Scotch distillers warned to grow more carefully

The Scotch whisky industry has been advised to draw on the wine category’s experiences and grow at a steadier rate to avoid the shifts between excess supply and stock shortages that have blighted its past.

The Scotch whisky has been warned to grow at a steadier pace to avoid periods of oversupply

A new report by Rabobank recommends producers continue to grow production of Scotch whisky, exports of which were up 32% in 2013 (HMRC), but ensure the process is smoother to better prepare for sustainable growth.

The report – named Now That’s Smooth – draws on the experiences of wine producers, who also see periods of shortages linked to the harvesting season, along with key data from the Scotch industry to highlight three ways the industry can better prepare for sudden increases or decreases in demand.

It suggests producers maintain stable production growth going forward to avoid the “six to seven-year cycles” of excess supply followed by tight inventories.

Secondly, Rabobank recommends producers resist the temptation to ramp up supply too quickly.

“From 2006 to 2012, total inventories rose 17%, while annual consumption rose just over 11%,” the report read. “This level of inventory growth is clearly needed in the short term to create future availability of aged stocks, but at some point, the production should return to a more rational rate of growth more in line with a slightly conservative projection of consumption growth.”

Finally, the report suggests brand owners turn to innovation rather than discounting to combat periods of oversupply, even embracing flavoured extensions like the American and Canadian whisky industries.

Swift Scotch growth

The last decrease in production was during the global economic crisis in 2008, when stocks dipped from around 525 million litres of pure alcohol to 430 million litres in 2010.

While the industry has since returned to its fastest rate of growth since the crisis, Rabobank has warned producers to reflect on whether such a steep growth rate is wise.

“The Scotch industry is currently enjoying excellent growth prospects due to growing demand from a wide range of emerging markets, as well as the US,” the report read.

“While production growth is certainly warranted, a smoother rate of growth would avoid the trends of oversupply and shortages, which have created challenges for the industry in the past. Furthermore, the targeted growth rate should avoid a return to oversupply in order to maintain Scotch’s premium image over the long term.”