Japanese whisky – an unsustainable success?

Japan has established itself as a key player on the global whisky scene. But amid stock shortages and price hikes, could the category become a victim of its own success?

Suntory’s Yamazaki distillery in Japan

**This feature was first published in the January 2016 edition of The Spirits Business

Tucked away in a nondescript building just a stone’s throw from the neo-classical, colonial grandeur of the National Museum of Singapore is The Auld Alliance whisky bar. Inside, rows upon rows of Scotch welcome whisky enthusiasts who flock to the venue from all corners of the city state and, indeed, Asia. But, festooned in the library-esque comfort of Chesterfield sofas and soft lighting, consumers are looking beyond Scotch and finding solace in one of the largest collections of Japanese whisky outside of Japan – including, temptingly, rare malt-of-the-moment, Karuizawa.

This picture is no longer unusual. For the past 15 years or so, Japanese producers have been quietly setting up whisky embassies of sorts in key markets around the globe. This, like an avalanche, slowly but surely built up momentum and today, the market is red hot.

From 2003 onwards, when Japanese whiskies began winning awards traditionally the territory of Scotch distillers, consumer and collector interest was piqued. Distributors across Scandinavia, France and the UK started to vie for the right to work with Japan’s finest distilleries. Rare releases started to regularly sell for eye-watering sums on the secondary market, boosting the category’s wider credentials at the same time. In October this year, a full 54-bottle range of Hanyu Playing Cards made it into the record books when it sold for HK$3,797,500 (£319,000) at a Bonhams Hong Kong auction. Retail prices are shooting skywards, too.

Stock ‘exhausted’

Such is the demand for aged stock that in June 2015, key supplier The Nikka Whisky Distilling Co., which owns, among others, the Yoichi and Miyagikyo distilleries, suddenly delisted 14 of its aged products in all markets with immediate effect.

“Following the Japanese whisky boom in foreign markets and due to the growing popularity in the domestic market, the sales of Nikka are growing very fast and stock levels of Yoichi and Miyagikyo malt whiskies are becoming very low,” the group said in a letter to its importers.

“With the current depletion, Yoichi and Miyagikyo and malt whiskies, which are the base of most of our products, will be exhausted in the future and we will be unable to continue the business.”

Does this then mean that the Japanese whisky category has overshot equilibrium, and now faces a battle to sustain its long-fought popularity?

Suntory-owned Yamazaki has seen the addition of new stills to meet demand

Growth vs. supply

France-based whisky distributor Les Whiskies du Monde seems to be walking a delicate tightrope between thriving growth and challenging supply issues. Its Japanese whisky unit doubled in volume terms in the past 12 months, and Arnaud Pontoizeau, director general, says the business will double again in 2016. “As per today we are present on 22 European markets and we are dealing with a huge demand that we unfortunately can’t even meet due to a limit on Japanese whisky volume.”

While the company still has some aged stock – Pontoizeau names Togouchi 12-year-old, Togouchi 18-year-old, and Yamazakura 16-year-old – it is now “more than difficult to source aged Japanese whisky, almost impossible”.

Global drinks giant Beam Suntory is also seeing its Japanese whisky brands “selling well”, says Takahiro Itoga, senior global brand director, Suntory Brands. Domestic and exports from January to June were up “high single-digits” year-on-year. The company says it is “extremely fortunate” that demand for Japanese whisky is consistently increasing, but Itoga confirms that some products are now on allocation to maintain sustainable supplies.

“We have actively invested to increase the capacity of our production facilities, including additional pot stills in our Yamazaki and Hakushu distilleries, and warehouses in Ohmi,” he continues.

Structural issues

Marcin Miller, co-founder and owner of Number One Drinks, the exclusive distributor for Chichibu, Hanyu and Karuizawa, thinks the problem runs deeper than short-term supply and demand, and is actually structural. “There are fewer distilleries and fewer distribution companies in Japan than in Scotland, so any problems will be exacerbated,” he explains. “In the 1980s when several distilleries in Scotland closed, very many more remained operational. In 2000, when Hanyu closed and Karuizawa stopped distilling, those two represented a huge percentage of sites, if not production, as only half-a-dozen or so remained. In terms of balance, it’s tricky.”

He reckons the huge, and unforeseen, popularity of the highball serve is a contributor to the supply crunch as “very good whisky had to be sacrificed to fuel the frenzy”. Fewer companies will mean a bumpier road forward, he adds.

Pricing is a further challenge: does the category risk alienating new recruits as procuring Japanese whisky becomes increasingly expensive? Pontoizeau says that as long as the scarcity situation continues, prices will “inevitably be impacted”. But currency volatility is playing its part, too. “Add to this context a relatively low euro and you get the reasons why prices have been considerably increasing over the last few months.”

Number One Drinks is “more in thrall to exchange rates than anything else,” agrees Miller. And with Morgan Stanley among a number of financial institutions forecasting the yen to strengthen in 2016, the discrepancy looks set to exacerbate the straightforward supply and demand issue for some time.

Hibiki Harmony is one recent NAS release from a Japanese whisky distiller

The rise of NAS

Yet the success, and subsequent price and stock issues, of the category is reaping some benefits. As no-age statement (NAS) Japanese expressions become more commonplace in retail, its reputation is raising the perception of similarly unspecified-age releases in other categories. “Consumer perception has been changing on this matter… [a] lot of whisky enthusiasts are now realising age doesn’t mean quality – Akashi single malt is a great example of this – nor single malts are inevitably better than blends,” reckons Pontoizeau. “And this is particularly true in the Japanese whisky segment where blended whiskies are often considered real works of art.”

Miller concurs: “With a few exceptions, the problem with NAS is not the whisky but the fact that there is a lack of clarity regarding the make-up of the whisky, which makes consumers suspicious.” He cites the three- and four-year-old offerings from Ichiro Akuto’s Chichibu distillery, which opened in March 2008, as “spectacular” examples which sell for around £100 a bottle.

Beam Suntory has capitalised on the move towards NAS releases in Japanese whisky, releasing its Hibiki Japanese Harmony earlier this year. It is off to a “strong start”, particularly in the US, Europe and global travel retail, notes Itoga. The blend comprises at least 10 different malt and grain whiskies from the Yamazaki, Hakushu and Chita distilleries, and the liquid has been aged in five different cask types. The result of both price and stock constraints, the expression will “ensure that a wider audience will have access to Japanese whisky,” he explains.

Hearts and minds

Winning new hearts is top of the agenda for Les Whiskies du Monde, too. While the “main target” has been the “aficionados/connoisseurs category”, Pontoizeau says a knock-on effect from the Japanese whisky hype has been to attract “younger crowds, males and females alike”. “Japanese whisky has proved successful in recruiting new drinkers to the whisky category; we should now be able to meet their needs,” he says.

Despite this, the future for the category is not entirely clear cut. While Miller is adamant the category has “crossed the floor from obscure to mainstream”, it has encouraged other nationals to embrace production and enter the whisk(e)y fray.

“The concern has to be that if you cannot buy your favourite 12-year-old Japanese whisky, are you going to drink NAS and wait for stocks to age, or are you going to look elsewhere?” he asks. “Single malt fans are promiscuous in their drinking habits so it is not difficult to foresee migration to whiskies from India, Taiwan, and, increasingly, local or domestic whiskies.”