How distillers are tackling rising costs

Distillers the world over are having to tighten their belts in the face of rising energy, packaging and raw materials prices. Many are trying to be as sustainable as possible in an effort to mitigate these increases.

The past few years have been particularly tumultuous for distillers as they have had to deal with a global pandemic, tariffs and other geopolitical tensions.

Russia’s invasion of Ukraine has had a whopping impact on the global supply chain, impeding the flow of goods, fuelling dramatic cost increases and shortages of key materials.

Distillers are facing rocketing energy bills, longer delivery times for equipment, a lack of raw materials such as grain, and a major glass shortage.

A survey conducted by trade group the Scotch Whisky Association (SWA) found 57% of distillers have seen energy costs increase by more than 10% in the past year, with 29% witnessing their energy prices double.

Almost a third (30%) of Scotch distillers expect energy costs to double in the next 12 months.

The survey also found that 57% of businesses expect energy costs to go up by a further 50%, and nearly three-quarters (73%) expect the same increase in shipping costs.

Islay distillery Kilchoman has reported price increases between 20% and 40% for most things, according to founder and managing director Anthony Wills.

“This is something that isn’t going to slow down anytime soon,” he added, citing issues with the supply of cardboard, glass and corks.

“We are holding all our pricing at the moment until the end of the year, then we’ll see where we are. We’ve built in enough contingency in the past that has allowed us to absorb these costs.”

Irish whiskey producer Teeling has also cited an increase in energy bills of between 50% to 70%, said its founder and managing director, Jack Teeling.

Teeling reported a 40% price rise in glass, as well as increases for freight, cardboard, gift packaging, labels and cork – “by substantial double-digit figures, most of them are like 20%”.

Wills also cited “massive” delays, which have meant the distillery has had to stockpile materials.

“We’ve had to buy forward most of our dry goods and supplies to make sure we’ve got enough to send orders out,” he said. “We have had to take warehousing in Glasgow to store our dry goods.”

The shortages in glass are also causing a delay in the release of new products for distillers, including Kilchoman.

“The main challenge is making sure we have enough glass, and knowing that the production is going to happen,” says Wills. “It often doesn’t happen when we hope it’s going to, and it gets pushed further down the road. On occasions we’ve had to delay releases a little until we got the glass back.”

He continued: “Most of the large companies in the whisky industry have four or five different glass suppliers to offset any issues they might have with one or two. We don’t have that luxury – we have one supplier of bottles. There’s a massive demand and they can’t keep up with supply.”

Limited availability

Tonic and mixer producer Fever-Tree said it has also been affected by rising prices for glass, with limited availability from its suppliers in the UK and Europe.

In its latest full-year financial results, the company said the move will limit its “opportunity to deliver revenue [increases] despite strong demand”.

A lack of workers in the US also forced the mixer producer to make and ship more drinks from the UK amid rising freight costs.

In Australia, trade group Spirits and Cocktails also cited several cost increases over the past 12 months for distillers, including a 55% increase on freight, a 20%-30% rise on glass, a 50% hike on cereals, and a 16% surge on oak barrels.

This was on top of a recent tax rise for the country’s distillers, described as the biggest increase in nearly 50 years.

Tax has risen to AU$94.41 (US$61.28) per litre of pure alcohol, based on consumer price inflation figures, which means Australian distillers will have to pay an extra AU$1 of tax on an average 700ml bottle of spirit at 40% ABV.

Australian gin producer Four Pillars had previously been able to absorb prices when consumer price inflation was “flat for several years”, according to Cameron Mackenzie, head distiller, but now the distiller has been forced to increase its gin prices by around “3% or 4%”.

Four Pillars also cited an increase in energy costs of around 30%. A vast amount of the company’s dry goods come from abroad, which is “very challenging”, he added.

In some cases, the company was forced to airfreight dry goods because they were going to run out of them, he says. Mackenzie cited huge costs for shipping containers carrying glass that have risen from AU$2,000 to AU$12,000 or AU$14,000.

Also juniper, which the company sources from the UK, “is worth five times more than it was before the pandemic”.

As such, Four Pillars is looking to source its glass from the Emirates, as it’s closer to Australia.

Despite the challenges, the one upside is distillers are increasingly looking to make their operations more sustainable, which will help to reduce costs in the long term.

The increases in prices mean some distillers are forging ahead with sustainability schemes, including reducing packaging.

Energy-saving projects

Teeling is pushing forwards with energy-saving projects at its distillery, and is reassessing whether it needs all its secondary packaging and gift tubes.

The Dublin distillery is also installing solar panels on its roof.

Four Pillars, which in April opened its new carbon-neutral distillery in Victoria, is looking to drop between 10% and 15% of the weight of its glass bottles, which should hopefully reduce shipping costs, adds Mackenzie.

He said: “We talked about trying to find domestic suppliers of things immediately; that is good because it eliminates some shipping costs, and therefore the carbon offset, but it also gives you the opportunity to challenge suppliers to be a bit more sustainable. And if they’re using more recycled material, that will bring prices down.”