Thursday 29 September 2016

Whiskey growth 'will benefit the big distillers most'

Former Competition Authority tsar says new entrants will struggle without wholesaling, writes Gavin McLoughlin

Published 22/11/2015 | 02:30

Many famous Irish whiskey brands, including Millars, Glen Erin, Kinahans, Burkes and Redbreast, were owned by firms which never owned a distillery
Many famous Irish whiskey brands, including Millars, Glen Erin, Kinahans, Burkes and Redbreast, were owned by firms which never owned a distillery

Most of the projected growth in Irish whiskey sales will accrue to the bigger distillers and smaller entrants to the market will struggle without an established wholesale market, according to a new report.

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The report, by former Competition Authority director of competition enforcement Pat Massey, says the much greater size of the Scotch market is aided by a wholesale market that allows brands to be developed by companies - through processes like blending - without actually owning a distillery. It says Ireland lacks a similar market.

"There are numerous Scotch brands owned and marketed by undertakings which are not engaged in distilling, but which purchase supplies of whisky from various undertakings," the report, commissioned by The Wild Geese Irish Whiskey, says.

"Such operations are facilitated by the existence of an established market for the purchase and sale of bulk whisky, with the price determined competitively by the interaction of supply and demand.

"These companies have contributed to the international success of the Scotch whisky industry and their success demonstrates that it is possible to build a major international whisk(e)y brand without owning a distillery. The lack of a similar wholesale market for bulk Irish whiskey, therefore, prevents the emergence of similar successful Irish whiskey brands and represents an obstacle to increasing export sales."

Agriculture Minister Simon Coveney has said: "Unprecedented opportunities exist for growth and expansion in the Irish whiskey sector."

Annual exports are above €300m, a leap of 220pc since 2003.

The Irish Whiskey Association said it is aiming to grow global market share by 300pc by 2030 and to have investment come to €1bn for the period between 2010 and 2025. It wants to increase production by 41pc over the same period.

Massey's report says Scotland has 115 working distilleries, compared to 12 in Ireland. Total direct employment in the Scotch whisky industry amounted to more than 10,000 people in 2014, compared to 750 in the Irish whiskey industry.

"Irish whiskey exports have increased dramatically over the past 10-15 years. Nevertheless, Scotch whisky exports exceed those of Irish whiskey by a substantial margin.

"The existence of significant barriers to entry in the whiskey industry, however, constitutes a significant impediment to the establishment of new firms and new brands. These entry barriers are mainly on the production side and arise because any undertaking which opens a new distillery in order to enter the whiskey business must wait at least three years [because of the rule that whiskey must be matured for three years before it can be sold] before it can generate any revenue from sales of its product, while they must bear the cost of storing and maturing product in the interim," Massey's report says.

"New entrants could overcome production entry barriers by purchasing whiskey supplies from existing distilleries. Many famous Irish whiskey brands, including Millars, Glen Erin, Kinahans, Burkes and Redbreast, were owned by firms which never owned a distillery. This would enable them to concentrate on developing new brands and marketing them in overseas markets, without having to incur the significant sunk costs involved in storing and maturing product."

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