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How expensive can Scotch whisky get?

Prestige spirits are the playground of the world’s wealthiest, but Becky Paskin asks if there is a limit to how much they’ll pay for a bottle of Scotch?

Richard Paterson admires his exclusive £987,500 collection for Harrods – a playground for prestige spirits buyers

As you read this, The Dalmore Paterson Collection may or may not remain the centrepiece of Harrods’ Wine and Spirit department in London.

At £987,500 it is the most expensive collection of Scotch whisky available to buy in the world, and not likely to draw a hurried impulse purchase.

But with luxury spirits selling faster than an Arab playboy’s supercar races through Knightsbridge, its sale doesn’t look far off.

Sales of prestige spirits – priced over US$100 – are at an all-time high, thanks in part to the advent of the “weekend millionaire”, “status chasers”, and wealthy Chinese consumers, the latter of whom now account for one in four purchases of luxury products, according to Bain & Company’s Luxury Goods Worldwide Market Study 2012.

Chivas Brothers defines prestige spirits consumers as “high net worth individuals, who are well travelled, with salaries in the top 10%, are very comfortable with technology and frequently entertain and celebrate with friends, clients and colleagues whom they seek to impress”. It’s this elite group of consumers who are increasingly pushing the boundaries of what prestige spirits are worth.

In 2009 the first whisky to sell for over £100,000 was The Dalmore Trinitas 64-year-old. Since then, The Macallan 64 Year Old in Lalique: Cire Perdue almost tripled the record when it went on to become the most expensive whisky ever sold at auction in 2010, at a staggering US$460,000 (£291,125). If the trend continues, we could be looking at a £900,000 single whisky sale very soon.

Fastest growing category

The IWSR reports global volumes of prestige spirits reached 10,700 cases in 2012 – a 27.6% leap in just five years – making the category the fastest-growing in spirits, outpacing already remarkable growth for super-premium (9.4%) and ultra-premium brands (12.8%).

The majority of that growth is driven unsurprisingly by Scotch and Cognac, two categories long associated with prestige, wealth and status that can command high price tags with romantic stories of decades-long maturation and the craftsmanship of master blenders. But a market is starting to emerge for luxury rum with both Angostura and Appleton Estate releasing £20,000+ prestige editions to mark Trinidad and Tobago and Jamaica’s 50-year independence.

Likewise, knowledge of Japanese whisky is also starting to spread, although the majority of sales are confined to Japan’s borders. Category dominator Suntory Holdings, which almost doubled its sales in the US in 2012, is targeting the rising global whisky connoisseur with a sturdy overseas expansion plan. Identifying the market for luxury spirits, particularly in the States, Suntory released its first ultra-luxury expression – a Yamazaki 50 Year Old – in late 2011 in a run of 150 bottles with a price tag of US$13,000 each.

Luxury spirits report
The Dalmore Paterson Collection purposefully avoided the £1 million mark

Lucrative market

Relative newcomer Number One Drinks Co, which snapped up the last remaining casks of the lost Karuizawa distillery in 2011, is also making waves in the luxury Japanese whisky arena with the release of several rare bottlings in Poland, France, the UK, Japan and Taiwan.

White spirits, which for obvious reasons can’t quite command the same level of spend as brown, are creeping into the luxury limelight with a combination of ultra-premium positioning and elaborate packaging to increase value, although as Nick Fleming, wine and spirits buyer for Harrods, says: “There’s more limitation with white spirits. I’m seeing growth but there aren’t many releases. We will be doing more in the category in the future but it’s still early days.”

Alexander Mechetin, CEO of Beluga Russian vodka owner JSC Synergy, agrees there is a future for white spirits in the luxury segment “if we are successful in telling our story to the consumer. It comes down to how successful you are at creating a story behind the brand”.

Over in China the lucrative baijiu market, which shifted 11 billion litres last year, has begun to suffer the effects of aggressive discounting as consumers move towards imported liquor, wine and beer.

At the top end, the government crackdown on official spending and gifting is starting to have an impact on sales of luxury baijiu, which as a traditional symbol of status and success, has been known to fetch thousands of dollars a bottle. Reports out of China suggest prices are already falling by almost half.

Demand outstripping supply

But really when we talk about luxury spirits, the commotion is undoubtedly emanating from Scotch with a significant proportion attributed to the secondary investment market. For Andy Simpson, founder of investment grade Scotch (IGS) tracker Whisky Highland, demand for rare and valuable whiskies is outstripping supply.

“We are seeing demand increase globally for a variety of different brands, malts and blends, but for rare whiskies that demand is increasing exponentially,” he enthuses, adding that not all rare whisky auctioned is destined to sit locked away, gathering additional value and dust.

“People are still drinking these rare bottles of Scotch which is taking stock out of the market, leaving everything left that little bit rarer. You’ve got a decreasing amount of these bottles with increasing demand creating the perfect storm, and where it stops I really don’t know.”

Simpson has been forecasting stabilisation in the IGS market for the past two years but is still waiting for that moment to come.

According to Whisky Highland, the distillery collections gaining the most value between January 2008 and June 2013 are Brora (up 82%), The Balvenie (78%) and Brackla (72%).

