It's hard to imagine in these days of explosive growth in the number and capacity of distilleries and the range of bottles coming our way that not so long ago things were vastly different. In this little word pile, we will look at some of the major challenges that distilleries face and that, if not handled correctly, can lead to their demise. In the next article (part two) we will look at why things today are so different, with the birth of so (so) many new distilleries, the unprecedented amount of whisky being produced today and in the near future and what is driving it.
Like most industries whisky has cycles of boom and bust. Most reasonable people would agree we are currently in a (still) upward trending boom, a fact which a lot of vested interests and new entrants to the distilling game have seized on to expand, build or more interestingly, resurrect.
In today’s article we'll be looking at the not so happy part of the cycle, the death of distilleries.
What are the main factors that (could) lead to the death/closing of a distillery?
Distilleries as businesses face the same challenges as most businesses when it comes to keeping the doors open. These include (but of course are not limited to) the following, all of which either directly or indirectly feed into each other, and when not managed correctly, can spell the end of many a business, big or small.
Whisky production was traditionally a relatively complicated, labour intensive process. Indeed some distilleries still do things the 'old' way because they strongly believe in the whisky that is made this way is superior (or their marketing team tells them it looks good on a whisky label). Times have moved on (for most) and many of the original production methods and tools have been replaced as newer methods and equipment become available.
Direct coal or wood fired stills have been largely replaced by stills employing electric elements or more commonly steam coils or jackets, for efficiency and speed. Steam and electric powered stills lose much less energy to the atmosphere and impart the heat more efficiently into the still as the heating surface is now spread over a larger and more diffuse area vs a direct fired gas/coal/wood still (think of a kettle over a single flame just heating the bottom of the kettle vs an electric element kettle for example).
Hand stirred mash tuns can now be replaced with automated mechanical agitator units, reducing the amount of manpower (and wages) required to extract as much ferment-able sugar as possible from the mash.
Computerisation and automation of distillation has dramatically reduced the amount of staff needed to oversee and carry out the distillation process, and therefore reduced wages at some (usually larger) distilleries.
Retrofitting these and other technologies into an older distillery can be cost prohibitive and when money is tight, and cost cutting is in order, typically older, less efficient distilleries are closed first in favour of cheaper, more modern and efficient operations.
Most businesses forecast consumer demand and produce goods and services accordingly. This is particularly challenging in whisky where forecasting needs to look forward at least 2-3 years and often DECADES ahead. Planning how much whisky to make and what kind of whisky to - make peated vs unpeated, grain vs malt? This becomes particularly relevant for companies that own multiple distilleries like Diageo or Pernod Ricard or those that have the capability to make multiple styles in one distillery, e.g. Bruichladdich, Springbank, Tobemory.
The risk of not making enough whisky to sell in the future (see the shortage of Japanese age statement whiskies today due to a lack of forecasting in the 1980s-2000s) is weighed against the risk of making too much, with the cost of wages, buying barrels and barley and waiting years for a mature product, hoping it will still be in demand all that time later.
Over Supply / Low demand
During the early 1980s Scotch whisky famously had a large amount of 'excess' whisky - it even had a nickname, the Whisky Loch (sounds like a great holiday destination to us). The factors the led to this dire situation were many, including almost all of the other items in this article to greater or less extents. These days (or ever?) it’s hard to imagine there being too much Scotch from the 60's and 70s lying around.
The major downside for distillers and brands in this scenario is that even though fixed costs like wages, rent and loans for plant and equipment still need to be paid, the amount of whisky in the market outstipping consumer demand leads to stock not moving fast enough to keep paying the bills and the devaluation of whisky in general (a bad scenario for a 'premium' product). Discounting can be used to try to recoup some of the money tied up in bottles and to keep creditors and staff happy, but this is not sustainable in the long term and damages the perceived premium nature of whisky. This oversupply is then compounded by MORE whisky in barrels hitting its prime and needing to be bottled before the current supply is purchased.
