Awash With Whisk(e)y

The whisky industry is facing a significant challenge with falling demand, particularly in the United States, leading to concerns about oversupply and the potential for another whisky glut. Many Scotch distillers are reducing production, but Tom Bruce-Gardyne, co-founder of the Port of Leith distillery, believes this issue is more widespread across the industry.

According to Diageo's President Global Supply Chain & Procurement, Ewan Andrew, every product they distil, every barrel they fill, and every palate they create must work harder to generate returns on investment. Diageo's inventory of maturing stocks is valued at $8.5bn, with about two-thirds in Scotch whisky, which represents a substantial amount of casks in warehouses across Scotland.

Diageo has scaled back production and distillation across Scotch, North American whiskey, and Tequila, with a dramatic cut of about two-thirds in production for this fiscal year, followed by partial recovery through FY29. This represents a reduction of more than 50 per cent in the barrel count over the next three years. The company has paused production at its third-largest malt distillery, Teaninich, and its Roseisle maltings, and reduced production at its Cameronbridge grain distillery, leading to job cuts.

Other Scotch producers, such as Ian Macleod Distillers, have also lowered production by 30 per cent this year, while LVMH's Glenmorangie and Brown Forman's Glenglassaugh and Benriach distilleries have experienced intermittent pauses. Brown Forman, known for Jack Daniel's, is well aware of the oversupply of American whiskey, with Kentucky currently drowning in bourbon, with 16.2m barrels in warehouses compared to less than 6m a decade ago.

The oversupply in the US is largely due to speculation, as prospectors were lured by the promise of quick returns. In Ireland, a similar situation occurred, with speculators vanishing, leaving banks that financed the stock to suffer losses. The big brands in the industry will likely survive, but deals have been made to help drain excess supply.

In the UK, a similar 'stampede' into gin occurred due to an explosion of new brands and a lack of a contract distilling model. Despite this, the UK whisky market is more adept at adapting to inventory challenges through various strategies, such as changing age statements and over- and under-ageing. Despite the challenges, experts believe that Scotch whisky producers are well-equipped to manage their inventory and navigate the turbulent times ahead.