With such incremental value, surely we should all be digging out our wallets and getting rich off the secondary market? “It’s only a complete gamble if you don’t know what you’re doing,” advises Simpson.

Luxury Spirits Report
The intricately-designed Johnnie Walker & Sons Diamond Jubilee

All about the liquid

Those interested in a flutter on the IGS tables would do well to stick to limited releases, commemorative bottles, iconic distilleries – both operational and mothballed and older independent bottles, for – no matter which way you swing on the age statement issue – age does count.

In this game it’s all about the liquid, much to the dismay of the skilled craftsmen often employed to create elaborate packaging for limited releases. The more value in the packaging; the less likely you’ll make a profit. Highland Park 50 Year Old – one of the most beautifully crafted bottles ever created – still retails for £10,000, but a bottle went for just £5,800 in an online auction in December 2012 – a loss of 40%.

“Among the investors it’s all about the quality of the liquid if they are to make a real return on their investment,” says Nick Tether, group marketing manager for retailer The Whisky Exchange. “If you manage to find something truly rare from one of the lost distilleries that’s a fantastic liquid then the rest is secondary.”

Grand packaging designs are the playground of the status chasers – those seeking an ostentatious purchase with which to impress their friends, family and colleagues. That’s not to say these consumers are uneducated or frivolous. According to Leslie Fitzell, strategy and innovation director at Chivas Brothers, their purchasing decisions are driven by quality, exclusivity and experience.

“Whilst they continue to be willing to spend large sums of money on luxury goods, high net worth consumers are increasingly discerning and concerned with getting the best value possible for their money,” she explains.

“They actively explore the background and heritage of products, for example online, seeking out recommendations from respected sources to validate their choices. There is an allure of exclusivity and the fact that not everyone is able to share this experience.”

Authenticity and individuality

Meanwhile, other producers predict a return to craft distilling and authentic designs to mark a new image of prestige spirits.

According to Simon Thompson, managing director of Thompson’s, “In 2014 the trend for craft distilling – genuine spirits with a true story – will reach new heights. Consumers and connoisseurs alike are turning away from formatted as mass marketed spirits. People want their individuality back.”

Other companies also want to challenge expectations. Whyte and Mackay, which is well known for positioning The Dalmore at the luxury end of the scale, deliberately priced The Paterson Collection some way below the £1m mark to detract from perceptions that the piece was all about the price tag.

“We didn’t want it to be known as the £1m whisky collection, because one thing we’ve identified is that a big headline price on its own doesn’t confer that brand’s status in the way it used to,” explains Bob Dalrymple, global marketing controller for malts at Whyte and Mackay. “Even the super-rich want to justify the purchases they make.”

Luxury Spirits Report
The Macallan 64 in Lalique sold for US$460,000

The weekend millionaire

The on-trade is a key area for the wealthy to demonstrate their refined taste, particularly in Asia, South America and India where emerging middle classes are seeking opportunities to demonstrate their newfound wealth and status.

The rise of the weekend millionaire in western markets is also contributing to increased sales in high-end bars and restaurants, with the sector now accounting for the majority of luxury spirit sales for many producers.

“The on-trade is traditionally a place where people celebrate,” says Jaume Ferras, global marketing manager for The Macallan. “Consumers feel they are not just buying a drink but an experience, and it makes sense to enjoy that in a bar where they can relax and appreciate it.”

For Cognac brand Maison Hardy, the on-trade is a vital part of the business. “Casinos and high-end restaurants are key for us as they represent 70% of our business,” explains brand ambassador Benedicte Hardy, adding that outlets tend to stock not just the core range but the Hardy Privilège Lalique Caryota decanter as well.

Equally, Rémy Martin has identified an opportunity to not only use high-end bars as a point of sale, but also as a marketing tool. The brand has collaborated with The Dorchester in London to offer the world’s only flight of its rare Louis XIII casks, including the now sold out Black Pearl, for £2,013.

It may sound steep but Rémy has added value by including an exclusive tour of the cellars in Cognac, provided you can get yourself there. The bar sold its first flight after just two weeks, and head bartender Giuliano Morandin is confident the remaining 19 will sell soon.

Duty free

Travel retail is another area becoming increasingly important in the luxury spirits sector, with the international consumer by definition tending to travel regularly. Both Maison Hardy and The Macallan are starting to turn onto the sector having spotted its potential, while The Dalmore has already found incremental success.

“Travel retail is our largest sector by value,” says Whyte and Mackay’s Dalrymple. “The secret is making sure your presence and visibility is right in key locations.” The Dalmore’s Constellation Collection is well placed in major business hubs including Heathrow, Amsterdam, Delhi and Dubai airports to “capture the right consumer when they have dwell time and purchase intent”.

Of course there’s an inherent limit to how many exclusive releases of Scotch and Cognac producers can create, particularly in the luxury arena where aged stock matters so much. Inevitably the number of new prestige spirits launched each year will flatline at some point, but with global demand for luxury wines and spirits already forecast to grow 12% in 2013, is the solution just a matter of price?

“Globally there’s not enough old and rare stock to fulfil the demand there is,” explains Dalrymple. “That suggests both rarity and value will increase in the future. We have more whisky sitting above £100 than below, and that’s only going to continue.”

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