Does Japanese whisky need GI status?

27th January, 2017 by Amy Hopkins

As the demand for Japanese whisky continues to soar, The Spirits Business examines how such an unconventional category, which has no official regulations or definitions, can maintain its global popularity and integrity.

The chasm between supply and demand in Japanese whisky is all-too-familiar

“It could be as much as 10 years!” exclaimed Takeshi Niinami, president and CEO of Japan-based drinks group Suntory Holdings, when recently asked by The Spirits Business how long he believes his company’s shortage of Japanese whisky will last. “We can’t supply enough for the market requirement, but in 10 years’ time we will gradually be able to respond to the need.” For whisky enthusiasts, a decade is a long time to wait.

The vast chasm between the supply and demand in Japanese whisky, particularly older varieties, is an all-too-familiar tale. Largely sustained by the production of a handful of key distilleries, the sector was unprepared for the ferocious growth in consumer interest over the past five years. A number of producers have been forced to ramp up their no-age-statement (NAS) offerings, while even more have resorted to strict allocation policies across their entire portfolios.

Nikka Whisky left mouths agape in June 2015 when the group announced plans to discontinue a large number of its age statements and replace some with NAS bottlings because of strained supplies at the Yoichi and Miyagikyo distilleries.

Sakuma Tadashi, Nikka’s chief blender

“Our sales have grown so much and I found that they had completely destroyed our stocks, so I asked our sales and marketing teams to stop offering aged products,” says Sakuma Tadashi, Nikka’s chief blender.

Emiko Kaji, Nikka Whisky’s international business development manager at parent company Asahi Breweries, adds: “It was necessary to survive and continue our business. It was a long-term decision as we need to rebuild stocks for consistency.” Kaji confirms that Nikka plans to reintroduce age statements but warns that the brand must “plan very well and learn from past lessons”. Allocation of Nikka’s products will continue for two to three years, she expects, and the brand is not entering any new markets, focusing on the UK and US almost exclusively in terms of exports.

“At the moment, more products are sold in the domestic market and sometimes our importers get frustrated,” says Kaji. “But in the future, the Japanese population will be shrinking, so we need to focus more on export markets. It’s a long-term view and I am dedicated to the export market, but we have big discussions with the domestic team on how to spilt stocks.”

Intentional drop in exports

After a stellar year in 2015, Nikka expects more subdued sales growth of between 2% and 5% in 2016 because of the intentional drop in exports. The firm expanded production at Miyagikyo in September last year, restarting production of four stills that had lain dormant since the late 1990s. Yoichi’s productivity has remained the same, and Nikka says it will maximise the capacity at its current sites before opening any new distilleries. Its main competitor, Suntory, expanded production at the Yamazaki and Hakushu malt distilleries in 2013 and 2014 respectively, while Hombo Shuzo recently opened a second site for its Mars Whisky brand, now Japan’s most southerly distillery.

A number of new ‘craft’ players have also made their first foray into the market, one of which is Akkeshi Distillery, based in the namesake town of Akkeshi on the northern island of Hokkaido. The distillery, owned by raw-food importer Kenten, started production in November 2016 and there are plans to release heavily peated single malts, blends and single estate expressions.

“Diversity is a good thing; it can only continue to help with the current growth of the Japanese whisky industry,” believes Clint Anesbury, product development and brand manager at Akkeshi Distillery. “It gives consumers the opportunity to experience different products outside of what they are normally accustomed to from the major players in the market. I believe that having diversity will not compromise any related products, it will help with education and offer alternatives in a category that is seeing a shortage in terms of product availability.”

Akkeshi Distillery in Hokkaido

While distillers are summoning all their might to produce more liquid and diversify the category, questions remain over the sustainability of Japanese whisky, which lacks the infrastructure thought so important to the long-term success of its Scottish, Irish and American cousins. Japanese whisky producers have historically sought to replicate the techniques and styles of Scotch whisky, but the sectors differ in one fundamental way – in Japan, there is almost no culture of buying or swapping stocks for blends. As such, there is a greater need for producers to be self-sufficient, resulting in stillhouses with stills unique in size and shape.

As supplies become increasingly strained, might producers seek to establish a third-party industry, or consider sharing liquid? Such a suggestion is usually met with wry amusement in Japan, which has an exceptionally competitive corporate culture.

“I couldn’t imagine this,” says Nikka’s Tadashi. “I would never say ‘never’, but it’s difficult to imagine.” His colleague Kaji adds: “This is partly because of our culture. Our founder [Masataka Taketsuru] went to Scotland and worked for Suntory, and then became independent. We have been competing with each other for a long time. There’s more of a community in Scotch whisky, but we are competitors.”

Corporate competitiveness aside, producers do not have enough liquid to sell to other brands, even if they wanted to, according to David Croll, co-founder of importing and distribution business Number One Drinks Company. “I just don’t think producers will get the stocks to do this,” he claims. “They have stopped doing single casks for retailers because they need everything they have.”

Stock limitation

This limitation of stock means a number of Japanese whisky brands import whisky from abroad, predominantly Scotland, to bottle in their blends – an aspect of the industry that is largely unknown to consumers. The scale of importing is not clear and producers are reluctant to discuss in detail, but some admit they have no choice. “They are in such an acute supply situation that they just need to get liquid,” adds Croll. Suntory says that it only uses whisky made at its Japanese whisky distilleries while Nikka confirms that it sources whisky “for some SKUs”, but Mars Whisky admits that “if necessary” it purchases whisky from distilleries in Japan and abroad. “It is one of the possible ways to create whisky with complex and interesting flavours,” says Masahito Matsushima, who works in the planning and marketing department for the brand.

