29 Jul
2003

Price cut raises whisky drinkers' spirits

WHISKY drinkers were raising a glass last night after new figures revealed the price of a dram has fallen to its lowest level for two years.

Despite the growth in premium malt sales and the popularity of so-called icon brands - Chivas Regal 50-year-old enjoys healthy sales at £8,888 a bottle - for the not so discerning drinker, whisky is less expensive in real terms than for many years.

At the root of the price- cutting are supermarkets, which are reportedly negotiating reductions of about 20 per cent off the normal price of a case before duty is added. Tesco, one of the UK’s largest retailers of whisky, sells its own-label at £7.98 a bottle.

One industry insider said: "If you look back to last Christmas, some of the own-label was retailing for less than £7 a bottle. Now if you compare that with a leading blend like Famous Grouse, which retails at around £12, there is a discrepancy of nearly 50 per cent."

But while this may be good news for the consumer, some on the industry fear that the falling cost of whisky could impact on the drink’s quality image.

The insider added: "For the whisky industry, reputation is very important and there is a feeling that tactics like reducing the price of own-label does not enhance whisky’s premium image, where the real growth lies. The last thing whisky needs is a price war."

Alan Lowndes, the UK sales director at Kyndal, which sells branded and own-label whisky, said: "Prices are cheaper now than they have been for two years and the market is very competitive. These firms are not here to grow the sector. They are scrabbling for a slice of a cake that has stayed the same size."

Leonard Russell, the managing director of Glengoyne distillery, which supplies a number of retailers with own-label whisky, puts the fall in price down to three factors: competition; over-production; and the rise of supermarkets which compete on price.

However, prices have also remained lower because of the Chancellor’s decision to freeze the duty on whisky in recent budgets.

Mr Russell said: "In the early Eighties there were only two real suppliers of own-label: Invergordon, which is now known as Kyndal, and ourselves.

"Supermarkets liked the idea of own-label because they used it as a quality statement. Their own-label was as good as, if not better, than the brand leader.

"It was a very happy business and the consumer benefited from a good value whisky brand. About eight or nine years ago, 40 per cent of supermarket whisky sales were own-label.

"But, as a consequence, the whisky brand-owners suddenly started watching the sector and, in the mid-Nineties, major players like William Grant and Burn Stewart came into the market."

It was a good time to enter the market as industry figures show that between 1997 and 2000 malt and grain whisky over-produced considerably.

Alan Gray, a whisky analyst of Sutherlands stockbrokers in Edinburgh, said the phenomenon occurs periodically as the industry gets its sums wrong in relation to world consumption.

Mr Gray said: "Because there was a surplus it did mean that companies had vast reserves of stocks building up, which meant that they went to the supermarkets offering whisky at a cheaper price."

Companies were even more keen to offload whisky to counter a long decline in the blended-whisky sector.

Figures from the Scotch Whisky Association for 2002 show the blended whisky export market fell by 6.9 per cent to 943.4 million bottles. Looking further back, the decade from 1992 to 2002, showed

exports, vitally important for revenue, have grown only 0.9 per cent, giving a average growth of just 0.5 per cent.

Another turning point came in 1999, when American supermarket Wal-Mart purchased Asda, precipitating a price war among domestic supermarkets.

Mr Russell added: "Spirits was one of the areas where the big supermarkets competed. As a consequence, price in own-label came down and profitability has been squeezed."

It all appears good news for the consumer, but many in the whisky industry feel that it is damaging to the sector.

In its defence, a spokesman for Tesco said: "Consumers demand keenly priced products and we are happy to pass on savings where possible."

Figures from Sutherlands Scotch Whisky Industry Review show sales in malt whisky, which sits in the premium sector, have grown in the decade 1992 to 2002 by 8 per cent in the UK and 4.7 per cent in exports, giving an average growth of 5.3 per cent.

Furthermore, last year single-malt whisky increased its export volume by 9.3 per cent to 46.5 million bottles, with its value growing 11 per cent to £268 million.

Martin Riley, a marketing director for Chivas Brothers, confirmed: "We are seeing momentum around the world for premium and super premium brands and, of course, products like Chivas Regal 12 and 18-year-old malt whisky are outperforming the standard of the cheaper segments. Broadly speaking, that is a good thing for the industry.

"Having said that, there is a place for all brands and in different markets own-label is performing well. It all depends on the structure of the market."

But there is an argument, however tenuous, that the success of the own-label is good for the whisky, as it introduces new consumers to the industry.

Glenn Gribbon, a marketing director for Kyndal, said: "It is important to point out that competitively priced own-label brands draw in consumers that might otherwise be drinking Canadian whiskey or bourbon."

So will we be seeing a further decline in price this Christmas?

Mr Gribbon said: "Retailers have a job to do and I wouldn’t be surprised if we saw further reductions, but for the good of the industry I really would not hope that."

Article Courtesy of The Scotsman
scotsman.com