Reflections on Global Whisky

05 Mar 2015

Last week I visited the US to speak at the Whiskies and Spirits Conference, under the auspices of Whisky Magazine and its publisher Damian Riley-Smith, which took place in New York on 25 February. Quite apart from the spectacular sight of the frozen Hudson River, there was much to observe and reflect upon.
You can read my own speech here. But the main thing that struck me from the discussions was the impact and influence of new whiskey producers in the US.  In Scotland, six new distilleries opened last year, and we at the SWA are aware of about thirty plans to build new distilleries in the coming years. That is a reflection of the success of the Scotch Whisky industry and of its continuing great prospects looking forward.  But in the US this process began sooner and has gone much further, with the new producers numbering in the hundreds.
Many of those present, who included some of those new producers, argued pretty vigorously that this expansion of production was due to the relatively relaxed regulation of US whiskey as opposed to Scotch Whisky. Indeed, the rules around the production of Scotch Whisky are famously strict, and furthermore no whisky other than Scotch Whisky can be produced in Scotland at all. In the US, by contrast, the definitions of the different types of whisky permit a little more experimentation in production, and also differ in some fundamental ways from ours - for example, spirit must be matured for three years before it can be called Scotch Whisky, while in the US a minimum maturation period of two years is only specified for straight whiskies, with other whiskies permitted to undergo even shorter periods of maturation, and in the case of corn whisky, no maturation at all
It is certainly possible that this difference in regulation may have made it easier for new entrants to get into the industry in the US. But it is not necessarily the only reason. The US domestic market for Bourbon, Tennessee, and other US whiskeys, at nearly £2bn, is over twice as big as the UK's domestic market for Scotch Whisky. That provides a critical mass that helps new entrants to establish themselves.  Moreover, the tax burden is significantly lower.  In the UK, nearly 80% of the price of a bottle of Scotch Whisky is taxation, while in the US it is 54%.  The SWA argues that the heavy excise duty on Scotch Whisky is part of the reason why the domestic market has shrunk consistently over the last twenty years.
But behind this is also a philosophical difference.  In many ways the whole history of the Scotch Whisky industry is one of codification and definition of our product - from the first Excise Act in 1823, through the famous Scotch Whisky legal cases in the early 1900s, which made it clear that whisky made from grain as well as malt could legitimately be called Scotch Whisky, through to the definition of the Scotch Whisky Geographical Indication in EU legislation and our own Scotch Whisky Regulations in 2009. 
What I said to those who questioned me at the conference was that it is this very rigour in definition that has helped build the market for Scotch Whisky. It has contributed to an unrivalled reputation for quality and has ensured that consumers know exactly what they are getting when they buy a bottle of Scotch. It has the benefit of making it easier for us to chase down fake whisky world wide. And it has not stopped Scotch Whisky producers, large and small, from developing a huge range of different styles of Scotch Whisky, the widest of any such product, catering to widely varying consumer preferences. That has driven recent years' rapid growth and helps explain why Scotch is still much the single biggest whisky globally.
None of this is a problem. There is room in the global market for whisky for different products to evolve in slightly different ways. There are many great whisky industries and this is not an "either / or" question. We welcome the buzz around global whisky as a category and we have certainly seen the interest and enthusiasm this is generating.  We are confident that Scotch Whisky will ride this boom, but equally that there is room for others to do so too.

David Frost, SWA Chief Executive