Delayed effect of slump puts Scotch on the rocks

Published on Saturday 18 April 2009 14:08

THE Scotch whisky industry must face up to the reality that it will not escape the effects of the global economic downturn and will have to exploit new opportunities, a leading industry analyst will warn this week.

Whisky has been one of the UK's recent success stories. In 2007, exports of Scotch were up 14% to a record 2.8bn, earning the UK 90 per second and accounting for 25% of Britain's food and drink exports.

However, provisional export figures from Customs & Excise to the year end of September 2008 show a decline of more than 3%.

But John Wakely, a former managing director of investment bank Lehman Brothers, will tell the World Whiskies Conference tomorrow that despite the UK economy being in recession for at least four months, the slowdown may just be hitting the drinks industry now.

He said: "One cannot expect the Scotch whisky industry to remain unscathed. The spirits industry always experiences a late cycle in any recession as there is a general trend that if you get laid off you go down the pub.

"But what is beginning to emerge is that brands that are associated with either joie de vivre, luxury categories or have a large presence in bars and clubs will be affected by the recession."

Wakely argues that the downturn will create an opportunity for smaller brands to exploit the growing demand for "affordable luxuries" and that some firms will come out of the downturn quite well.

He said: "On a relative basis the industry may do well. The answer will be how the consumers react. Do they start downgrading? If so, a number of whiskies are likely to do very well as a result."

The news comes during a period of unprecedented investment into the industry, fuelled by the growth of emerging economies in Brazil, China, India and Russia.

The Scotch Whisky Association estimates that more than 500m in new capital investment has been made in distilling, bottling and warehousing over the past 18 months.

Leonard Russell, managing director of Glengoyne distillery, said: "Whisky remains an affordable luxury. Rather than being recession-proof, I would say Scotch whisky is recession-resistant as consumers still want to enjoy a little luxury in their lives."

Meanwhile Tim How, the new chairman of the Wine & Spirit Trade Association, has warned that further tax increases on alcohol in this week's Budget will force more businesses to cut back on jobs and investment.

How said: "The last thing the industry and consumers need now is another tax increase, which can only make matters worse."