The business of whisky

Question 1

What is the Scotch Whisky Regulations (2009)?

Answer 1

The legislation in the United Kingdom relating to Scotch whisky. This law specifically “provides for the regulation of the manufacture, marketing, movement and labelling of Scotch whisky.”

Question 2

What are the 4 key areas covered by the Scotch Whisky Regulations legislation?

Answer 2

1. the raw materials used
2. the distillation process
3. maturation requirements
4. bottling

Question 3

Single malt Scotch whisky can only be made from which 3 ingredients?

Answer 3

1. water
2. malted barley
3. yeast

These 3 ingredients must be made into a mash and distilled.

Question 4

What are the requirements of Scotch maturation according to legislation?

Answer 4

The spirit must be only matured:
1. in Scotland
2. in oak casks no larger than 700L
3. for no less than 3 years.

Question 5

What ABV must Scotch be bottled at?

Answer 5

No less than 40% Alcohol by Volume (ABV).

Question 6

What type of whisky can be produced in Scotland?

Answer 6

The Regulations stipulate that the only type of whisky that can be produced in Scotland is Scotch. This prevents differing ‘grades’ of Scotch whisky being produced.

If there were one grade of ‘Scotch whisky’ as per the legal definition and any other form or variation of ‘whisky produced in Scotland’, it would be incredibly difficult to protect Scotch whisky as a unique and distinctive product, both in the UK and around the world.

Question 7

What is the Scotch Whisky Association (SWA)?

Answer 7

The trade body for Scotch whisky formed on April 17th, 1942: the world’s premier whisky, and the UK’s biggest food and drink export. The mission of the SWA is to drive the best possible global business environment for Scotch whisky.

The SWA oversees the laws and regulations that protect and govern the way Scotch whisky must be produced, labelled, packaged and advertised.

SWA’s members represent over 95% of Scotch whisky production, which encompasses over 2,500 brands globally.

Question 8

Why is it important to have strict regulations surrounding the production and sale of Scotch?

Answer 8

The Scotch whisy industry makes a significant contribution to the Scottish and British economies, as well as contributing to the growth of jobs, cultur and tourism. It is imperative that nothing can jeopardise Scotch whisky’s reputation and quality.

Question 9

What are the 5 defined categories according to the Scotch Whisky Regulations 2009?

Answer 9

1. Single Malt Scotch Whisky
2. Single Grain Scotch Whisky
3. Blended Malt Scotch Whisky
4. Blended Grain Scotch Whisky
5. Blended Scotch Whisky

Question 10

How is Single Malt Scotch Whisky made? What are the ingredients? How is it distilled?

Answer 10

Ingredients: malted barley, water and yeast.

Product of only one malt distillery using pot still distillation.

This means that the whisky has only been produced at one distillery and has been distilled using the traditional copper pot distillation method.

Question 11

How is Single Grain Scotch Whisky made? What are the ingredients? How is it distilled?

Answer 11

Ingredients: malted and unmalted barley, cereals (maize, wheat), water and yeast.

Product of only one grain distillery using either the traditional pot still distillation method or more commonly continuous distillation.

This means this whisky has only been produced at one grain distillery using either the traditional copper pot distillation method or more commonly column stills (continuous distillation).

Question 12

How is Blended Malt Scotch Whisky made? What are the ingredients? How is it distilled?

Answer 12

Ingredients: malted barley, water and yeast.

Product of more than one malt distillery, a vatting (mix) of more than one single malt whisky.

Question 13

How is Blended Grain Scotch Whisky made? What are the ingredients? How is it distilled?

Answer 13

Ingredients: malted and unmalted barley, cereals (maize, wheat) water and yeast.

Product of more than one grain distillery, a vatting (mix) of more than one single grain.

Question 14

How is Blended Scotch Whisky made? What are the ingredients? How is it distilled?

Answer 14

Ingredients: malted and unmalted barley, cereals (maize, wheat), water and yeast.

Vatting (mix, blend) of one or more malt whiskies and one or more grain whiskies. Product of numerous distilleries.

Question 15

The Scotch Whisky Associations (SWA) recognises which 5 different whisky producing regions?

Answer 15

1. Cambeltown: The smallest of Scotland’s whisky regions. It has only 3 distilleries. Located on the remote and stunning Kintyre Peninsula in West Argyll, it lies between the isles of Islay and Arran.
2. Highland (Islands included): Stretching from Orkney in the north to the Isle of Arran in the south, this region takes in the northen isles and most of the Inner and Outer Hebrides, Argyll, Stirlingshire, Arran, parts of Perthshire and Aberdeenshire too. It is one of the largest and most diverse whisky regions in terms of whisky style with the widest array of styles ranging from rich and textured to fragrantly floral.
3. Islay: Known as the Queen of the Hebrides due to her fertile land, Islay was traditionally the perfect place for whisky distilling due to the ready supply of barley and peat.
4. Lowlands: This region is located in the southernmost parts of Scotland, covering much of the Central Belt and the South of Scotland including Edinburgh & The Lothians, Glasgow & The Clyde Valley, the Kingdom of Fife, Ayrshire, Dumfries & Galloway and the Scottish Borders.
5. Speyside: Name for the River Spey, which runs through this area and around which the majority of its distilleries are built.

