Scott Wright: Why hopes have been raised for a great Scotch whisky comeback

A significant part of the whisky industry was already under pressure before coronavirus struck because of hefty import tariffs on single malt in the US, which figures suggest had dented exports by hundreds of millions of pounds in its biggest overseas market.

Now, producers may finally have cause to believe that better times lie ahead.

Under the Biden administration, the US tariffs have been temporarily suspended, and there are signs of economy recovery in key export markets, driven by the gradual easing of coronavirus restrictions.

Both Diageo and Pernod returned to growth territory in the first halves of their respective financial years, and have indicated in recent weeks that the momentum is continuing.

READ MORE: Scotch whisky giant hails recovery from pandemic

Diageo cheered its shareholders last week when it revealed it was now expecting to achieve organic operating profit growth of at least 14 per cent this year.

Driving the improved outlook at the spirits giant was its strong sales performance in North America, where it highlighted “resilient” customer demand, as well as the gradual reopening of the on-trade around Europe.

So encouraged was the company with its recovering fortunes, which it said were evident “across all regions”, that it had the confidence to resume a £4.5 billion programme to return capital to investors. The programme, a mix of share buybacks and special dividends, had been temporarily frozen as the pandemic took hold.

“I am very pleased with how our business is recovering in fiscal 21, our strong competitive performance across key markets and our robust capital generation,” was the verdict of chief executive Ivan Menezes.

The update from Diageo, which said it would continue to “pursue acquisitions” as part of the strategy, had echoes of the statement issued by great rival Pernod in April, two weeks earlier.

Pernod flagged its expectations of an increase in annual profits after a big rise in sales in its third-quarter, pencilling in a further acceleration of sales growth in quarter four. It pointed to strong growth in key markets such as the US, China and India, alongside “strong resilience” in Europe, in spite of Covid-related restrictions.

READ MORE: Eden Mill ramps up production as it clinches deal with drinks heavyweight

“This confirms the strength of our business, with strong dynamism of our domestic must-win markets and good resilience throughout,” declared chairman and chief executive Alexandre Ricard.

It would be wrong to suggest everything in the garden is rosy, though. The key travel retail market, known more colloquially as duty free, continues to be held back by restrictions on global air travel.

That is likely to remain the situation for some time to come amid continuing border controls to stop new Covid variants spreading from nation to nation. It is certainly the case that, from a UK perspective, the airline industry would like to see more nations added to the “green list”, and until that picture significantly changes duty free sales will inevitably be constrained.

That much was evident as Diageo observed that travel retail “remains severely impacted” by the situation, which came after Pernod warned the market was “subdued”.

But there are grounds to be positive.

Diageo showed the confidence it has in the future prospects of Scotch whisky yesterday as it reopened the historic “ghost” distillery of Brora in Sutherland.

Brora’s revival has been eagerly awaited by Scotch whisky enthusiasts ever since Diageo announced plans to reawaken the 202-year-old distillery in 2017. Its revival will be followed by the restoration of the equally famous Port Ellen distillery on Islay, which is expected to be ready in 2023.

The two projects represent a combined investment of £35 million by the company, which has been spending heavily to update visitor facilities at other distilleries in its portfolio in recent years. Much of that investment has been in the four single malt distilleries that are at the heart of the Johnnie Walker blend: Glenkinchie, Cardhu, Caol Ila and Clynelish.

Visitor centres were becoming increasingly important to driving sales and building the international profile of whisky brands, not to mention attracting tourists to Scotland, prior to the pandemic, and there is every reason to hope that trend will continue in future.

The potential was illustrated by a survey carried out by the Scotch Whisky Association (SWA) in September, which revealed that a record 2.16 million visits to distilleries took place in 2019. Two in every three visits were by international visitors, signifying the importance of global travel reopening to the fortunes of a sector which at that stage employed around 1,200 people at visitor centres in Scotland.

While 2020 was hugely disrupted because of coronavirus restrictions, visitor centres have been opening up again this year. The SWA estimates that around half have reopened in some form and it is hoped more will join them in the coming months.

Among those anticipating the recovery of whisky tourism is St Andrews-based Eden Mill. The company, which last week revealed that it had expanded the capacity of its Glasgow bottling facility, forecasts that it will attract more than 50,000 visitors a year to the new £10m distillery it is currently developing in the famous Fife golfing town. It is due to open in time for the 150th Open taking place in St Andrews in 2022.

Meanwhile, it is fair to say the whole industry will have something to cheer if efforts to bring a permanent end to the US import tariffs that have proved so damaging to single malt Scotch exports are successful.

Distillers breathed a massive sigh of relief when a temporary suspension was agreed in March, by which time it was estimated that the 10 per cent tariff – a by-product of an aircraft subsidy dispute between the US and European Union – had cost the industry at least £500m in lost exports.

That relief will surely turn to elation among distillers if the tariff is finally ended for good.