bottles per population and price per bottle
Source: Scotch Whisky Association
US, for example, tends toward more premium Scotch, but
the penetration is not as high (room for further growth?)
Agenda
• Whisky production and stock
• Consumption/ Export
• Trends in the US
Within US, Scotch sales volume has been flat, but price increase has driven market growth in the past 10 years...
0.5
1.5
1.0
2.0
0.0
1.7 1.5 1.5 1.5
1.8
1.6 1.5
1.4 1.4 1.3
US Scotch Supplier revenue ($B)
+3.6%
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
119117116116121123122122124120
50
100
150
0
20
04
20
03
20
02
# bottles sold in US (million 70cl bottles) -0.1%
20
11
20
10
20
09
20
08
20
07
20
06
20
05
15141413131312121111
0
5
10
15
20
Supplier price per bottle in US ($)
+3.8%
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
x
Source: Distilled Spirits Council of the United States
... caused by the combination of the volume shift toward more premium whisky & inflation
5 6 7
0
100
80
60
40
20
% of bottles sold in US
2012
25
33
35
2011
28
34
32
2010
30
35
31
2009
31
37
28
4
2008
31
36
29
4
2007
31
37
29
4
2006
31
37
28
3
2005
33
38
26
3
2004
34
38
25
3
2003
35
38
24
3
Value
Premium
High End Premium
Super Premium
Factor 1: Shift toward more
premium whisky Factor 2: General inflation
40
30
20
10
0
2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
Supplier price per bottle in US ($)
1.7%
1.6%
1.1%
1.9%
Value
Premium
High End Premium
Super Premium
Source: Distilled Spirits Council of the United States
57% 43%
(see next page for examples)
Back-up: Examples of brands and single malt vs. blended
Examples of brands
• VAT 69
• Passport
• Dewars White Label
• Johnnie Walker Red
• Johnnie Walker Black
• Chivas Regal
• Dewars 12
• Glenlivet 12
• Macallan 10
• Chivas 18
• Johnnie Walker Blue
Breakdown of single malt vs.
blended whisky
0
40
20
60
80
100
20
06
Blended
Single Malt
88 87
14 12
89
20
07
20
08
20
09
20
10
20
11
20
12
83
17 15
85 88 86 91 90 91
9 10 9 11 12 13
% of bottles sold in US
20
04
20
05
20
03
Value
Premium
High End Premium
Super Premium
Source: Distilled Spirits Council of the United States
Disclaimer
This document is provided for general information only and nothing contained in the material constitutes a recommendation for the purchase or sale of any security. Although the statements of fact in this report are obtained from sources that I consider reliable, I do not guarantee their accuracy and any such information may be incomplete or condensed. Views are subject to change on the basis of additional or new research, new facts or developments.