Inside story: Scotch Whisky is reinventing itself

Published on Friday 28 August 2009 17:46

In a couple of weeks' time, a tubby gnome-like little fella will get off the plane at Edinburgh Airport on yet another leg of his marathon journey from Down Under.

He'll go through his usual ritual of smelling the Scottish air before steeling himself for the final leg of his long journey, by car to the Fife coast. Tasmanian Bill Lark couldn't look more like an Aussie if he tried: bearded, laid-back and with the perpetually sunny outlook that seems to be his national birthright, the 55-year-old from Hobart looks as if he's wandered out of the Outback. But he says he's not lost. On the contrary, he's coming come.

His eventual destination is Kingsbarns, the twee little conservation village that's become better known as the home of one of the best links golf course in Britain. Just down the road from St Andrews, its fairways draw Americans like moths to a flame. But he's not here for the golf: here's here to tell us how to make whisky and, more importantly, how to make money from making whisky. He is not, he laughs, bringing coals to Newcastle; more like delivering haggis to Holyrood Palace.

Lark is the guru of the 'small is beautiful' movement which is sweeping the whisky world right now, and is a hearty advocate of the boutique distilleries that are revolutionising the industry in the same way that micro-breweries transformed beer-making as few years back. The return to home-spun artisan values is partly a reaction from true aficianados to the large conglomerates which dominate much of the drinks sector. Outfits like micro-distillery Sipsmith, in London, have changed everything with its upmarket gin and vodka, while America is seeing an explosion of boutique bourbon distilleries, but demand for whisky has also gone through the roof. Over 90 per cent of whisky produced in Scotland is exported and last year, for the fourth consecutive year, global consumption rose. Sales increased 9 per cent, resulting in the rest of the world paying Scotland 3.1 billion for its whisky.

"There's nothing I can teach Scotland about making whisky, but what I can do is to share my passion for making whisky on the sort of small-scale that hasn't been a feature of commercial whisky distilling for centuries," says Lark. "We've had to develop innovative ways of doing things and a business model based on tourism and opening a visitor centre so that you sell direct to the public. But it works: I've been involved in helping set-up five distilleries on Tasmania, all of which are flourishing and making great whisky. Kingsbarns will happen and there will be plenty of others too."

Lark has teamed up with Scot Doug Clement and fellow Tasmanian Greg Ramsay to bring the water of life to this little corner of East Fife. They plan to raise 2m to take over a steading on the Cammo Estate, and have been staggered at how much financial support has been forthcoming, "We were fully subscribed for the first round of funding and had to turn people away," says Ramsay. Building a distillery in this part of Fife is, says Lark, a no-brainer, with the tourists who visit the proposed visitor centre and cafe providing a valuable source of income. Lark believes it is time whisky-making got back to its artisan origins, back to a time where farmers would distill their spare barley in the byre. He wants the practice to reconnect with the land, to take the process out of the hands of the conglomerates. He's infatuated with the romance of the whisky, infused with the sort of can-do attitude that is changing the face of whisky.

It would be easy to dismiss Lark and his two thirtysomething friends as harmless eccentrics, but that would be wide of the mark. Ramsay recently raised 2.5m to build a golf course in Tasmania which is now in the world's top 100 courses, while on the whisky side, at last year's World Whiskies Awards, Lark's cask strength LD 100 whisky won the Best Other Single Malt Whisky Award after a blind tasting. Just to ram home the point, I'm pointed towards whisky guru Jim Murray's blind-tasting rating of 95 per cent for the Sullivan Cove six-year-old bourbon developed by Lark, which places it on a par with 18-year-old Highland Park and 20-year-old Talisker.

As one of the country's foremost experts, Richard Joynson of Loch Fyne Whiskies, says, "Everyone in the whisky world is predicting that there'll be a shortage of malt whisky for years to come, from the most long-in-the-tooth cynical whisky-maker to the starry-eyed optimists, and that's what's driving demand."

