The three billion litres of whisky worth £10bn currently maturing in Scotland’s bonded warehouses is said to have an average annual appreciation in real terms of seven per cent. Now an online marketplace giving investors access to it has been set up by the team behind the original physical gold investment site BullionVault.
Buyers become owners of the whisky, until they want to sell it back to the distillers. For the industry it could mean much-needed cashflow, as investment struggles to keep up with demand growth for Scotch.
But success for WhiskyInvestDirect will depend on Rupert Patrick, steeped in the industry for 25 years, who gave up running a business at Diageo after meeting serial entrepreneur Paul Tustain on a golf course two years ago.
The business raised £1.5m in a crowdfunding exercise, using convertible preference shares to attract long-term investors, and launched in September hoping at first to interest some of Bullion Vault’s 50,000 customers.
For the affable Mr Patrick, 52, whose father was a Master of Wine and great-great-grandfather owned a distillery and built a brewery, it was the perfect new challenge.
“I was destined for booze,” he says. “I tried to escape by becoming a stockbroker, but I got sucked back in.”
After four years in the City , which was “long enough to know it was not what I wanted to do”, he did an MBA at Cranfield. “That was fantastic, it just gave me confidence I could do stuff and wasn’t the dumbest one in the class.”
He went for interviews with United Distillers and Seagrams, then saw a small ad for an export manager at Edinburgh-based Ian MacLeod, and landed the job in 1991.
“Those were the days when single malts were still viewed as a small part of the industry, real drinkers drunk blended, malts would never grow. I saw it differently.” Selling the location was the key, he realised. “People can say I know where that is, I have been there, I can drink the product.....a real anorak interest in single malts was taking off.”
At their export manager’s prompting, MacLeod began marketing in their own right some of the malts it sourced for blends. “We had relationships with distributors in Scandinavia, France, Belgium, Italy, Greece, we sold them niche products and it went very well. The crunch was to persuade the company to buy a single malt distillery, because unless you own a distillery you are always a broker.”
At a time when companies like MacLeod, which did much of its business with supermarkets, were coming under severe pricing pressures, the Glengoyne distillery was put up for sale by Edrington.
Mr Patrick recalls: “The blender and I went undercover to Glengoyne to look round – it was brilliant. He knew exactly what the stock prices should be, I knew about the sales. We put together a very simple and naive business plan and went to the chairman Peter Russell.” In April 2003 Ian MacLeod Distillers pulled off the surprise acquisition of Glengoyne Distillery with its single malt and Langs blended whisky brands to become a fully integrated distiller, blender and bottler.
In 2005 Mr Patrick joined Jim Beam, soon after it had swallowed Allied Domecq with its Teachers and Laphroaig brands. “I ran global duty-free to begin with and a year later I was international MD for emerging markets, so I went from managing a £1m business to a $200m business in a year and a half, but it was the same thing, it was brands.”
He goes on: “It was an absolutely brilliant job, a great American spirit and can-do culture, but in a company reorganisation in the job was moved to Sydney. The kids were still at school teenagers and I had to put family first. Luckily I got a job at Diageo very quickly.”
After five years at Jim Beam he spent three at Diageo as commercial director for Africa, covering 42 sub-Saharan markets, and continued to earn about the industry’s dynamics. “I have always been fascinated by supply and demand, stocks and how long the pipeline is. With Teachers and Laphroaig, we could have sold twice the volume if we had had the liquid.
“I was building up knowledge about Diageo and essentially seeing that they weren’t managing that terribly well. The organisation is so big that brands get disconnected from production. Coming from a small company where everybody is together, you make decisions quickly, you live and breathe the brands, I found the culture very difficult. I was beginning to think what to do next.”
Enter Paul Tustain, whose first creation was a stock exchange settlement system, and who believed he could sell whisky direct to investors using the same software and team successfully deployed in Bullion Vault, the pioneer in physical gold investment now with $2billion worth on its platform.
Mr Patrick believed the platform would also appeal to smaller distillers hungry for capital. “What I hadn’t guessed was that the big companies had been thinking for a while about the need for a modern trading exchange. Paul (Tustain) says we can help them finance their stock...they will forego some of the appreciation in value of the whisky as it will be off their balance sheet. It gives them money to use for capacity or brand building.”
Diageo, which has a Distil Ventures platform to partner with entrepreneurs, expressed interest. But the new business decided to use crowdfunding as a way of raising investor interest as well as capital. “We got 64 backers ranging from £500 to some big ticket investors," Mr Patrick says.
He enthuses: “The lovely thing about Scotch is it gets better as it gets older, and it does get more scarce.”
For investors it claims to offer diversification. A trading cost of 1.75per cent looks reasonable, though storage costs of a minimum £3 a month could make it pricey for dabblers.
“It is harder than gold, because people already know they want to buy gold,” Mr Patrick admits. “People looking at whisky are saying it is interesting but it has never been available before, I need to be comfortable with it as an asset class. But there is no rush, we are happy to build this over two, three, four years, our overheads are very light.”
But what the industry veteran is sure of is the future for whisky. “Scotch growth is coming from a wide variety of markets, it is not just about India and definitely not China, but Africa and Middle East and Asia – 10 or 11markets are all coming into their upswing.”
He is even going back to his roots by creating the ‘James Eadie’ malt, named after the brewery owned by his ancestor.
He says if WhiskyInvestDirect could broker even one per cent of the maturing whisky stocks it would be a “significant business – and our technology could handle that” and at 0.5 per cent it would start to have a beneficial effect on industry investment.
For Mr Patrick, it was certainly the right call. “I am getting a huge buzz out of doing something that is quite innovative in Scotch whisky and could be quite long-term for the industry, and that makes me feel great.”
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