Scotch whisky facing headwinds as hopes rise over Indian market

But senior industry figures are hopeful the year ahead could bring a long-awaited breakthrough in the Indian market.

The surge in energy costs that has followed Russia’s assault on Ukraine in early 2022 has been acutely felt by Scottish distillers, which have also come under pressure from rising raw material and labour costs as inflation has surged across the board. At the same time, consumers’ discretionary income has been squeezed as annual UK consumer prices index inflation has soared, limiting their ability to spend cash on luxury goods such as single malt.

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Malcolm Leask, managing director of International Beverage Holdings, owner of Airdrie-based Inver House Distillers, told The Herald that the industry faces “a number of significant and inter-linked challenges” as the new year beckons.

“Rising input costs across the supply chain, from components and raw materials to energy and labour, are leading to global price rises at a time when people’s disposable incomes are increasingly stretched,” said Mr Leask, whose firm makes the Old Pulteney, Balblair, and Speyburn single malts.

“Global logistics are a continuing challenge, and while some aspects are starting to improve, we have fresh problems arising such as the current rail strikes which are starting to have an impact. We also have the ongoing challenge of our post-Brexit world, and the issues this presents us with in terms of access to staff.”

Scotch whisky veteran Billy Walker, majority owner of Speyside-based GlenAllachie Distillery, acknowledged the cost challenges now facing the industry. But he said some of the supply-chain issues that blighted distillers as the world economy moved out of lockdown, including shipping delays and glass and cardboard shortages, have started to ease.

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Mr Walker, whose long career has included spells at Ballantine’s, Burn Stewart Distillers and BenRiach Distillery Company, which he established in 2004 and sold to Brown-Forman for £285 million in 2016, said it has been difficult for the industry to wean itself the “just in time” model of purchasing materials such as dry goods in the wake of global lockdowns.

“That created a lot of challenges because it was difficult to get dry goods; there were delays,” he said. “Essentially, over a short period, people went from just in time to buying well out. The big muscular companies can do that, and they have influence. They can impact their muscles on the suppliers.

“But I would say we see significant light at the end of that tunnel. Things have been recalibrated.”

But while progress has been made on the supply-chain front, Mr Walker said the cost of goods “has gone up spectacularly”, in some cases by up to 20 per cent.

He said: “That is another challenge we have to manage going forward: how do we present that? How do we manage it ourselves and with our customers and consumers? It is not a welcome challenge, but it is a better challenge than not being able to do business.”

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Mr Leask said the cost-of-living crisis is having a “two-fold” impact on his company. “As a business International Beverage is very invested in its people, and we are incurring higher costs in terms of salaries and benefits as an employer,” he said. “Then there is the impact on consumer spending, which we are seeing most significantly in our Western European markets at present, where people are understandably being more cautious with how they spend any spare income.”

There are hopes in the industry, however, of a breakthrough in India as the UK pursues a trade deal with New Delhi. The Indian market has long been a target of Scotch whisky distillers because of the possibility offered by its vast audience of spirits drinkers. But hopes have been hampered to date because of the high levels of import tariff at state and regional level in the country.

Mr Leask said: “In term of opportunities, the Indian market and the potential new trade agreement with India is something I am watching closely and with an amount of hope. This is an economy which has a large and growing middle class population who have a taste for whisky and an aspiration to drink more premium Scotch. The USA also continues to present a good opportunity for premium products, as does China now that we are starting to see Covid restrictions ease.”

William Wemyss of Fife-based Wemyss Family Spirits echoed those hopes about India, declaring: “The big hope for the industry is that 2023 will see some sort of cut in import tariffs in India and that will be a major boost to the industry.”

He added: “From what I hear it is more likely than it has been. The import tariffs are 150% so they are very high.”

Mr Walker said GlenAllachie has not seen any impact on sales in China following the recent lockdown protests and concerns about the future of the economy. He said: “We are aware of it [but] I would have to say that our performance in China has been well in excess of expectation. In fact, we could probably double or triple what we are selling into China, but we are not sure we want to go down that route. Business continues to be okay in the big cities in China.”

He added that the “whole of Asia is interesting” for Scotch whisky, and cited South Korea, Taiwan, Japan, and Singapore as strong markets for GlenAllachie.

Elsewhere, he said the US and Canada were “growing terrifically well for us” and that GlenAllachie was beginning to develop sales in Argentina and Brazil.