With strict laws regarding its production – only whisky which has been casked and aged for three years in Scotland can be called Scotch – a good percentage of the money flowing into setting up distilleries is coming from outwith Scotland. There are lots of investors from England, of course, but the list of people putting cash in the industry includes Dutch, Russian, South African and Swedish investors. Distilleries are popping up all over the world in places as unlikely as Wales, England, France. Sweden, Spain, India, Japan and Mexico, yet the kudos and provenance that comes with production in Scotland provides a premium price that has kept the cash flowing into Scottish projects. Small producers have fared particularly well, with BenRiach reporting a 40 per cent upturn in sales last year.

Yet while there are plenty of entrepreneurs with their eye on a financial killing, the heavy capital costs involved in starting up a business that won't bring any revenue in for at least five years means only the really committed need apply. As Clement, one of Lark's collaborators at Kingsbarns, says, "You do this for the love of it all, because you have a romantic attachment to the idea of bringing whisky to a part of the country you love, because you have a dream – if all you want to do is make a quick buck then you're in the wrong business."

There does not, however, seem to be any shortage of dreamers willing to risk all they have to set up a distillery. With start-up costs ranging from 1 million to as much as 7 million, for many would-be Johnnie Walkers, taking the first step takes everything they have. Despite that, the number of one-man bands who have joined the fray, or who are trying to get micro-distilleries off the ground, is unprecedented. As well as Kingsbarns there are plans for new or revamped distilleries in Annan, Barra, Lewis, Campbeltown, Pitlochry, Speyside, Islay, Oldmeldrum, Tain, Forres, Huntly, Falkirk, Alness and Shetland. There's even the Daftmill Distillery in Cupar, 15 miles from Kingsbarns, which was granted a licence in 2005.

There is a method in the madness, however. Mark Reynier, the owner of Bruichladdich on Islay, rescued the distillery almost a decade ago and has made such a commercial success of the operation that he has acted as a role model for wannabe distillery-owners. As well as high demand, a plentiful stream of investors and a growing appetite among connoisseurs for new and novel malts, there has been a sea-change in production that has lessened the entry-point to Scotland's most important industry. Where once consumers would turn their nose up at anything that was less than eight years of age, changes in attitude have revolutionised buying habits.

"Ten years ago my job was about asking a customer whether he wanted smokey or non-smokey whisky," says Joynson, of Loch Fyne Whiskies, "but whisky's got very complicated now and it's more likely to be about whether a whisky was matured in a Rioja barrel or whatever." Customers didn't ask for more choice, but they're getting it and reacting accordingly: aficianados are pluralists who will try anything that's new or interesting.

"There's also been a change with regard to age. Where once age was the defining characteristic of a whisky, now the age can even be a handicap. We're shifting some lovely whiskies of five and six years old, even at 60 a bottle. Edradour's Ballechin started selling at four-years-old and flew off the shelf at 50, mainly to people who visited the shop and had a chance to try it," says Joynson.

The decision of one famous Islay malt to launch a very young whisky has energised attitudes. Ardbeg, which is normally ferociously peaty, targeted a younger market with its clear, sharp range of Very Young (six-years-old), Still Young (eight-years-old) and Almost There (nine-years-old) malts. Far from destroying their reputation, they enhanced it and managed to appeal to a new audience. Since then the floodgates have had little opportunity to slam shut. Technological innovations from people like Lark, who uses tiny 100-litre casks which he believes speed up the maturation process, have only intensified that movement.

No-one will ride the wave of young malts better than Anthony Wills, an Englishman who has been in the drinks business for 33 years and saw a gap in the market for an Islay malt produced in the old way, with all the barley grown at his Rockside Farm site, malted in the traditional way, then produced using the island's peaty water before being matured on site to make the end product '100 per cent Islay'. One of only six distilleries to operate on this basis, Kilchoman Distillery will release its first bottling onto the market in just over a week's time, on 9 September. Kilchoman only started production in 2005 and has struggled financially ever since. Yet when 9,000 bottles of its three-year-old malt, which was described by Joynson as "absolutely fantastic", hits the market next week at a cost of 45 per bottle, it's expected to be snapped up. It is that sort of financial lifeline that is allowing small micro-distilleries to enter a market that was until recently the preserve of big business.

