The Deep Dive: Wake-up call for whisky?
Sales slumps. Teetotal Gen Z-ers. And a cataclysmic attempt at categorisation alongside chicken nuggets by food activists. In this exclusive investigation for Barley, Nick Morgan reveals the range of converging factors conspiring against a new golden age of whisky
If you see the world of whisky only through the lens of social media, where Scotch producers and retailers ply their wares, and hustle eagerly for positive mentions by compliant commentators, then you might well think it’s a place of shiny, happy, and very prosperous people. It’s all smirks, winks and smiles. An endless pipeline of new product launches, each one apparently somehow better than the last. Daily stories of new investment, new distilleries, new brands. You might think we’ve never had it so good. Long-faces and furrowed brows are reserved for the business press and analysts where pessimism rules the day. And not without reason.
In case you hadn’t noticed, in October Diageo made an announcement that rocked the markets. The company that never shocks or surprises the analyst and investor community, screwed up so gravely that its share price fell by 12%, dragging down competitor stocks with it. To say it was a bad day is something of an understatement. The mishandled announcement about the overstocking of its Scotch brands in Latin America, a region where the company still exercises a remarkable dominance over other whisky makers, was followed by ham-fisted attempts from the newly appointed CEO to reassure jittery market-makers that all was really ok. Since then, heads have started to roll, in a very un-Diageo way.
“Tumble, plunge, decline and slump, words not associated with Scotch whisky for many years, shape the current trade press narrative”
In the predictable hangover that followed the pandemic booze-fest (AKA ‘the Covid supercycle’), bad news followed from other large producers, with the head of Pernod Ricard delivering the euphemism of the year, market ‘normalisation’, to explain their foundering sales, particularly in the USA. Tumble, plunge, decline and slump, words not associated with Scotch whisky for many years, shape the current trade press narrative. In the dark corners of industry drinks-receptions some insiders whisper of much worse news to come, others describe the hair-raising and almost ruinous incentives companies are offering to customers around the world just to keep orders trickling through.
‘I want you to use all your powers, all your skills, I don’t want his mother to see him this way’, said Marlon Brando’s Don Corleone in The Godfather to mortician Bonasera as he delivered the bullet-riddled corpse of his oldest child, Sonny (played by James Caan) to his funeral parlour. No doubt a similar instruction has gone to the magicians and numerologists at all large drinks companies currently working towards presenting their end of year results. If Mother is too shocked it could trigger another stumble in the markets, which would, in turn, leave some businesses open to pre-emptive strikes from raiders. Even the large producers are looking over their shoulders — the world’s most highly capitalised drinks company is China’s Kweichow Moutai, a predatory shadow that has so far been lurking in the distance. The lunch-time trade-natter is already full of talk of shifting tectonic plates, of unimagined sales, mergers and acquisitions. Something, everyone says, is going on.
Boom-time for bargain hunters: Amazon were recently selling Johnnie Walker Black Label at £20 bottle
Meanwhile, it’s a world of clear-out sales at our favourite retailers. My inbox is full of offers that inadvertently reveal bloated inventories and incautious buying on the crest of the Wuhan wave. For bargain hunters this is the time to stock up for Christmas, or possibly for many Christmases to come (Amazon were recently flogging off Johnnie Walker Black Label at twenty quid a bottle). The Financial Times reports that Diageo’s sales of single malts have fallen by as much as 27% in the six months to December 2023, as the cost of living crisis collided head-on with price rises. Visit Amazon today and you might think you’ve travelled back in time in the Tardis, with many single malt whiskies discounted by more than 20 per cent. Sales are down everywhere, for everyone. Everybody hurts. The secondary market is in a tailspin too, facing a period of ‘substantial difficulty’ according to the latest report from Noble & Co. As for the cask ‘investment’ market, an edifice built on foundations of shifting sand, well, the cracks have already begun to show.
