Luxury spirits: The fight against forgery
More high-end counterfeit whiskies worth hundreds of thousands of pounds were uncovered this week. And as the secondary market continues to soar, the difference between fake or fortune is vital. SB investigates how the industry is tackling the issue.
*This feature was originally published in the September 2018 issue of The Spirits Business magazine.
Meghan Markle’s engagement ring, almost 2,000 bottles of Johnnie Walker Blue Label, or, according to the Daily Mail, singer Chris Brown’s “bulletproof car with thermal night vision” are all things that can be bought for US$350,000. Last month, an unnamed whisky fan spent almost the same amount on a bottle of 50-year-old Yamazaki. This became the most expensive single bottle of Japanese whisky in auction history.
Ramp up the amount to US$1 million and the mind boggles with possibilities: a Caribbean island, a private performance from Beyoncé – you might even be able to set up your own distillery if you count the pennies. It is also the price exceeded by a bottle of 60-year-old Macallan Valerio Adami 1926 at a recent Bonhams sale. The expression fetched US$1,100,197, becoming the world’s most expensive bottle of Scotch sold at auction. Even more surprisingly, it was not alone in surpassing the US$1m threshold – a 60-year-old Macallan Peter Blake 1926 was snapped up for US$1,014,422 in the same sale.
Already the record looks set to be broken. Next month, another bottle of Macallan Valerio Adami 1926 will go under the hammer with Bonhams, and is estimated to fetch as much as US$1.14m. Clearly, demand for old and rare whisky is booming.
“The market for these expressions is hugely buoyant and we’re seeing prices achieved that are frankly unbelievable,” enthuses Andy Simpson, cofounder of consultancy, brokerage and valuation firm Rare Whisky 101 (RW101).
“I’ve been involved in this market for many years and I’ve been collecting whisky for almost 30 years, and I have never seen demand like it.”
According to latest figures from RW101, the value of rare Scotch whisky sold at auction in the UK exceeded £16m (US$20.3m) in the first six months of this year. During the same period, the highest average price per bottle of £328
(US$418) was recorded. RW101 predicts that by the end of 2018, auction sales will hit £36m (US$46m).
For Simpson, the secondary market has found itself in the eye of a “perfect storm”. He says: “We now have this huge circular economy where the brand owners are feeding the market with lots of marketing, advertising, promotion and PR work when taking their products to new markets.” This activity is raising consumer awareness and recruiting new drinkers, he claims, and in turn nudging people towards the secondary market, which is now “truly global”.
Indeed, as Martin Green, Bonhams’ whisky specialist, claims, whisky collecting is has become an “international phenomenon”, and a spread of buyers around the world contributes to the “stability” of the market. He adds: “Buying whisky at auction has grown hugely since the first standalone whisky sales started in the late 1980s and now has strong international appeal. Last year, for example, at our four Edinburgh auctions more than half of the buyers of the top lots came from the Far East – mainly China, Hong Kong, Taiwan and Japan.”
Whisky.Auction has also seen a considerable rise in demand, which director Isabel Graham-Yooll attributes to a growing consumer understanding of luxury spirits as a category and the way that auctions operate. “There’s a greater appreciation than ever before of the extraordinary things you can pick up,” she says. “There’s a treasure trove of wonderful bottles available on the secondary market, and I think in the past people were a bit intimidated by that. Now, because of auctions, there’s a safe trading platform where both buyer and seller are protected.”
But with prices climbing higher and higher, will the market hit a ceiling? Graham-Yooll doesn’t believe so, comparing rare spirits to the London housing market. “For the past 20 years everyone has been saying it’s going to slow down soon, and it hasn’t,” she says. “The reason is because every time there seems to be a bit of a slowdown in something, buyers find an interest in something else. As people get priced out of one type of whisky, they move on to another category.”
This logic would support the growth some retailers have seen in rare and vintage spirits outside of whisky (see box, overleaf).
One particular brand whose secondary market success shows no sign of waning is The Macallan, which has become so sought after that Whisky.Auction has created a standalone category for the brand.
According to RW101, The Macallan “cemented its overall dominance” in the UK auction scene in the first half of this year, when its value market share hit 34.4%.
According to Scott McCroskie, managing director of The Macallan, while the secondary market is outside the control of parent company Edrington, it is a “good indicator of the health of the brand and the esteem in which it is held”. In the primary market, the distillery’s vintage offering – the Fine & Rare range – constitutes less than 1% of The Macallan’s total sales, but “it has way more significance than that figure would suggest”.
McCroskie adds: “Fine & Rare has been a long-standing part of our DNA; it’s a signature range for us, and a real reminder of the heritage and provenance of The Macallan.”
Just one cask a year is set aside for the collection, with 53 vintages released since its launch. “Three of these vintages have completely sold out, and we are down to single digits for some of the others. The stock we have is gradually disappearing,” says McCroskie. Fine & Rare expressions, however, are not regulars on the auction scene and are instead being “bought to consume because they mark an occasion”.
For Simpson, there are three types of buyer splashing considerable cash on old and rare spirits – drinkers, collectors and investors – and he believes the industry is witnessing growth across the board. The secondary market depends on this fine balance, he claims, since “today’s collector and investor feeds tomorrow’s drinker”.
GrahamYooll adds another buyer into the mix – the trader, “who is looking to invest quickly then turn it around”. She also claims that in reality, “many buyers are a mix of drinker, collector and investor”.