"The history and provenance of Islay has been incredibly important," says Wills, "We'll go into 14 different markets in Europe, North America and Japan, and we'll be aimed at specialist shops whose customers are passionate about whisky. Eventually we'll be producing 275,000 bottles a year. I have a huge belief in what we are doing here and am very proud of the end result: it's typical Islay, peaty and medicinal, but quite sweet and fruity which gives it that rounder taste which allows us to release it at an earlier stage. But then we designed it to mature quickly."

To talk to Wills you'd think that it's all been plain sailing. Nothing could be further from the truth; the lot of the one-man whisky entrepreneur is not always a happy one. "Would I do it again?" he asks rhetorically. "No, definitely not. It's a huge undertaking that consumes your life, and for the past three to four years it's been a constant round of firefighting one crisis after another. The finance has been a major headache from the word go, and we've had to go back to investors three or four times to keep going. It's only in the last eight months that we've got all the finance in place, but before that it was crazy. I never thought about giving up but there were some sleepless nights followed by mornings when I couldn't face going into work because there would be creditors queuing up, or letters waiting from our very worried bankers. We've had some incredibly tough times. It's not an enterprise for the fainthearted."

One of the saving graces for Kilchoman, as it would be for Kingsbarns and so many other micro-distilleries, is the tourism industry that makes having a visitor centre one of the most important aspects for any new venture. Wills reckons the large numbers who came through his shop, buying everything from T-shirts to other people's whisky, was the difference between success and failure. Islay may be a destination for whisky hounds as well as a hugely popular holidaying spot, but VisitScotland see the distillery sector as such an important part of the tourist economy that according to international marketing manager Ewan Colville "it's become a core theme in our marketing of Scotland". In particular, the links with golf have been exploited as much as possible, with a website (www.driveithome2009.com) helping market the two together. From the new Springbank Distillery in Campbeltown, which is next to Machrihanish links, to the Speyside distilleries within striking distance of Nairn and Royal Dornoch Golf Club, a surprising number of distilleries sit near top golf courses, which can form the basis of a short-break or holiday. Glenfiddich's visitor centre in Dufftown, Banffshire, averages almost 150 visitors a day, and for boutique distilleries it's an incredibly important source of income.

Yet for all that, it's the quality of the whisky which will mark the difference between success and failure. According to Charles MacLean, author of the Whiskypedia and one of the foremost whisky experts, contrary to popular perception "aficianados outside Scotland often have a level of expertise and sophistication that dwarfs our own". In the key new markets of Brazil, Russia, India, China, Mexico and South-East Asia, the appetite for top-quality malts seems insatiable and revolves around the history and provenance that whiskies made outside Scotland – say at the well-financed Penderyn Distillery in Wales or the St George's Distillery in Norfolk – simply can't compete with.

"You have to be distinctive and we're hoping to be that by producing a malt whisky in the only bit of Scotland that doesn't currently have a distillery," says Caroline Whitfield, a Canadian entrepreneur who is heading up a group of investors trying to raise 4m to build a distillery on Shetland, where she helped set up the Blackwood distillery to produce gin and vodka. "There's no market for more of the same, so provenance and integrity are incredibly important. Distilling on Shetland will give us a USP that could make all the difference."