“History is unlikely to repeat itself exactly. Although if the worst does come to the worst, with whisky production spiralling out of control all over the world, we won’t be left with a whisky loch, but rather a whisky ocean”
It’s no surprise that some people think it’s the end of the world as we know it, conjuring up the spectre of the Whisky Loch and 1980s distillery closures. These comparisons are inevitable but we live in different times. The events of the early 1980s were a hangover for the Distillers Company from the withdrawal of 1.25 million cases of Johnnie Walker Red Label from the UK marketing following a dispute with the European Commission in 1978. The decision left the company sitting on more than eight years’ worth of inventory that had been set aside to provide for the brand growing in the home market alone at 15 per cent a year. History is unlikely to repeat itself exactly. Although if the worst does come to the worst, with whisky production spiralling out of control all over the world, we won’t be left with a whisky loch, but rather a whisky ocean.
It should be noted that many of the doom-mongers are not so long in the industry and have only experienced the remarkable vibrancy of the past ten years or so, rather than the tougher times of the nineties and the great recession of 2007. Their expectations have been shaped by boom, never dented, until now, by bust. Things aren’t great, but Scotch (unlike categories such as Bourbon) has shown a remarkable resilience over the years, and it is unlikely to fall flat on its face after a small stumble.
It’s not just Scotch, of course, all whiskies are having a tough time, so is gin and vodka, and so is tequila, once heralded by Diageo as being its saviour following the Scotch slump. Sales are so slow that farmers in Mexico, tempted by the opportunity to convert crops and capitalise on soaring sales of leading brands, are struggling to deal with a glut of now unwanted slow maturing agave. Cognac, you might think, is yesterday’s luxury tipple. In America, says The Wall Street Journal, the ‘taste for cognac has completely dried up.’ Craft breweries are closing all around the world as sales fall. Leading US brand Bud Light still shows few signs of recovery having shot itself spectacularly in the foot last year.
In the United States, Australia and France winemakers are witnessing falling demand and falling prices; and over-optimism has led to huge over production; the grim reaper of ‘rationalisation’ lurks just around the corner. ‘Bordeaux Vineyard Lose Half Their Value’ ran a recent headline. Hospitality providers, subject to all the same cost-pressures as producers, and still facing the challenge of missing customers who continued working from home, are struggling to balance their books. Globally, and category wide, it might seem, booze is having an annus horribilis.
“A 2023 survey found that 52% of young adults in the United States believed that consuming one or two drinks a day had a negative impact on health”
But that’s not the half of it. Sales slumps, duty rises, increased costs, low consumer confidence — that’s just the cost of doing business, getting on with the day job. The real threat to the future prosperity of Scotch, and other alcohol beverage categories, comes from a converging range of external factors, which are heading down the tracks like a steam train.
Talk to any drinks professional and they’ll tell you that recruiting new consumers into their category is the lifeblood of their brands. While you spend time and money keeping loyal consumers happy, the critical investment is all on finding first-time drinkers of legal drinking age, hence so many ‘dumbing down’ innovations from Scotch producers, hence the juvenility of so much of their packaging, hence so much of the bullshit we have to endure in new product launch press releases about breaking rules, disrupting the category, and pushing boundaries. It’s all aimed at capturing the imagination, and spending power, of the Millennial drinker. But the imperative to recruit faces one huge barrier – many young adults are turning their back on alcohol.
Attitudes towards alcohol consumption amongst Gen Z and Millennials in western markets are changing dramatically because of several factors. The increasingly pervasive concern that alcohol harms health (of which more later) is probably the most decisive. A 2023 survey found that 52% of young adults in the United States believed that consuming one or two drinks a day had a negative impact on health. Another report found that the number of 18–34 year olds consuming alcohol had fallen by 10% over a twenty-year period. Lifestyles are changing, there is an increasing focus on exercise and healthy living, bars and pubs have been usurped by social media platforms as places to socialise. Young adults fear being seen to be out of control in the world of TikTok and Snapchat – these days Saturday night isn’t alright for fighting.
Changing lifestyles: A recent report found that the number of 18–34 year olds consuming alcohol had fallen by 10% over a twenty-year period
Alcohol, particularly spirits and particularly whisky, is expensive, priced for the deep pockets of Generation X and Boomers. Attractive and fashionable alternatives abound from low or no alcohol products, to CBD and THC infused drinks and, increasingly, marijuana as legislators around the world liberalise laws and regulations around its use. ‘Cannabis is in and alcohol is out’ says CBS News. A recent report stated that more adults in the USA use marijuana daily than alcohol. You don’t have to take a toke on a spliff these days either – this is the weed-gummies generation. If you’re at a heavy-metal festival this summer why not spend around two pounds on a can of Liquid Death, a canned spring water from an American company with a market valuation of $1.4 billion? Spirits categories like Scotch whisky can look to the young adults of India or China for salvation, as their traditional recruitment territories falter, but increasing governmental concerns around health and alcohol are global.
