Does Irish whiskey need more regulations?
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?
*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.
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.
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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THE NEED FOR EVOLUTION
Jack Teeling, founder and managing director of the Teeling Whiskey Company, stresses that there is now an “opportunity to create the category” if large and small producers ensure there is enough diversity.
“To have a healthy category, you have to have a clear delineation of products,” he says. “We are getting there and the big guys are seeing the need for the evolution and the segmentation of the category. They are catering to latent consumer demand for choice.”
Indeed, Jameson recently restructured its entire portfolio to offer a ladder of products to the super-premium end of the spectrum. Parent company Irish Distillers is focusing its attention on both its higher-end single pot still brands and Jameson’s innovation offerings, such as the Caskmates range, Whiskey Makers series, and new Method and Madness line, released just this year.
VARIETY AND CHOICE
Teeling says: “The biggest challenge and opportunity that we do not want to miss is to ensure there’s enough variety and choice in Irish whiskey. If we don’t do that, in 20 years’ time we will look back and see a great opportunity that we lost, in that we never really formed a truly vibrant, healthy category to capture all those consumers coming in through the mass-market Irish whiskey brands.”
For Teeling, whose Teeling Whiskey Distillery opened in Dublin two years ago and focuses on boundary-pushing maturation techniques, smaller players in Irish whiskey are “poking the bears” and prompting a greater outpouring of innovation from industry leaders.
However, Andre Levy, founder of The Wild Geese Irish Whiskey, argues that true diversity will not be achieved as long as the industry is devoid of one crucial element: an established wholesale market. While there is third-party distilling in Irish whiskey, producers are able to easily discriminate against whom they sell to, he claims. For Levy, this means Irish whiskey cannot achieve the same level of success as Scotch.
“In Ireland, you have no Irish whiskey wholesale market, and you therefore have to fund the entire maturation period independently,” he says. “As a consequence, the vast majority of the smaller distillers opening up will not succeed – they will fail.” Because of this, he says, investors will see Scottish distilleries as a safer option than Irish ones.
But what is the solution if the leading producers choose not to sell their stocks on a wholesale market? Levy’s answer is decidedly utilitarian in principle: government intervention. “You may question whether or not this is legally possible, but if you look at the oil industry, the utilities sector, they were forced to open up to the markets, because they were fundamental to the economies of their countries,” he explains.
Bernard Walsh believes a wholesale market for Irish whiskey will grow as more distilleries come online. “This is part of any mature market; our issue is that we are not a mature market yet,” he says. “We are only now building the new distilleries and capacity that will facilitate the development of a wholesale market over the course of the next 10 years.”
According to Jack Teeling, there are greater stocks available now than in 2012, when plans for the Teeling Whiskey Distillery were put in motion. At the same time, Jack’s father, John, sold Cooley Distillery to Beam, which then cut off third-party supply. The distillery is now once again distilling for third-party brands.
Teeling also believes that “just having a wholesale market of different liquid does not create a healthy category on its own”. He adds: “It didn’t work in our Cooley days of 100 expressions with slight variations of the same liquid – it doesn’t work that way. It’s like a sinking ship and becomes all about price.”
For Reynier, the lack of an established wholesale market is not prohibitive to sustainable growth in Irish whiskey (“Distill your own whiskey and do your own thing,” is his advice) but the lack of official regulations and labeling guidelines is. He claims that an influx of new Irish whiskey distilleries and brands means less experienced players may “play fast and loose with presentation, statements, and labeling – usually out of exuberance than actively trying to deceive”.
While laws relating to the production of Irish whiskey are outlined in its geographical indication, additional guidelines are needed, says Reynier.
“The application of some very basic and elementary marketing and labeling rules need to be applied, otherwise you risk these new producers confusing the consumer and potentially causing enough uncertainty to be counterproductive to their onward sales and development. Keeping everyone singing from that same hymn sheet is very important and I don’t see that happening in Ireland at the moment.” As distillers increasingly focus on the long game in Irish whiskey, it seems likely that an industry choir could soon emerge – if the right steps are taken.