Does Irish whiskey need more regulations?

1st December, 2017 by Amy Hopkins - This article is over multiple pages: 1 2

Irish whiskey has emerged from a long slumber to become one of the hottest categories in spirits, boasting an almost unmatched rate of growth. But will the sector’s current structure safeguard its future success?

A wealth of new players – large and small – have entered the Irish whiskey market

*This feature was first published in the July 2017 edition of The Spirits Business

The ability of a spirit category to transform its ‘boom’, ‘craze’, or ‘wave’ – that is, a sudden surge in its popularity with consumers – into long­-term success should not to be taken for granted. Drinks history is littered with categories and brands that burned brightly, only to fizzle out a short time later. Sustainable growth is a hard­-won battle in spirits, and any number of social, political, economic, and internal industry factors mean that glory is often short­-lived.

A textbook example of this rise and fall is Irish whiskey. The spirit’s heyday was in the 1800s, when huge demand from the US allowed more than 100 distilleries in Ireland to maintain a steady flow of production. But Prohibition and the Irish War of Independence struck a heavy blow to the industry, and the number of operating distilleries shrivelled to just two by the 1980s. This rose to four by the 2000s.

Now, the industry has turned over a new leaf. For many years, production was sustained by only the Midleton, Bushmills, Kilbeggan and Cooley distilleries. However, a wealth of new players – large and small – have entered the market. There are now 18 working distilleries in Ireland, with a further 16 set to open in the next few years, subject to planning approval. The Irish Whiskey Association, launched in 2014, has laid out a vision for the sector to nearly double exports by 2020 to 12m.

The US is still the category’s largest market, and sales grew by 19.8% to US$795 million in the 2016 calendar year, according to data released by the Distilled Spirits Council.

Bernard Walsh of Walsh Whiskey Distillery

SUCCESS OR FAILURE?

But, amid such fast­-paced growth and high expectations, is the industry implementing the correct structures and strategies that will once again position it among the ranks of the world’s leading spirits categories? In other words, will the sector succeed in the long term, or will history repeat itself?

For Brendan Buckley, strategy, insights, innovation and prestige whiskeys director at Irish Distillers Pernod Ricard, maker of category leader Jameson, Irish whiskey’s rate of growth will slow – but this is to be expected. “In the short to medium term, we see no reason why the growth cannot be sustained,” he says. “But clearly, in the longer term there will ultimately a leveling off as the category reaches scale.”

Scale is exactly what Irish Distillers is targeting with its €10.5m (US$12m) expansion of Midleton, a move that will boost the distillery’s single pot still production by more than 30%. The firm has also invested €20m in its Dublin­-based bottling facility, as well as a further €100m in expanding its Dungourney maturation site.

In 2016, Jameson’s sales increased by 16.8% to 6.2m cases, and future projections are optimistic. “There are multiple states in the US where Jameson is still only scraping the surface, so we are very bullish,” adds Buckley.

It’s not difficult to understand why many see the growth of Irish whiskey as a single brand’s success story. But Jameson’s growth is so dependent on a positive consumer perception of the Irish whiskey industry that Irish Distillers has set up a mentoring programme to provide new Irish whiskey companies with technical advice. For Mark Reynier, former managing director of Bruichladdich Distillery in Scotland, and founder of the new Waterford Distillery in Ireland, the rule of one brand has historically meant a lack of innovation in Irish whiskey. “If someone controls the whole shooting match for 40 to 50 years without anyone else having a look­-in, of course that breeds complacency,” he says. “What you’re getting at the moment in Ireland is a kick­-back against the monopoly.”

Reynier believes that this “pseudo monopoly” is being “challenged and broken” by a new wave of independent distillers. “There’s an argument that craft distillers are economically insignificant – which is true – but they provide diversity, flavour, individuality, authenticity, and production values that are sought after by younger consumers perhaps less jaded by the uniformity inflicted on the older generation.

“The diversity provided by micro-­distillers can only help the Jameson brand because it adds variety to the sector. That’s a natural reaction to the desert-­like conditions of a monopoly. You end up with green shoots of innovation and individuality, which in Ireland’s case are what consumers thirst after.”

Waterford is certainly no small player – it will have an initial annual capacity of one million litres – but it will showcase innovation in abundance. Reynier has an ambition to create the “most profound” single malt whiskey in the industry, and offer an “unprecedented” level of traceability using barley from more than 40 farms in Ireland. Yeast experimentation will also come into play at a later date.

And Waterford is not the only sizeable new Irish whiskey distillery – the majority of the new or planned Irish whiskey distilleries may be cut from the ‘craft’ cloth, but major players have recently announced plans to move into the industry.

Heavy goods: additional stills are delivered to Midleton

NEW PLAYERS

At the end of last month, Bacardi acquired a minority stake in Dublin-based Teeling Whiskey Company; in 2015 Brown-­Forman bought Slane Castle Irish Whiskey and pledged US$50m to build a new distillery and malting plant on the namesake estate; and Diageo moved back into Irish whiskey after selling its Bushmills brand with the launch of Roe & Co at the start of this year, announcing plans to open a €25m (US$28.4m) distillery in Dublin.

According to Bernard Walsh, founder of Walsh Whiskey Distillery in County Carlow, this is precisely why the monopoly held by Irish Distillers will not obstruct growth. “If there were a lack of investment by serious drinks companies to create the second wave of this renaissance, then it [the monopoly] would be a concern,” he claims. “But there are actually huge investments being made by global players, because they recognise that this is already a 30-­year growth story.”

Jameson may also soon have more competition in the volume stakes. In 2016, William Grant & Sons’s Tullamore Dew became only the second Irish whiskey to pass the 1m case sales mark after seeing 7.2% growth. While maintaining a focus on quality standards, the brand “has been working hard to develop a distinctive brand image as well,” says Caspar MacRae, global brand director of Irish and American whiskeys at William Grant.

Tullamore, like other Irish whiskey players, decided to take distillation in-­house after using third-­party stocks. The brand opened its €35m (US$39.8m) distillery in 2014 – 60 years after the original site closed. “Excellence in distilling is important to the way we do business, so controlling the production of our whiskey was important culturally, but also gives us a huge opportunity to innovate going forward,” says MacRae.

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