In 2023 the World Health Organisation published a statement in The Lancet that ‘when it comes to alcohol consumption, there is no safe amount that does not affect health.’ A combination of ‘commercial determinants, such as tobacco, alcohol, processed food, fossil fuels’, accounts for around 25% of all European deaths, said WHO this month. Alcohol has been classified for many years as a Group 1 carcinogen by the International Agency for Research on Cancer, alongside asbestos, radiation and tobacco. Increasingly governments are introducing guidelines and regulations aimed at limiting alcohol consumption. From 2026 all labels on alcoholic beverages in Ireland will carry the messages, in bold bright red capital letters ‘There is a direct link between alcohol and fatal cancers’ and ‘Drinking alcohol causes liver disease.’ Governments from Thailand to Canada are considering similar moves. Canadian government guidelines are that no amount of alcohol is safe, and that consuming more than two drinks a week puts you at risk. There are fears that American dietary guidelines, to be revised next year, will say the same.
“From 2026 all labels on alcoholic beverages in Ireland will carry the messages, in bold bright red capital letters ‘There is a direct link between alcohol and fatal cancers’ and ‘Drinking alcohol causes liver disease.’ ”
Clearly governments are conflicted as alcohol duties contribute a significant amount to the public purse. In the UK the Office for Budget Responsibility estimate that alcohol duties will contribute over £12 billion in 2024, but The Guardian reported recently that the Institute of Alcohol Studies have just calculated that the overall impact of alcohol on the public purse is over £27 billion. Distillers, brewers, winemakers, retailers and the hospitality industry are important sources of investment and employment: the production and sale of alcohol is reportedly worth £46 billion to the economy. Brewers and distillers are a vital market for British farmers.
There are historical and cultural factors to be considered here too – few could imagine a Scotland with no distilleries, or a France with no vineyards. And yet a powerful health lobby, and an equally powerful and well-funded temperance lobby are extending their influence over legislators. Nowhere was this more evident than in the Scottish Government’s recent proposals to restrict alcohol marketing and the flawed consultation process they put in place — the results of which, one assumes have been, as the saying now goes in Caledonia, consigned to the campervan.
As if all that wasn’t enough, Scotch whisky, and other distilled spirits, have come under attack from an unlikely source: food and nutritional activists seeking to curtail the production and consumption of ultra-processed food (UPF). Very simply defined an ultra-processed food is one made on an industrial scale from ingredients and additives that you wouldn’t normally find in your kitchen. UPFs are made to taste delicious, and, say critics, to be addictive. Their consumption has been linked to a range of health conditions from cancer to diabetes; others dispute this causal relationship. In the UK UPFs are said to account for up to 57% of the average diet, a figure that can increase to 80% in less well-off households. The global data tells the same story.
“Scotch, along with other distilled spirits, has been shelved next to the nuggets and classified as a Ultra Processed Food. That could hardly be called luxury positioning.”
The Nova food classification system, devised in Brazil in 2009, contains four groupings: unprocessed or minimally processed foods (vegetables, meat), processed culinary ingredients (oils, sugar), processed foods (cheese, breads) and ultra-processed foods (fizzy drinks, chicken nuggets). UPFs are manufactured using processes that include ‘the fractioning of whole foods into substances, chemical modifications of these substances, assembly of unmodified and modified food substances, frequent use of cosmetic additives and sophisticated packaging.’ Scotch, along with other distilled spirits, has been shelved next to the nuggets and classified as a UPF. That could hardly be called luxury positioning.
