The Price is Right?

April Outturn 2023 Article

Everywhere you turn right now, the rising cost of living is visible and having an impact. Inflation, interest rates, rent, staffing costs, commodities, consumables…the price of everything is going up. Not surprisingly, the rising costs of doing business have hit the whisky industry, and we’re seeing the RRP’s of most brands, bottlings, and expressions going up accordingly as everyone in the supply chain passes on the costs.

Most whisky drinkers would be happily ignorant of the long and complex list of players involved in the industry’s supply chain, and how the conditions and landscape under which they all work have become increasingly challenging. It’s easy to think that the distilleries just need yeast, barley, water, oak casks, and the glass for their bottles to make their whisky and put it on the shelves of our liquor stores, but that’s not even the tip of the iceberg.

I spoke recently with one of the senior management personnel at a well-known distillery in Scotland, and he shared some of the issues and dramas that the industry was dealing with. Three standout examples were things that would unlikely occur to most punters who rock up to their local bottleshop looking for a bargain. The first of these was the distillery’s power bill. Distilleries are enormous consumers of gas, using it to heat their water for mashing, and obviously to heat their stills. (And particularly so for the distilleries that still use direct firing). Courtesy of the Russian invasion of Ukraine and the flow-on impact on gas supply and prices across Europe, this particular distillery’s rolling contract with their energy supplier went up an unbelievable 892%! To put a number to that, their gas bill is now an additional £380,000 per month above what they were previously paying. No distillery, no matter what size, can simply absorb such an extra expense – not surprisingly, the wholesale price to the brand’s distributors around the world went up significantly overnight.

The second example was a dramatic shortage of cardboard and packaging materials, explained as being due to Amazon effectively monopolising Europe’s cardboard supply to service their enormous boxing requirements for shipping and delivery. The distilleries are thus facing major delays, shortages, and significant price increases and premiums just to put their whisky in the standard cardboard boxes we’re accustomed to. 

And the third example was the acquisition cost of quality, ex-sherry casks: The price of sherry casks has gone up 68% in the last year alone. Imagine what that means for the operational expenses incurred by some of our favourite distilleries! (In a similar vein, my colleague also shared that the cost of them buying in their malted barley had also increased by 35% in the last six months).

Other “behind the scenes” costs are also impacting whisky’s final RRP. For example, transportation and shipping costs remain at an all-time high, impacting the supply costs of materials (e.g. the shipping of grain, casks, glass), logistics, and – for us in Australia – the cost of shipping cases of whisky to the other side of the planet. Closer to home, Australia’s excise tax on alcohol – which is indexed and increases every six months – has had two major “spike” increases well above the CPI. The rate increase in August last year was the biggest excise increase in 50 years, and this was increased by a further 3.7% just two months ago. 

And so, dear reader, all these many things are contributing to a snowballing effect that is driving the retail prices of so many whiskies to new and unnervingly high levels. Even whiskies considered common or garden-variety (unfairly, I might add) such as Glenfiddich 12yo and Glenlivet 12yo are now retailing at around $85. Lagavulin 16yo – a whisky once considered de rigueur on anyone’s home shelf – now sits at $200+! 

The one reassuring or pleasing thing in all of this is that my colleague advised, “We’d rather pass on the costs and have a higher price on the shelf at the shop, than try and cut corners in our production and end up compromising the quality of our whisky.” And when it comes to good whisky, I think that’s something we’ll take heart in.

Cheers,

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