MARCH TO a different drum

March to a different drum – Spiros Malandrakis of Euromonitor questions whether Scottish whisky can stand up tall against the new-flavoured Irish and American blends

If there was a beat coming out of the proverbial Scotch whisky drum, it would be currently rising to gleeful crescendos, dismissing the pop-inspired orchestral manoeuvres of its Irish and American counterparts while masking any sombre musical undertones behind a veneer of military accuracy reminiscent of a marching band.

Rigidly following the centuries-old score has been consistently providing handsome returns for the Scotch industry, and the release of the most recent export figures for the category seems, on the face of it, to further reiterate this theme. But times are changing. And looking beyond the top-line, cherry-picked data, it is perhaps time to consider a different tune.

VALUE IS SUBJECTIVE

The Scotch Whisky Association (SWA)’s latest release of export figures could not have sounded more upbeat. According to the most recent dataset that it made public, exports continued to grow in 2011, hitting a record £4.2 billion in shipment value, up 23% on 2010. Exports to the US, the biggest market by value, broke the £600 million barrier for the first time in 2011 to reach £654.9m – up 31% on 2010.

To France, the second-biggest market, the SWA added, exports jumped by 27% to £535.4m. All rather impressive. Except, there are two problems.

First, the explicit choice of value sales figures and the lack of any reference to the alcoholic drinks industry’s ubiquitous “volume” appears suspicious to say the least, especially taking into account the schizophrenic swings in contemporary currency markets and the inflationary noise skewing value data.

Second, as Euromonitor International has repeatedly stressed, shipments is not a synonym for sales – not by a long shot.

According to Euromonitor International, globally blended Scotch posted relatively healthy 1% total volume growth in 2011, marginally lower than 2010 and a definite improvement on the dismal 2008-2009 period. Nevertheless, this figure can hardly support the levels of enthusiasm seemingly emanating from SWA’s latest press releases.

While single malt did post 10% total volume growth within the key US market in 2011, it remains a niche. Blended Scotch – a segment enjoying much higher penetration rates in the US market – actually declined by more than 2% in 2011.

And what about the French exuberance? According to Euromonitor International there was indeed a rise in blended Scotch volumes in France, but that was much more subdued and uninspiring than the one implicitly suggested by the citation of value-growth figures of shipments to the country. In reality, and while sales in Asia- Pacific and Latin America show tentative signs of sustained momentum, there is little doubt that Western markets are far from being out of the woods yet.

The mature-versus-emerging market dichotomy, a theme so pervasive across the board that it is barely worth mentioning yet again, is nevertheless expected to reach new heights in the case of Scotch whisky.

Emerging markets are actually set to account for greater total volume sales than mature markets by as early as 2014.

Looking into ongoing regional discrepancies in performance, it is easy to see why.

In the cases of the usual regional patients, Western Europe and North America, maturity-induced headwinds only end up reaching dangerously increased velocity when added to the mounting heap of socioeconomic troubles. Additionally, and although traditionalism might work wonders in markets that are only just discovering the category, it scarcely helps expand drinking occasions or demographic appeal in markets where blended Scotch is already one of the most established tipples and has been for generations.

NEW FLAVOUR OFFERINGS

The problem with Scotch whisky’s fortunes becomes much clearer when the category’s apparently healthy global volume growth is compared with its resurgent Irish and American siblings –posting total global volume growth of 8% and 2% respectively in 2011. Black-cherryflavoured Red Stag has crashed into the stereotypes and complacency gripping bourbon, its metaphorical horns battering the category’s inherent conservatism and ripping gaping holes in its monodimensional focus on older male audiences.

Contrary to elitist and spirit aficionados’ inclination to make unimpressed noises – and following up on Euromonitor International’s earlier assertions – flavour sophistication has proven to be as relevant as ever, while excitement and an irreverent revisiting of classic offerings appear to be paying off once again.

Red Stag already accounts for 1.3% of the expanding US bourbon market within two years of its launch. Jim Beam’s trailblazing approach was swiftly followed by Jack Daniel’s Tennessee Honey as the black cherry flavour was replaced by a less risqué, yet still relatively adventurous, ingredient. It was then only a matter of time until more offerings followed suit, and where bourbon goes, Irish whiskey follows.

Scotch appears to be still snobbishly looking down on such, admittedly rather radical, ventures, but how long can that stance prevail?

THE SOUND OF BAGPIPES

According to Euromonitor International, blended Scotch is expected to post 2% total volume CAGR during 2011-2016, a performance that, while far from muted, could barely be described as boisterous, especially considering the unquenchable thirst of China and other aspirational, emerging markets.

While a focus on expanding the geographical footprint beyond the category’s Western European stronghold is unquestionably correct, and a series of initiatives rectifying punitive taxation regimes from South Korea to India will undoubtedly open the floodgates for significant gains in the medium term, there is still a lot more to be done.

Innovative ventures should take a page or two out of bourbon’s notebook and go beyond subtle nuances in packaging redesign. Encouraging signs are already there: Jura’s whisky-and-coffee pairings, Dalmore’s cigar synergies and The Macallan’s Facebook app.

Times are changing and if Scotch wants to continue providing a soundtrack to young people’s lives, the tune has to change with them. After all, bagpipes have proven to be great in musical genres beyond Scottish folk music; their use still explores radical new angles in rock, jazz, hip-hop, punk and classical music. Take note and prepare accordingly.