One of the public faces of the anti-UPF movement is the hugely influential Fortnum & Mason Food Award winner Dr Chris van Tulleken, taken to the hearts of families throughout the UK for his children’s TV programmes (Operation Ouch!) made over a decade ago with his twin brother Zander. The two brothers also have a series of highly rated food and health related BBC podcasts (A Thorough Examination and Ultra Processed People). His prize-winning book (a Sunday Times No. 1 bestseller), Ultra-Processed People is an excoriating expose of the UPF food industry’s production methods and marketing strategies, and the extensive health damage he says they cause. Disturbing and essential reading. A piece in The Guardian in 2023 (‘Ultra-processed foods: the 19 things everyone needs to know’) explained that ‘traditionally made’ beers and wines were classified as processed foods, but that distilled spirits were ultra-processed. Van Tulleken, who commands the eyes and ears of generations of consumers, was quoted saying ‘everyone should drink as little alcohol as they possibly can … and UPF alcohol is the most dangerous form of UPF.’
One might wonder how ‘three simple ingredients – water, yeast, and cereals – transformed into a spirit full of character influenced by the Scottish environment and crafted from skills honed over 500 years’ (words from the SWA website) can be considered to be a UPF? Each of the long-in-the-tooth distillers I have spoken to scratch their heads at this suggestion. Some sources suggest, confusingly, that the UPF status is because distilled spirits contain additives, although as we know this is not true for the majority of whiskies, and additives in gin are usually natural botanicals, which might be found in any well-stocked larder. The complex practice of whisky (or cognac) maturation in oak casks involves numerous chemical changes in the make-up of the spirit, but this is an entirely natural process.
It’s not clear where this designation originated, but it has been adopted wholesale by anti-alcohol and health related groups and charities, NGOs, and the media. This unwanted pariah status drives a horse and cart through generations of marketing that has emphasised the purity and naturalness of Scotch and its production processes. It could make a mockery of purpose-led Scotch brands parading their B-Corp status or asserting some sort of sustainable superiority through their production practices and processes, and puts the boot into all that terroir nonsense. Get with the chicken nuggets, its ultra-processed food baby!
“The generational shift away from alcohol consumption in favour of an ever-increasing range of alternatives is going to be much harder to fix. The trend is not for responsible drinking, it’s for no drinking”
The last thing that Scotch Whisky (and other distilled spirits) needs is another cudgel to be beaten with by the hostile forces ranged against it, particularly one that will find a ready audience among Gen Z and Millennials who are just as likely to want to just stop UPFs as they do fossil fuel production. After all, as Dr Van Tulleken argues, behind every UPF product lurks a large, faceless and malevolent corporation. Big Coal, Big Pharma and Big Oil, meet Big Food and Big Alcohol. The orange paint could be headed your way.
Quite what Scotch producers think about this is hard to tell when so many that I have spoken to seem unaware of whisky’s new classification, a level of complacency that they might come to regret. The SWA are certainly now aware, and a spokesman told me that ‘Scotch Whisky has been caught up in a growing misconception of what defines an ‘ultra-processed’ product, most often among those bodies who are less familiar with the traditional production methods for Scotch and its ingredients. We are investigating this potentially misleading categorisation of Scotch Whisky and other spirits with the relevant authorities.’ In England Dave Smith, CEO of grain-focussed whisky maker Fielden, who shun ‘industrial-farming’s quick-wins (and chemicals) for a more thoughtful way of farming’, took an emphatic position: ‘With the core ingredients of whisky being grain, yeast and water, Fielden would not consider whisky to fall under any definition of ultra-processed foods. Further to that, Fielden pride themselves on not using any agri-chemicals in their unique heritage grain farming. The product ingredients are all natural and could be found in any domestic kitchen.’
Commercial vicissitudes come and go like the tide. Deep-rooted cultural, social and attitudinal change tend to be more long lasting. Today’s gloomy prognosis for Scotch sales could be turned on its head by tomorrow’s liberalisation of trade regulations with India. But the generational shift away from alcohol consumption in favour of an ever-increasing range of alternatives is going to be much harder to fix. The trend is not for responsible drinking, it’s for no drinking. The weight of medical evidence will continue to drag down consumption and empower the prohibitionists. Being arbitrarily branded as ultra-processed food could be among the last nails in whisky’s coffin unless it is properly and speedily challenged by all producers and their trade associations.
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Dr Nick Morgan is a writer, commentator and former Global Malts Marketing Director of Diageo. His book Everything You Need to Know about Whisky (but are too afraid to ask) was published by Ebury in 2021. He is a regular contributor to Barley.
