Diageo halts Scotch expansion as demand dives

Diageo, the world’s largest producer of Scotch whisky, is to delay its planned increase in production capacity as global demand falters.

Diageo has temporarily shelved plans to build a new Scotch whisky distillery at Teaninich, among others

The delay is expected to affect the expansion of Mortlach distillery, despite Diageo’s launch of Mortlach as a single malt whisky earlier this year.

Since 2012, the British drinks group has been embarking on a £1 billion project to increase its Scotch whisky production capacity to meet then soaring demand from across the world.

However, latest figures from the Scotch Whisky Association show sales have slowed in key markets including Singapore, Germany, Mexico and the US.

Overall exports of Scotch whisky fell by 30% in 2013 to £51 million, according to figures from the Scotch Whisky Association (SWA).

The cause of the slowdown has been blamed largely on austerity measures in China, political tensions in Russia and the Middle East, and weak currency in certain markets, particularly Russia where the rouble has declined by 40%.

In a statement, Diageo said: “The weaker global economic environment has impacted the growth of Scotch in certain markets and therefore Diageo will continue to review and adjust the timing of the next phase of our investment programme to manage our Scotch whisky inventory and to retain the alignment between growth in production volumes and growth in demand.”

It’s understood Diageo has halted construction of a £50 million malt whisky distillery at Teaninich in the Highlands, a £30m expansion of Clynelish distillery, construction of a bio-energy plant at Glendullan, as well as a planned £18m expansion of Mortlach distillery in Speyside.

Diageo said the delay of the builds is to “ensure the right balance between supply and demand”.

The group added that it continues to see “long-term potential” in the Scotch whisky category.