Whisky Investments

MARKET OVERVIEW

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Alternative asset classes (including collectibles) are “exploding globally in popularity”, according to Forbes —a source that usually shies away from overstatement.

The explosion is being driven by investors seeking safer havens that can help stem volatility, increase income and protect their portfolios by adding asset classes uncorrelated with traditional equity, bond and cash investing.
Amongst collectibles, whisky has proven to be a resilient high performer.

  • Internationally popular
  • Market opportunities
  • Regulated supply
  • Investment performance
  • UK CGT (Capital Gains Tax) status
  • How casks appreciate
  • Realising the investment
  • Getting started

 

Internationally popular

As a beverage, whisky’s general popularity is certainly on the rise. The global market of US$59.8bn in 2021 is forecast to reach US$86.1bn 2027, averaging a 6.12% CAGR (Compound Annual Growth Rate).

Amongst whisky drinkers there is growing interest in ‘premiumisation’. In the US, for example, revenues from high-end premium whisky products were up by 37% in 2020 and super-premium by 136%.

It’s not unreasonable to expect that these increasingly sophisticated palates will ultimately translate into new entrants to the whisky collectibles market.

A subcategory of the wider whisky market, Scotch Whisky is rated by the industry body as the world’s ‘number one internationally traded spirit’ with exports worth over £4bn annually.
The top five export destinations for Scotch Whisky in 2020 were the European Union, the USA, India, Brazil and Japan. However, demand is spread relatively widely with shipments going to 180 countries.

 

Market opportunities

The world’s largest whisky market is India. Currently however Scotch Whisky accounts for just 2% of that market. One major barrier to growth is the 150% national tariff on Scotch Whisky. Other barriers are the taxes and restrictions imposed by India’s 28 federal states.
Signs for improvement are promising. In mid-2021, the government of Maharashtra (India’s second most populous state) halved the excise duty on Scotch Whisky.

In January 2022, the UK and India announced negotiations on an ‘ambitious’ Free Trade Agreement: the UK government has said it will prioritise Scotch Whisky in its goals. The first round of talks started the week following, the UK’s quickest start of formal talks.

The Scotch Whisky Association believes an FTA could grow exports to India by £1bn over five years.

The largest single market by volume for Scotch Whisky is the EU, receiving exports worth almost £1.4bn. Four member states—France, Germany, Spain and Latvia—are amongst the top 10 Scotch Whisky export markets

The most valuable market is (usually) the US. Scotch Whisky exports there topped £1bn in 2019, at which point the US accounted for a fifth of global exports.

In 1920, the USA introduced prohibition. Whisky was exempt, as long as it was prescribed by a doctor for medicinal purposes.

The largest spirits market in the world is China. Scotch Whisky penetration here is currently low: exports grew from <£10m in the early 2000s to around £200m in 2021. With an increasing prosperous, growing middle class the potential is enormous.

 

Supply is regulated

While the trend is generally upwards, production of Scotch Whisky does not show the major surges in supply that can impact other investments.

To start with, Scotch Whisky production is governed by strict legal provisions. It can be made only in Scotland, and only from cereals, water and yeast. Other rules specify at least three years’ maturation, and only in oak casks.

Exports of Scotch were valued at £4.36bn in 2017. They grew to £4.7bn in 2018 and reached a peak of £4.9bn in 2019.

In 2020, exports actually fell to £3.8bn, the lowest in a decade—largely a result of Covid-19. They recovered in 2021 to be worth £4.5bn.

There is a fundamental lack of supply of aged single malt Scotch whisky simply because not enough was laid down for long term ageing in the 1990s and 2000s.

 

Top five performer

The whisky market to date has, with some notable exceptions (see sidebar), been confined to sales of bottles. The opportunity to invest in casks is relatively new and few reliable figures are available.

In any case, prices will vary enormously depending on the provenance, particularly the distillery (quality) and the year of distillation (age).

The performance of ‘rare bottles’ may however provide a proxy guide to general investor interest in genuinely rare and unrepeatable whiskies.

  • Worldwide, the collectible whisky market is probably in the range of between USD 100 million and USD 150 million
  • The 100 rare bottled whiskies covered by the Knight Frank Luxury Investment Index grew 9% in value over 2021, putting them among its five top performing collectibles including watches, wine, art and coins. (The previous decade’s performance for these particular whiskies was exceptional, well over 500% for the period)
  • Another marker is the UK whisky auction market, the value of which has more than quintupled since 2016. From approximately GBP 14 million/USD 18.5 million that year, auction values were on track to reach GBP 75 million/USD 99 million by year end 2021
  • A highlight of the 2021 auction year was the sale of four bottles of Glenfiddich’s ‘The 1950s Collection’ for over £1 million
  • The average price per-bottle sold at auction declined 2.55% from £401.04 in 2019 to £390.81 in 2020 and has quickly re-bounded to £426.58 at the 30th June 2021
  • The Icon 100 index tracking the prices of iconic collectible bottles of Single Malt Scotch shows steady growth to 2018, after which it flatlined through the pandemic. It has surged since then to reach 505 at the end of May 2022. This compares to 396.51 a year earlier and 328 at roughly the same point in 2019
  • The broader-based Apex1000 index finished the half year to 30 June 2021 up 9.06%.

One measure specifically for whisky casks is the relatively recent BC20 Whisky Cask Index. This suggested that £100,000 invested in whisky casks in July 2018 would have been worth £160,000 by the end of June 2020.