Since the new Akkeshi Distillery can only produce malt whisky, it plans to import grain whisky to create blended varieties. “[If] we were planning on producing an affordable blended whisky that includes grain whisky, and are unable to source that grain whisky locally, we’d naturally need to outsource it, while sticking to category product guidelines and informing our consumers when needed,” says Anesbury.

Suntory’s Hakushu malt distillery was expanded in 2014

An official definition of Japanese whisky does not exist, meaning that such activity does not contravene any laws. According to Rosemary Gallagher, head of communications for trade body the Scotch Whisky Association (SWA): “There is nothing wrong with mixing Scotch with whiskies of different origin as long as the labelling of such products does not mislead consumers into believing the product is Scotch.” She adds: “There is no official definition of whisky in Japan that we know of. The integrity of Scotch whisky is protected by its rules, so consumers can therefore be guaranteed quality and provenance in a way that might not be possible with some other whiskies.”

HMRC figures show that value imports of bulk blended Scotch whisky to Japan increased from £865,000 (US$1m) in 2014 to £3.1m (US$3.8m) in 2015, while bulk single and blended grain went from £4m (US$4.9m) to £4.7m (US$5.8m) and bulk blended malt from £7.6m (US$9.4m) to £10.5m (US$13m). Much of this may be bottled locally as blended Scotch, but some will be mixed with Japan-made whisky.

This dependence on imports means a geographical indication (GI) status for Japanese whisky would be difficult to implement. Regardless, opinion is divided over whether such regulation would be beneficial to the sector in the first place. Nikka’s Tadashi says: “Flexibility to use ingredients without any restrictions will be key to create unique expressions from the perspective of the blender.”

The practicability of a Japanese whisky GI may be difficult to fathom, but Croll claims it could be a good thing to protect the category’s future. “Up until 10 years ago, Japanese whisky was only sold in Japan, but now it is overseas there should be a clear sign of what it contains,” he says. “This might stop less scrupulous brands entering the market.”

Dedication to craftsmanship

Speaking in a personal capacity, Anesbury is inclined to agree: “Here in Japan, there is a dedication to craftsmanship and continuous improvement while maintaining traditional processes. However, what the industry may need to address is what really defines Japanese whisky. There are producers with a history of producing all types of spirits other than whisky as their main staple, but introduce whisky products to the market using imported whisky that has been matured in Japan while marketing them as Japanese whisky. Perhaps a Japanese trade body needs to be established to act as a positive force for the industry.”

Another issue that could taint consumer trust in Japanese whisky is unstable pricing. As stocks continue to dwindle, prices have soared to an all-time high, on both the primary and secondary markets. A bottle of Yamazaki Sherry Cask 2013, which was initially priced US$120, now carries an RRP of up to US$4,000 on some retailers’ websites after it was named ‘World Whisky of the Year’ in Jim Murray’s Whisky Bible 2015. Auction prices are even steeper and some believe they could reflect negatively on the broader industry – “it’s a case of guilt by association,” says Croll.

However, Shinji Fukuyo, executive officer and chief blender at Suntory, says that prices are not necessarily dictated by brands themselves. “We haven’t really increased our prices – it’s the retailers that have done this. From my perspective, price and quality should be balanced. Prices are increasing and sometimes they are reasonable and sometimes they are not. It’s a problem, but we cannot control retailers’ pricing.” He also believes there is a space in the market for more reasonably priced products. “In Japan, there’s phenomenal polarisation,” he states. “There’s cheaper whisky, which is consumed a lot, but to get better whisky costs a lot more. From a long-term point of view, there should be quality whisky at all price points.”

And pricing will surely become more important as Japanese whisky’s competition extends beyond its borders. “We have entered the next stage, not only competing with Japanese brands, but also competing with other categories,” says Kaji. “That means continuous efforts are needed to keep growing. Competition is becoming more global, but more competition means more opportunities in more markets.”

Kirin’s Fuji Gotemba distillery

Despite the complexities and challenges faced by Japanese whisky distillers, the growth and newfound diversity of the industry could spark a change of mind-set. “Given that more craft distilleries are open and running in Japan, we think craftsmen in Japanese whisky will team up to gather and share techniques of whisky making,” says Mars’s Matsushima. “That might improve our whisky in the long-term.”

Masahiko Yoshida, brand manager for Japanese whisky producer Kirin, adds: “We welcome healthy competition that contributes to the growth of the Japanese whisky category. Being more mature and educated, consumers are now starting to look for varieties in whisky and we think the landscape of the Japanese whisky market will change over time.”

Indeed, producers are already establishing a point of difference, inspired by the trends and tropes used by Scotch, American and Irish brands – most notably, terroir. Mars hopes to produce a different flavour of whisky at its distillery in Kagoshima Prefecture, compared with its other distillery in Nagano Prefecture. Meanwhile, Akkeshi plans to release a 100% Akkeshi-produced whisky using local barley, water, yeast, and felled Japanese oak. The distillery will also source peat locally from surrounding wetlands.

Japanese whisky is certainly at a turning point in its seemingly unstoppable trajectory. While innovation and a drive to establish a competitive edge among distillers is providing much needed diversity, it remains to be seen whether a lack of official definition and regulation will affect the sector in the long term.

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