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Whiskey As An Alternative Asset


wealthymattersOlder than income tax ,consumed in almost every country in the world today,simple commodity blending whisky ,still in the barrel, traded and held inside Scottish warehouses ,with no VAT tax or duty to pay is an alternative asset, which has consistently beaten almost all major financial markets year after year. Over the past decade, maturing Scotch whisky has outperformed the UK stock market, dividends included and paid better returns even than London property.

These returns from maturing Scotch whisky, still in the barrel, have also been remarkably steady.Since the financial crisis began a decade ago, barrelled whisky has never returned less than 60% after all costs when sold at six years old. It has never paid less than 108% at eight years old, and never paid less than 190% at 12.

wealthymatters

But mind well, these are not returns from rare bottles of Scotch, inflated at auction by collectors or speculators. Nor have these returns come from the very top-end of single malt whiskies.The chart above shows you the average returns across the hundred or so different blending whiskies traded by distillers, bottlers and brand owners, while it’s still inside the barrel. So these repeated gains, time after time, have in fact been driven by consumer demand for the unsung workhorse of the global whisky business -Blended Scotch.This smoother drink can mix 40 or more single malts with 60-70% of a plainer grain whisky. Easier on the palate, it’s much easier to brand and sell at high volume. That’s why blended whiskies account for 9 bottles of Scotch in every 10 sold worldwide today. And the world drinks A LOT of Scotch whisky…….Think France drinks Cognac? Last year the French drank 40 times as much Scotch, importing more whisky from Scotland than France exported brandy worldwide. Mexico now spends very nearly as much on Scotch as it does on Tequila.​Canada has been making its own whisky for over 200 years. Yet Ottawa’s House of Commons in 2016 chose a single malt Scotch as its official whisky – just as it has since 2003.Japan’s whisky industry is gaining favour with single malt drinkers, but it relies on Scottish supplies of new spirit, buying 82% of all Scotch exported younger than 3 years old since 2010.All told, Scotch whisky sells for higher prices than any other type of liquor worldwide. It accounts for 4% of global spirit sales by volume but three times as much by value.

Scotch whisky’s export success comes thanks to more than 100 years of deep global branding and marketing. Drinkers everywhere recognise and enjoy it as a high-status, aspirational but affordable luxury.Take Johnnie Walker, for instance. The world’s No.1 spirits brand today, it was first heavily marketed in the 1870s.By 1909 it already wore its distinctive rectangular bottle, with the sloping label and ‘walking man’ logo. By 1920 it was on sale in 120 markets worldwide ,long before Coco-Cola became a world-wide phenomenon.

Winston Churchill knew Scotch’s huge value. As Britain’s war-time prime minister, he ordered supplies of grain to Scotch distillers to re-start in 1944, as soon as victory looked certain Because, as Churchill told Parliament: “Scotch takes years to mature and is an invaluable export and dollar producer.”And till today, the situation is the same. Scotch whisky today accounts for 25% of all UK food and drink exports, with total sales of £4.5 billion a year. Export demand sees the equivalent of three cases (of 12 bottles each) leave Scotland for overseas markets every second. Global sales have grown 1.5% per annum by volume over the last 30 years and more than twice as fast by value. Demand has deepened as it spreads, with 30 national markets now buying more than half-a-million cases each every year – up from 14 in 1985.

Who buys and drinks all this Scotch?The spirits industry certainly targets that 20-30 year old market. Because globally, half-a-billion people will come of legal drinking age over the next decade. But in the main, the big blended Scotch brands sell best to a less fickle, far steadier and more affluent consumer market…Middle-aged, middle-class men. Wherever they live…from Brazil to Botswana, Turkey to Thailand…these breadwinners, managers and business owners aged between 40-60 often enjoy a good Scotch. This key demographic will only grow larger as today’s newly-made spirit slowly matures into valuable 12-year old Scotch, swelling more than 6% across the world’s upper-middle and high-income nations on World Bank forecasts. This number excludes ‘dry’ Islamic countries of course. It also excludes China, because whisky has yet to make serious inroads into the world’s second-largest economy.

Yes, China is now a key target for the industry’s multi-million pound marketing budgets. But investers don’t need Scotch demand to grow for maturing whisky to gain value as it ages.Just the solid, consistent demand which more than a century of global branding has built. Plus the slow magic of oak barrels,stored in Scottish warehouses, giving the malt or grain spirit they contain those complex flavours of vanilla, heather and toffee loved by whisky drinkers the world over.

wealthymatters​Past performance is no guarantee of future returns, of course. Within these average trends, prices and gains have fluctuated.Since 1978, three-year old whisky has been worth less than it cost when first made a total of 12 times once you allow for the trading and storage fees .Owners would have faced a loss 11 times at 4 years old,9 times at 6 years old and twice at 8 years old over the last four decades. But the longer it stays in the cask, the more mellow and mature the whisky becomes and the more money whisky drinkers will pay to savour it. That’s why, according to the four decades of trade-broking data,maturing Scotch bought new and sold at 12 years old has never yet lost money after all costs.And as the industry has consolidated over the last 20 years or so, more cautious production means prices have become more stable and seen steadier appreciation.

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About Keerthika Singaravel
Engineer,Investor,Businessperson

2 Responses to Whiskey As An Alternative Asset

  1. BellyBytes says:

    Cheers to this good news ! What about whiskey in the bottle? Does that appreciate over time ?

    • Keerthika Singaravel says:

      That’s more like collecting baseball cards and trying to predict future value.
      The industrial stuff is a lot less guesswork.

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