Note: Despite there being 5 protected regions the Islands are increasingly referred to as a distinct region.

Question 16

Why is it that the Islands do not have their own separate category in the SWA’s protected regions?

Answer 16

When the SWA named 5 regions, there were only a small handful of island distilleries which hardly justifies a separate category. They were simply referred to as a subcategory of the Highlands. With the opening of distilleries from Shetland to the Outer Hebrides and others, an Island region is certainly justifiable.

Question 17

What are the “protected regions” and the “protected localities”?

Answer 17

Protected regions:
* Speyside
* Highland
* Lowland

Protected localities:
* Islay
* Campbeltown
* Islands

Question 18

Where are the different regions located?

Answer 18

Question 19

The Scotch Whisky Regulations (2009) governs the labeling regulations for the Scotch whisky industry. What information can be found on the bottle of Scotch?

Answer 19

1. Brand: The brand/distillery name tells you who made the whisky and will usually be given a lot of space on he label. (e.g. Ardbeg, Bowmore, Cardhu)
2. Region: Although not a legal requirement, the label can say in which of the regions or protected localities the distillery is located. The region can suggest a rough idea of style or flavour profile. (e.g. Highland, Islay, Lowland, Campbeltown)
3. Category: This tells you what type of whisky is in the bottle as defined by the 5 categories of Scotch according to SWR 2009. (e.g. Single Malt Scotch Whisky, Blended Malt Scotch Whisky)
4. Age Statement: It is not a legal requirement to put an age statement on the label, but any age statement that is given must reflect the age of the youngest whisky in the bottle. (e.g 10 or 12 years)
5. Volume: The amount of liquid that is in the bottle. Scotch whisky is usually bottle at 70cl (700mL).
6. Alcohol Content (ABV): The ABV tells you how strong the whisky is. By law, Scotch whisky must be bottled at no less than 40% ABV.

Question 20

What is an offense under the law of the SWR 2009?

Answer 20

It is an offence to “label, package, sell, advertise or promote any drink as Scotch whisky or Scotch if it is not Scotch whisky.”

Question 21

Which region produces whisky that is ofter referred to as “Breakfast Whiskies”?

Answer 21

Malts from the Lowlands, due to their typically light, unpeated, floral, citrusy and sweet style.

However, in truth, the suggesion of flavour-by-region is a little outdated and not so relevant anymore.

Question 22

What is the Angel’s Share?

Answer 22

Each year 1-2% of whisky evaporates as it matures.

The longer a whisky matures, the less there will be in the barrel at the end. By the end of its maturation period, a 20 year old spirit might have up to 40% of its volume.

Question 23

Many whiskies are aged for a lengthy period. How do distilleries recoup the initial cost of production while they wait for later profits?

Answer 23

Some of the new whisky distilleries turn their pot stills to producing gin - which does not require ageing - to balance their cash flow.

Question 24

What aspects influence the finalprice of a bottle of whisky?

Answer 24

1. Production
2. Distribution
3. Warehousing
4. Packaging
5. Marketing
6. Salaries
7. Trade margin
8. Taxes
9. Duty

Question 25

What percentage of the cost of Scotch whisky covers the cost of taxes in the UK?

Answer 25

74%; meaning 3 of every 4 pounds spent on Scotch Whisky goes to the HM Treasury in excise and VAT.

Also, VAT is charged twice on Scotch whisky - on the duty itself and also on the final selling price.

Question 26

Scottish whisky accounts for what percentage of all Scottish food and drink exports?

Answer 26

80%

Question 27

What percentage of UK food and drink exports (by value) are from Scotch whisky?

Answer 27

25%

Question 28

Which nation has been the largest market for Scotch whisky in terms of value?

Answer 28

USA

Question 29

Which nation has been the largest market for Scotch whisky in terms of volume?

Answer 29

France

Question 30

Which nations represent the large whisky markets?

Answer 30

1. USA
2. France
3. Spain
4. Singapore
5. Germany
6. Taiwan
7. South Africa
8. India

Question 31

How much money does Scotch whisky add to the UK economy?

Answer 31

3.3 billion pounds in direct economic impact to the UK, an increase of 21% since 2008.

Overall, economic impact is almost 5.5 billion pounds in Gross Added Value.

Question 32

How many jobs does the Scotch whisky industry provide?

Answer 32

40,300

Question 33

How much of Scotch whisky sold is exported?

Answer 33

90%

4.7 billion pounds a year.

Question 34

What is the key difference between value and volume in regards to Scotch whisky?

Answer 34

Single malt Scotch whisky is a higher value product.
Blended whisky produces more volume.

Question 35

What are the issues and problems facing the Scotch whisky industry?