It is perhaps ironic that the poster-boy for starry-eyed micro-distillers, Bruichladdich's Mark Reynier, gives the new arrivals an unqualified welcome but thinks they may be part of the problem rather than the solution. He believes that the arrival of a colourful slew of "tiny and economically insignificant" players into the market is obscuring the growing influence of the two daddies of distillery companies, Diageo and Pernod Ricard, who between them account for 60 per cent of whisky production. "We all have romantic notions about making something for the long-term, but micro-distillers will find it very hard and for many their dream of micro-distilling is just wishful thinking," he says. "In the meantime, we have the illusion of more choice, but in reality power is being concentrated in the hands of fewer and big players. We're becoming like brewing, where you have hundreds of micro-breweries but just a few major companies, or the Irish whiskey industry, which has 60 brands but just three distilleries."

Reynier is tremendously quotable and his maverick views have garnered lots of column inches over the past decade. His mantra that Diageo, in particular, is a malign force has its genesis in the blended malts controversy in which the giant producer tried to circumvent the strict rules to artificially increase production of Cardhu – it has since successfully lobbied for a new category of bastardised malt which Reynier believes will confuse the market and undermine whisky's integrity. He also sees the opening of Diageo's 10m-litre distillery near Elgin as a covert attempt to mothball – "which means close" – their 17 traditional, small-scale distilleries on Speyside. "The fate of these small distilleries (owned by giants like Diageo] is vital to our heritage and future and the government should be controlling an industry to make sure they are safeguarded," he says. "Nobody should be allowed to close down 200-300 years of history because the truth is that you can't simply mothball distilleries; we rescued Bruichladdich after it had been mothballed for six years, but if it had gone for another year it would have been unrescuable."

It's a charge to which Ken Robertson, an old industry hand who is currently Diageo's corporate relations director, reacts with vehemence. "We haven't shut down any malt distilleries and have no plans to," he says. "The biggest loss of capacity was under Distillers in the 1980s when they lost 23 distilleries in two years, but since then we've invested large amounts of money to build up the sector. People often bemoan the role of large companies such as ourselves, but we genuinely welcome newcomers to the industry and can work in harmony with micro-distillers and smaller independent distillers. In fact, many of those smaller producers can only be as effective as they are because we are here operating in the way we are. For instance, we have the marketing budget to open up new markets, such as for young people in southern Europe where there has been huge growth, and new territories such as Vietnam where we're seeing massive potential for growth. And we're the only people who really have the resources to fight the sort of counterfeiting you see in places like China. All of that is of huge benefit to the smaller producers."

Robertson's defence, says Caroline Whitfield, who has operated at a senior level in the drinks industry for many years, holds water. "Companies like Diageo spend lots of money opening up markets and educating people about whisky," she says. "The smaller producers can hang on to their coat-tails, and they arrive to find a love of whisky and an appetite for the sort of niche product people like us want to produce. We have no marketing budget so we need the big boys like Diageo to open up the market and educate consumers so that they can appreciate the premium products we have to offer. It couldn't really work any other way."

Such is the changing landscape of the whisky world that medium-sized companies are modifying their brands and moving upmarket. Glen Garioch, which is one of three brands produced by Morrison Bowmore, has been extensively repackaged and gone from a downmarket brand brought primarily by tourists to a boutique specialist malt aimed at the connoisseur and costing from 26.99 to 290 per bottle. "The whisky was always fantastic but we made changes in the production process, such as taking it back to its natural cask strength and going to non-chill filtered (which means adding no preservatives and or additives], and added other expressions (such as the 25-year-old] to produce a small run of 60,000 bottles for the aficionado, and we've come up with a product that has had a fantastic reception," says Mari Laidlaw. "Those changes have been driven in large part by the changing patterns of demand: customers are more knowledgeable and there's now a market for a high-quality product."

As with brewing, so the ordinary men that obsess about our national drink are beginning to dictate the agenda. Artisan production of whiskies of all hues is beginning to change the industry's landscape, giving more choice and keeping the bigger producers honest. Men like Lark and Reynier have a dream of producing their own whisky and are willing to risk all to pursue it. From Shetland to Annan, the day of whisky's one-man band has dawned. And the industry is all the better for it.