SCOTCH whisky companies expect to be able to exert strong pricing pressure on supermarkets and other UK customers over the next few months due to a shortage of supply and the opening of new overseas markets including China and India.
Roland van Bommel, chief executive of Bellshill-based William Grant & Sons, said that whisky prices have fallen “ridiculously low” in the UK market, partly due to the success supermarkets such as Sainsbury, Tesco and Asda have had with their own-label brands since the 1980s.
However he said that distillers — the biggest of which include Diageo, Pernod Ricard and William Grant & Sons – have finally achieved greater muscle over the supermarkets’ buying departments owing to a shortage of stock.
This is due to the current extreme scarcity of “fillings” used for making blended whisky, especially three to five year old malts.
“We now have the opportunity to rebuild all the equity that has been lost in the Scotch whisky market ,” said Van Bommel, whose company’s brands include Grant’s blended whisky, Glenfiddich and the Balvenie single malts, blended malt Monkey Shoulder, Hendrick’s gin and Reyka vodka.
He said Scotch whisky distillers are, for the first time in a decade, on the front foot when it comes to entering pricing negotiations with supermarket chains. This is because of a range of factors, including strong demand from emerging markets such as India and China, the likelihood that India will succumb to pressure from the World Trade Organisation and open its market later this year, and more buoyant selling prices for whisky in the emerging markets of Asia.
Supermarkets on the back foot
Van Bommel said that where the UK is concerned he expects to see “a return to a level of pricing that has not seen since 1987.
“With the rise in energy and grain prices, and core inflation above 3 per cent you would anyway expect to see price rises,” said Van Bommel.
“But given the market circumstances, it is now us who will be walking in the door to see Tesco’s buyerwith a smile, whereas it has been him who has had a smirk over the past five years.”
Leonard Russell, managing director of Broxburn-based Ian McLeod Distillers, the makers of Glengoyne malt, said that Scotch whisky producers are becoming increasingly reluctant to supply own label or branded Scotch to supermarkets at knockdown prices.
“Own-label has traditionally been a conduit to clear out excess stock. But given the shortages of supply and the growth of new markets such as China and India — where 12-year-old luxury blends are much in demand — distillers increasingly want to keep this for themselves.”
Russell added: “One leading supplier of own label whisky to the supermarkets is rumoured recently to have told the Tesco buyer to accept a 40 per cent price rise or else he would refuse to supply. And they have nowhere else to go.”
Van Bommel also said William Grant & Sons has increased sales of its Glenfiddich brand, the world’s biggest selling malt, to around 900,000 nine litre cases during 2006, and that “sales of Hendrick’s gin are beginning to take off.”
This premium gin brand, launched in the USA in 2001 and Europe in 2003 is already selling 100,000 cases annually.
He also predicted further consolidation for the global drinks business, with Diageo, Fortune Brands and Pernod Ricard all understood to be circling Vin & Sprit, the Stockholm-based owner of Absolut vodka. Van Bommel said he expects V&S, which the Swedish government recently said it would sell, to command a price tag of around €5bn (£3.3bn).
This article was published in The Herald on 24 January 2007