Have you single malt whisky lovers been wondering what has happened to the market recently? You may have noticed the emergence of new products from Glenlivet and other well-known distilleries. While in the past, whiskies bore a large number on the front, these new products are all ‘no age statement’ (NAS), with pontzy-sounding names like ‘Founders Reserve’ and using other flowery terms to indicate their pedigree rather than the number of years they have matured.
What is really going on here?
It all comes down to the business of making whisky, and in particular to a very important aspect of any business – capacity planning. Here are a few examples to explain.
My businesses are all technology-based. They deliver services to our customers using a stack of servers in a data centre using software developed by a stack of programmers in my office. If my customers need more capacity, we just buy or lease more server capacity, and/or more staff. That means we are in a position to ramp up our capacity in days or weeks. This is certainly one of the attractions of the technology business.
When it comes to manufacturing businesses – companies that make actual, physical, things – it gets more complicated. Whether you are making cars, computers, furniture, or toothpaste, it’s all the same. They have to source any raw ingredients, make sure they have enough equipment and staff to turn them into their finished product, and then distribute that product to retailers and eventually to paying customers. The products may take months to develop as well. So the capacity planning cycle can be a matter or months or perhaps years.
Why is this important? Because companies that make ‘things’ always have to estimate how much ‘things’ to make. They need to form a view that, for example, the next model of iPhone will sell, say, X million units over the first Y months after launch, and therefore they need to make enough to meet the customer demand. Make too many and they might sit on the shelf. Make too few and customers will not be able to buy them and may go elsewhere. Dell Computers took an entirely different approach, and only built a computer when they had an order. They still needed to have enough parts and capacity, but they didn’t end up with computers sitting in boxes in stores and warehouses as they became more and more obsolete. The downside is that you couldn’t go into a store and buy one. Bottom line is that capacity planning is a challenge for all business, in different ways.
Now, think about whisky. The Glenlivet 12 you enjoyed yesterday has been sitting in a barrel for – you guessed it – 12 years, and therefore the manufacturing process started in or around 2004. Some time before this, key people at the distillery would have made some decisions about how much to make. With some artistic licence and way too much stereotyping, I can imagine the scene around the board room table:
Angus MacDougal (CFO): What are your projections for global demand in 2016?
Campbell Ferguson (Analyst): I’d say we should make 50,000 barrels of ’12’.
Duncan Boyd (Production Manager): Acchh, you must be mad. That means nearly 10% annual growth!
Ferguson: I stand by my predictions – single malt will be huge in the next decade, and new export markets are opening up all the time.
MacDougal: Let’s not be overly optimistic; flooding the market isn’t good for our brand either.
Boyd: (just grins)
Well, guess what? Ferguson was right. Single malt sales are going through the roof, and supplies of Glenlivet 12 just cannot keep up. Worse of all, it takes another 12 years to make more of the stuff. They can’t just call the factory in China to conjure up some more!
So what to do? Well, they would likely have been monitoring demand and knew this day was coming, but not early enough to completely fix the problem. Hence the development of NAS whiskies like Founders Reserve, which is being positioned as the new staple with a price point to replace ’12’. Sadly, it falls very short of the mark. Master Distiller’s Edition is slightly dearer, and is an excellent drop and remarkably smooth, but very limited in supply.
Macallan have been doing the NAS thing for a while now, with their new staple Select Oak, using names and colours rather than years to distinguish their products.
This looks to be the new reality for single malt drinkers. Snobs who won’t indulges in anything ‘under age’ will either need to fork out more money for their old favourites, or learn to look beyond the big number on the front of the bottle as a measure of quality.
The whisky world itself is adapting in other ways to the capacity planning challenge that has for hundreds of years been an essential part of their industry. New techniques are being developed – multiple casks, additional distillations – that are able to produce smoother and better whiskies in a fraction of the time. Forget the stereotypes of the rolling hills of Scotland and distilleries with traditions going back generations. Excellent whisky is being produced in other parts of the world, like Japan, India, and Tasmania. Perhaps the last place in the world that you might expect could produce world class whisky – suburban Essendon in Melbourne, Australia – has created a white whisky that is aged for just 3 years. The appropriately named New World Projects Project X is like nothing you’ve seen or tasted before and well worth trying.
One thing is for sure – these are not the whiskies your grandfather drank!