Whisky (when made with due care and consideration) is a fickle creature and every barrel is different in terms of how much time is 'just right' to give the perfect balance between spirit and cask. Whisky left too long in the cask will eventually become sub-par, undrinkable (challenge accepted!) or not fit for sale, whether by over oaking (where the spirit has been completely overwhelmed by either the wood and/or the liquid it used to hold e.g. Sherry or Port etc) or through evaporation, dropping below the legal ABV for whisky. This added time pressure can make the oversupply situation worse as the impetus is to bottle casks before they either 'go bad' or more money is spent, bottling yet more whisky and no one is buying.
Changing consumer tastes
One of the biggest influences on whisky consumption is consumer trends. Whisky does not exist in an vacuum, and competes with all other alcoholic beverages and spirits for people's attention and money. Current trends in Australia show double digit growth year on year for single malt whisky. While things are rosy now, whisky has not always been this popular. With larger volumes, sales and marketing whisky is now taking the marketing fight back to the more 'sexy' (but infinitely less interesting or tasty) vodka and champagne brands. The rise in popularity and demand for craft and premium spirits is also helping to drive the current boom in whisky, with consumers more invested and interested in where and how the things they buy are made. Consumer education also drives consumer interest and is something that is being carried out far more effectively these days, than in previous eras.
A good example of where consumers have trended away from whisky leading to distillery closures can be found in the 1960's through to the 1980's, where a staid whisky industry was overrun by the then new hotness - vodka. As immortalised on screen by James Bond in a 'svelte' martini, the trend towards lighter spirits and cocktails was on, leaving whisky for the 'Grandpa's' (from a public perception standpoint). Nowadays, as avid whisky drinkers we all know the best martini recipe is to add 2 parts vodka, 2 parts vermouth, shake or stir over ice, then pour down the sink and get a glass with some whisky in it, but this has not and will not always be the case for the majority of the drinking public.
Economic stability / growth
Nothing cuts into a business producing luxury items like whiskyies bottom line quite like a lack of discretionary funds. Being a non-essential (well supposedly according to economists - but what do they know?), premium purchase (yes $8 wine is a thing, but really?), when times are bad for the economy, they are VERY bad for whisky. The early 1980's saw a perfect storm of bad news for the whisky world, not least of which was a global downturn in most major economies, triggered by the late 1970's oil crisis. The direct impact on consumers and businesses hip pockets left less money for luxuries like whisky. Less money for whisky directly translates to less distilleries and/or reduced output.
More of a historical factor, but one that has led to the closing of many distilleries (and some interesting 'innovations' to skirt them) is the introduction or amendment of regulations, or laws, that pertain to spirits distillation, production and distribution. Early excise regulations introduced in the UK and Ireland led to many distilleries closing down (typically illegal operations that had neither the money or inclination to go legit), or heavily modifying their production methods. Taxes on malted barley led to the Irish innovation of mixing both green (un-malted) barley and malted barley in whiskey production.
Prohibition in the US during the 1920's and early 1930's caused a massive worldwide slump in demand for whiskey as it was now illegal to produce or sell in the US, closing access to one of the largest whisky consumer markets in the world, directly and indirectly leading to the collapse of many distilleries, Ireland in particular being hard hit.
Australian distilleries today struggle with a tax regime which is out of step with other locally made and imported alcohol but so far does not seem to have been directly responsible for the closure of any distilleries.
Economies of Scale
Similar to technology, distilleries that produce whisky on a larger scale, tend to do so far more economically than smaller operations. In times of economic downturn or over supply, distilleries who make whisky for less are at a fairly large advantage as they have more room to move in terms of pricing and don't cost as much to run compared to bottles produced, so are more attractive to shareholders and bean counters. The 'rationalisation' (fancy way of saying 'stemming the bleeding') of Scotch whisky distilleries in the 1980s saw a lot of the smaller, less cost-effective distilleries closed in favour of their bigger, comparatively cheaper to run siblings. Port Ellen and Brora, two now cult distilleries, were closed in part due to the fact the owners had other similar distilleries in their group that had much better economies of scale (Caol Ila, Lagavulin, Clynelish).
It's not all doom and gloom though. Luckily we are in the middle of a boom right now (the sustainability of which is questionable) so our advice is to enjoy it while you can!
The Whisky List
P.S. we have used whisky interchangeably with whiskey (most of the time) in this article because life is too short to type whisk(e)y all the time.