Investment Opportunities

Distillers Look to Cash In as Premium Whiskey Demand Grows

It’s impossible to buy more time on Earth. But in the midst of a global whiskey boom, distillers have no problem putting a hefty price on time in a bottle.

Case in point: a vintage bottle of Pappy Van Winkle Kentucky bourbon will set you back $2,600.

If that sounds like a bit too much, you’re increasingly in the minority. Thanks to a new generation thirsty for whiskey, analysts expect the global whiskey market to grow by a compound annual growth rate of 4.45% through 2018.

Small craft distilleries with rare offerings have been reaping the most benefits thus far. But as the market grows, large whiskey makers are also looking to cash in on the trend. Here’s our intoxicating analysis.

Battle of the Bourbons

Consumer demand isn’t simply resting on one area, either. Whiskey from Scotland, America, Canada and other countries are on the rise.

However, demand for Irish and ultra-premium whiskies has seen the biggest growth, according to a study by Research and Markets.

To put it into perspective, scotch whiskey currently accounts for about 25% of the United Kingdom’s food and drink exports. In 2007, scotch exports equaled $4.6 billion. By 2013, they rose to $6.9 billion. But analysts agree that the world’s biggest liquor manufacturer, Diageo PLC (NYSE: DEO), missed the bus on that one.

Although sales of Diageo’s most expensive labels rose by 10%, the company reported a 1.7% drop in quarterly net sales in October. Part of Diageo’s problem, analysts say, is that a large part of its profit hinges on vodka sales.

While whiskey’s popularity soars, vodka’s is slowing. Vodka still sells the largest volume when compared to whiskey, but sales have flattened out as of late.

This year, experts say whiskey will likely overtake vodka as the most sold liquor in America. Vodka has held that title since 2006.

But according to a study done by industry analysis firm Euromonitor in 2013, only one vodka made the list for the top 15 fastest-growing liquor brands by volume. Eight whiskeys were on the list.

For big producers, scoring a whiskey win will be no easy task. Experts say consumers want more than a buzz off of their bourbons and scotches.

They want a story behind the bottle’s contents, which analysts say isn’t exactly big whiskey’s forte. Rather, it’s a challenging fact for Diageo and its brethren, including Jack Daniel’s maker Brown-Forman Corporation (NYSE: BF-B).

The answer may lie overseas, as Brown-Forman has increasingly targeted developing countries for growth.

During the company’s fiscal year 2014, sales in emerging markets increased by 9%. Analysts have called its iconic brand, Jack Daniel’s, the “Coca-Cola” of whiskey due to its long-running rep as a uniquely American whiskey.

But Diageo is also taking steps to capture more of the market. Its Orphan Barrel Whiskey Distilling Company is located in Tennessee. There, it bottles super-rare blends from long-forgotten casks of vintage whiskey.

The company also announced it would be opening a $115 million distillery in Kentucky. Already, the state’s $3 billion distilling industry is responsible for creating 95% of the world’s bourbon whiskey.

The boost in inventory mirrors a boost in demand, as well. Over the last five years, domestic demand has jumped 20%.

But the brews aren’t just staying in the States. In fact, Diageo plans to launch a scotch specifically designed for Asian palates in November with famous footballer David Beckham as spokesperson.

Though big whiskey is making power moves, keep an eye on earnings reports to gauge how well they’ve connected. After all, the average American whiskey takes about seven years to age – hopefully long enough to make up your mind on investing.

Articles by
Related Articles