And, of course, curious buyers are not restricted to auctions – retailers of old and rare spirits offer a playground of opportunity and are capitalising on demand for vintage spirits, which are of particular interest to gift- givers and those celebrating a milestone moment. This year, Yorkshire wine and whisky merchant The Wright Wine Company launched a website dedicated to such products. Vintage Drinks Online holds more than 340 dated or vintage products, some of which hark back to the early 1900s. The website advertises stock from Wright Wine Company’s retail premises, which holds more than 3,000 wines, 1,200 whiskies and 450 gins, plus a growing range of rum and fortified wines.
“We have more than 500 suppliers, so the world is your oyster,” says Julian Kaye, managing director of The Wright Wine Company. “Take vintage Armagnac, for example – some merchants list the offering from the usual suspects with the anniversary dates for that year, but then order them in on demand. We don’t. We hold everything and buy forward so whatever year we list, it means we actually have that stock available.”
The development of new platforms will undoubtedly support the growth of the luxury market as it seeks new audiences. But with such buoyancy comes a serious risk: that sellers and buyers will be duped by fakes. At the top end of the market, illicit operations are becoming increasingly sophisticated and, according to RW101’s Simpson, unsuspecting victims could lose vast amounts of cash for which there is no recourse.
“We will see an increased proliferation of fakes in the market; 100%,” he says. “The more something increases in value, the more it gets publicised, and I guarantee we will see more forgeries.” RW101 segments fakes into ‘refills’, ‘replicas’ and ‘relics’, and has a “hit list” of products it advises clients never to buy at auction because “there’s no way to tell whether it’s genuine or not”.
Simpson continues: “I can see a scenario where someone buys a big collection of these reported 1800s Macallans and Ardbegs, or from the long silent distilleries of the 1920s, when it’s worthless. There is the potential for someone to pay tens of thousands of pounds, if not tens of millions, for a massive collection of these things when it’s worthless.”
A prime example of such high-value forgery was last year’s outing of a US$10,000 Scotch whisky dram as a fake. Following an investigation by RW101, the whisky thought to be a Macallan 1878, which was bought by a Chinese consumer from a Swiss hotel, was found to date back to only the 1970s. If authentic, the bottle’s value would sit at US$300,000, but RW101 deemed it “worthless”. The firm will announce another exposé later this year, but for now is keeping details under wraps.
Whisky.Auction was also involved in foiling a highly publicised counterfeit operation last year. After receiving a high number of fake bottles from one seller, the team visited the man’s London home, where they claimed to have discovered a counterfeiting operation “with a scale of sophistication never before seen” in spirits. The alleged fraudster was arrested by Metropolitan Police in February 2017 and was bailed pending further enquiries. Graham-Yooll confirms that the accused has skipped bail and is thought to be on the run from police. She is, nevertheless, “confident” that the case will go to court.
Despite such incidents, Graham-Yooll does not believe the market has witnessed a material increase in counterfeiters. She says: “It’s difficult to tell because there are dark forces at work, but I don’t know if it’s grown that much. I think there’s far more awareness of it now and there’s far more scrutiny than there’s ever been before. We’re catching fakes now that were produced 2030 years ago, and even fakes being produced in the Prohibition era.
“People were tackling counterfeits in the past, but they were doing it discreetly – no one wanted to talk about it. We have made a big effort to expose it, and we see this as a big project for us. We deal daily in rejecting fakes, and every week we hear a story of someone being scammed. Yes it’s a huge problem, but it always has been.”
Most auction houses are, obviously, loath to divulge their authentication processes in detail. But for Graham-Yooll, the key lies in “making sure the collars and cuffs match”.
She explains: “We ask ourselves, does the capsule match the era of the bottle? Does the label match the bottle? Is the glass from the right era? Are the legal details on the label correct for that time?” Ultimately, she says, one of the safest ways to ascertain legitimacy is to source an authenticated bottle of the same expression and “compare like for like”.
But even then, an expert opinion is necessary. Simpson says legitimacy can only be guaranteed through a scientific process known as ‘carbon dating’. This involves extracting a “tiny sample” of liquid and running it through a series of tests that determine when the base ingredient of barley stopped growing.
Scientists can therefore ascertain the year of distillation and therefore the vintage of the liquid. Simpson says that while carbon dating is an “invasive process”, it can “significantly increase the value of bottles”.
He uses his own firsthand experience as an example: Simpson was asked to give a valuation for an old bottle of Lagavulin heading to auction in Edinburgh. After undergoing carbon dating, the bottle was revealed to be significantly older than expected – distilled in about 1920. An avid collector, Simpson bid £11,000 for the bottle, but said he would have offered no more than £3,000 if it had not been carbon dated, even though he was already “pretty certain” it was genuine.
While some sellers would be concerned about extracting liquid from their bottles, Simpson says that “in reality it’s zero risk, and the amount you need makes no difference to the fill level”.
Furthermore, many old spirits bottles are sealed with driven corks without a wooden or metal top, meaning liquid can be extracted by inserting a hypodermic needle into the cork itself and then resealing with a small amount of wax.
As rare bottles become even rarer, the opportunities to authenticate through comparison are decreasing. Suppliers and sellers are therefore curating their own extensive selection of archive materials –
The Macallan is one of them. “We have a full-time archivist in place and she is working hard to produce as definitive a back catalogue as we can possibly get, with as many records and as much photography as we can find,” says McCroskie. “We want a really strong set of reference materials to check products against.”
A number of distillers have pumped considerable investment into new bottle designs and features to combat counterfeiting – The Macallan is not alone in its use of anti-refill bottles and tracking technology. But such measures cannot apply to historical fakes, many of which continue to evade discovery.
Communication and collaboration in the supply chain is therefore more important than ever, according to McCroskie, who warns: “All of us in the industry have to keep upping our game because counterfeiting isn’t going to diminish any time soon.”