Answer 35

1. The threat from counterfeiting: robs companies of sales/profits, can damage brand image of Scotch.
2. Minimum pricing: Minimum Unit Pricing (MUP) was introduced by the Scottish Government on May 1st 2018 to reduce alcohol-related harm. 25-30% of whisky sales could be hit, harming producers’ “own label” brands. This could also lead to copycat measures overseas, dampening Scotch whisky sales.
3. Fall in 2020 exports after record highs in 2019: 2020 exports fell 22% year on year due mainly to the pandemic and US tariffs.
4. Brexit & US tariffs: Brexit deal made in December 2020 enables free trade between the UK and EU, allowing for potential to strike deals with other global markets with some short-term issues to be resolved. The US 25% tariff on single malt Scotch imports caused exports to fall 35% (Oct 2019-Nov 2020), but was suspended in March and will remain for 5 years from June 2021.
5. Competition from other spirits: Increased awareness & sales of Irish Whiskey, rum and gin provide competition.
6. Discrimination against Scotch: High import tariffs and local taxes can reduce sales in various countries often target Scotch whisky
7. Sustainability strategy: SWA released a new sustainability strategy in January 2021 pledging the industry will achieve net-zero carbon emissions in its operations by 2040.

Question 36

What does premiumisation mean?

Answer 36

Premiumisation has become a clear trend with consumers drinking less and drinking better. Single malts sales continue to rise as a proportion of total sales.

Question 37

How does the SWA’s sustainability strategy compare to that of the Scottish government and the UK government?

Answer 37

The SWA pledges the industry will achieve net-zero carbon emissions in its operations by 2040. The goal places the industry 5 years ahead of the Scottish government and 10 years ahead of the UK government.

Question 38

What aspects of the Scotch industry have been impacted by the Covid-19 pandemic?

Answer 38

1. Production: the industry continues to run at reduced capacity due to safety concerns and restrictions. Some distilleries gave over part of their production to the making of hand sanitizer for the NHS and other front-line services.
2. Sales & Consumption: Scotch whisky fell 29% by value and 24% by volume during January to May 2020 (year on year comparison). This was exacerbated by US tariffs with 25% tariffs on single malts (not blended) which fell 34% by value and 19% by volume.
3. Tourism: Visitors are a significant source of income for distilleries and helps promote the brand. All distillery vistor centres and attractions were closed in March 2020. This continues to be impacted with traveling limitations.
4. Communication: new Scotch whisky releases and limited editions rely on constant stream of communication with the consumer. Writers/influencers require events, tastings and distillery visits to spread information. All of which were halted during the pandemic. New/creative methods were found.

Question 39

How was Diageo, the industry’s leading operator, impacted by the Covid-19 pandemic?

Answer 39

Diageo recorded a 17% reduction in net sales for Scotch. Their flagship brand Johnnie Walker, the world’s best-selling Scotch whisky, seeing revenues plummet by 22%.

Diageo’s performance was negatively impacted by the company’s exposure to travel retail and the on-trade - two channels which have suffered the worst effects of the pandemic and lockdown. The company is also a strong participant in emerging economies which, along with travel retail, account for two-thirds of its Scotch sales.

Question 40

How many people visited distilleries in 2018 and how much was their combined spending?

Answer 40

In 2018 - the last year for which figures are available - there were just over 2 million visits to distilleries, up 6.1% on the preceding year, and some 56% higher than 2010.

Those visiters spent a combined total of 68.3 million pounds, up 12.2% on 2017 and more than 150% higher than 2010.

Question 41

How much has the industry spent on tourism over the past 5 years?

Answer 41

More than 500 million pounds in new distilleries, visitor centres and techological developments.

Diageo alone invested 185 million pounds, including the development of the Johnnie Walker Experience on Princes Street, Edinburgh - s seven-storey visitor attraction which aims to emulate the success of the company’s Guinness Storehous in Dublin, which draws 1.7 million visits a year.

Question 42

What new methods of communication did the industry establish to tell people about new products and initiatives during the Covid-19 pandemic?

Answer 42

Virtual tastings and online masterclasses: Ardbeg’s The Smoke Sessions saw the Islay single malt join forces with “DJ BBQ” - barbecue expert and DJ Christian Stevenson - in an Instagram Live virtual event targeted at backyard barbecues around the world.

Online Sales: One special bottling from Tamdhu - its Edinburch Airport European Sherry Oak Single Cask expression, the distillery’s oldest single cask release to date - had to be sold via the Tamdhu website amid global disruption to air travel.

Telephone consultations services: Glen Moray offered a personal telephone consultation, or “Distillery dial-in”, to sell its wine-finished trio of Distillery Edition bottlings.

Direct to local sellers: After the cancellation of the Spirit of Speyside whisky festival, Glenfarclas sold its special “Stillmen’s Dram” single cask festival bottling via London merchant BI Wine & Spirits - with 10% of sales donated to local charity the Moray Food Plus foodbank.

Question 43

How many distilleries operated in Scotland as of late 2020?

Answer 43

134

Question 44

World whiskies are also seeing strong growth. Name some of these countries.

Answer 44

• India
• Sweden
• New Zealand
• South Africa

As well as the more traditional countries.