Showing posts with label whisky marketing. Show all posts
Showing posts with label whisky marketing. Show all posts

Why Is Whisky So Expensive.

Why Is Whisky So Expensive.
I do believe that whisky is currently (too) expensive. Like in all markets the price, in the end, is either driven by simple Supply and Demand and/or by the more subjective perceived value of the product.
Let’s have a look at the Production Side first. It is most likely that the actual production costs of whisky have not increased a lot, if any. At the beginning of the century there were hundreds of privately owned distilleries that most likely weren’t very cost effective. Today, large Multi National companies control most distilleries. Because of their size they usually are more cost effective both in operational and financial terms. To put it simple, they produce cheaper and pay less interest when they borrow money to finance the storage of the whisky during the maturation. And they merge distilleries to gain economies of scale thereby reducing labor costs.
Production technology improved a lot as well. New mash technologies optimize the extraction of sugar from the barley. A lot of energy saving measures was introduced and a lot of distilleries today re-use the energy during the production process. Wash Backs today are almost always made of stainless steel rather than wood. Much easier and cheaper to clean and less chance of bacteria.  All this greatly reduced the costs even considering the fact that whisky loses around 2% of “ Angel’s Share” per year during maturation.
So from a cost of production point of view I believe that the price of whisky should be relatively lower rather than higher than say 25 years ago. There are of course some variables in the ultimate consumer price such as local taxes that differ a lot from country to country. In Holland or Germany you pay around Euro 60 for a liter of Glenmorangie Nectar d’Or. Here in Brazil they want Euro 130 for that same bottle. While it costs around Euro 60 in the Free Shop at the Sao Paulo International Airport.
From the above I deduct that there are other reasons for the current high prices. For a long time the family owned distilleries had no – or little cash to spend on marketing. Today the multinational owners spend lots of money in this area. They really create the image of a Brand name or Single Malt or region around the globe. And to a growing number of consumers, as buying power is on the rise principally in the Asian and East-European markets.
And these new consumers who have lots of money to spend not only are willing to pay high prices for the older whiskies. They also found a new hobby in collecting whisky, especially older whiskies, special editions and whiskies from closed distilleries. And the industry is quick in offering special editions, limited casks, exotic finishing etc. This way, a lot of whiskies are becoming rare and therefore more expensive. Extremely high prices have been paid. I think the record was Euro 140.000 for a Bottle of Dalmore 1962. No whisky is really worth such an amount but it still could be a good investment with all these jealous collectors around!
We can ask ourselves if really expensive whisky is worth the money. Does the whisky really get better with age? I would say that older whiskies are different. They usually become more complex and therefore acquire unique flavors that made them stand out. But better? In the end that’s a matter of individual taste. Most whiskies above 30 years become too woody for my taste because of the extensive cask contact.
As older whiskies get rare and more expensive the basic distillery expressions like the 10-15 years range also begin to profit from the increased demand. And the industry increases its marketing efforts as soon as they perceive that a specific product or region is hot. I will give you a couple of examples. In the Highlands and Speyside you can still find good Single Malts with dusty and boring labels. Not something to attract new consumers. In contrast you see how much marketing effort is being put in the Single Malt whiskies from Islay. No boring labels here but nice bottles with new labels and names that refer to Mist and Waves and Beasts and what have you. And people go for that stuff. Hell, I do!
For the average consumer like you and me it means that whisky will stay expensive, at least for a while. On the other hand there is no need to pay large amounts of money for older whiskies. There are lots of good whiskies to be found in the range between Euro 50 and Euro 80.
I am a little worried though about quality. Because in every market it works more or less like this: If there is no demand, even with low prices, you have to beef up quality to attract consumers. In the world of today it’s the other way around. There’s a huge demand and the industry is going long ways to guarantee supply. Smaller casks are used to speed up the maturation process. Distilleries are working 24/7. And maturation takes place outside the production region simply because of lack of space. Will quality be maintained?  It’s up to consumers like you and me to closely follow quality versus price. And make our choice based on that!