Exploring whisky with Dominic Roskrow

Welcome to our new W Club feature. The idea is to go on a long journey in to the very heart of whisky and what it is.

Each week Dominic will pick explore whisky in depth and explain why it’s the way it is. There’s going to be no roadmap, so we could be heading off anywhere in any given week. A particular whisky style might be analysed this week, a particular Scottish region the next. Dominic might look closely at rye at one point, and look at the importance of fermentation to the whisky making process at another. If a particular subject dominates the whisky news, we’ll head right over to it and dissect it.

AndDominic’s more than happy to answer questions and deal with issues of specific interest to W Club visitors and members.

We’ll also start a week by week glossary of terms, and A-Z of all things whisky, and if we needs to spend six weeks on one particular letter, so be it.

To get the ball rolling, Dominic looks at why Scotch whisky is doing so well worldwide at the moment.

(intro) Scotch whisky is booming and at the forefront of the surge in demand from a number of emerging markets. But what trends are driving this success?

If you want a snapshot of what’s going on in Scotch whisky right now , then stake a look at the steady flow of premium drinks releases over the last few months

Here, among the glitzy rums, fancy vodkas and imperious Cognacs are a growing number of Scotch whiskies  – and they represent an increasingly confident, stylish and impressive range of traditional Scotch given a makeover and all dressed up for a sparkling future.

Let’s start with blends. Yes, blends.  Whatever you might think or have been told, blended whisky is Scotch’s future. More than 90 per cent of Scotch whisky sales are in the blended category and that isn’t going to change any time soon.

In fact blends are the driving force behind the considerable expansion plans of our leading drinks companies and the the reason’s simple – if you want to grow the whisky category you can’t do it with a single malts. No distillery makes enough malt to meet a world demand. Blends on the other hand, are another matter.

The significant sector here is at the premium end of the blended market. Often seen as single malt whisky’s poor relation, particularly in traditional market places such as the United Kingdom, blended whisky is thriving in emerging markets that have no preconceptions. In countries such as Brazil, Venezuela, Colombia and Brazil are not moving from Scotch blends to single malts but to better blends and blends with an age statement.

Closer to home, The Whisky Shop is now at the forefront of a move to offer its customers something genuinely different. In the last year whisky releases exclusive to the group have given customers the chance to try something new and exciting.  Nor do you have to take out a mortgage to afford special whisky.

There are signs, too,  that another distinctive trend in Scotch is towards unaged whiskies where the emphasis is on taste. Part of this is driven by economic necessity, because the demand worldwide means whisky shortages, so the younger a distillery can sell its whisky, the quicker it can respond to demand pressures.

And while some would argue that we’re seeing a ‘dumbing down’ of standards, the biggest and best suppliers argue that they wouldn’t risk their reputation by selling inferior whisky, and point to advancements in cask standards and a greater understanding of the whisky making process to support the view that great whisky doesn’t necessarily mean old whisky.

The evidence is already there to back this view up. Laphroaig Quarter Cask is a peaty treat and more fiery than Laphroaig 10 Year Old, but significantly younger. Compass Box has consistently released whiskies over the last decade that are outstanding but without an age on them.

Whisky in general is in a good place at the moment. Scotch particularly so. Expect some excitement, some surprises and an awful lot of great whisky in the future.

Ones to watch

Grain whisky

Grain whisky is normally dismissed as malt whisky’s bigger but vastly inferior brother but this is a tad unfair. Grain whisky is the component of a blend which makes the drink smooth, sweet and soft, and it can’t boast the complexity or intensity of flavour of whisky made with malted barley.

Put it in a very good quality cask, however, and the results can be outstanding. The grain picks up all the flavours of the wood, making for some vibrant and colourful aged blends.

“It’s like painting with a blank canvas,” says Euan Shand of Duncan Taylor, which regularly markets award-winning aged grain whiskies.

“You can start with little and create works of art.”

Irish company Cooley has successfully launched a range of grains, and now it may well happen in Scotland. Not just at entry level either. Mahesh Patel, who stages the world’s richest whisky show, includes two grain in his range of four premium single cask whiskies. Whyte & Mackay is also thought to be planning a grain launch.

The other big advantage of grain is that it has the potential to attract 20 something year old drinkers because of its sweetness, and it has the potential to kickstart a wicked cocktail.

Blended malts

There’s nothing new about blended malt whisky. The old timers among us used to call the category ‘vatted malt whisky’ and it’s almost as old as Scotch itself, examples going back to the very earliest days of blending.

Blended malt whiskies are whiskies made using the spirit from various different distilleries. The category is different to blended whisky because there is no grain in the mix.

The category is important because it gives the whisky maker the chance to pursue unusual and exciting flavours and to present them to the customer in a modern, baggage-free way. Monkey Shoulder, for instance, is a mix of the malts from three different distilleries but its stylish packaging, unusual name and irreverent approach to marketing is miles away from the traditional image of malt whisky.

There have been several attempts in recent years to bring Scotch whisky to a new audience through the blended malt route, and Compass Box in particular has taken malt whisky in to new and exciting areas within the category. With more whiskies being released without an age statement and with a greater emphasis on flavor, many expect the blended malt whisky category to get a new lease of life.

Andy Simpson

The Early Bird Catches the Whisky.

In terms of the rapidly changing value of rare/old whisky, it’s fair to say I’m constantly on the lookout for snippets of intelligence which makes selecting bottles (to keep) easier and makes them more likely to show gains over the years.

Most collectors/investors know that first releases in a series of bottles traditionally outperform subsequent releases. But by how much and why? I was asked this question a while ago, so I thought it was about time to delve deep into the data, do some research and prove/disprove this concept.

I’m going to start with an index showing the value performance of some fairly iconic first releases versus their subsequent next release. The index tracks UK auction prices, covers the last two years and plots the ‘value’ of a group of bottles rather than the ‘price’. This enables a direct comparison to be made where different ‘portfolios’ of bottles cost differing amounts.

The index starts at a value of 100 and works its way from there. In effect each ‘point’ increase (or decrease) represents a one percentage point change in value either way.

The bottles used in the index are –

First Releases                                                                                    Second Releases

Port Ellen 1^st Release                                                                      Port Ellen 2^nd Release

Icons of Arran 1^st Release (Peacock)                                        Icons of Arran 2^nd Release (Rowan Tree)

Bruichladdich PC5                                                                            Bruichladdich PC6

Bruichladdich Octomore 01.1                                                      Bruichladdich Octomore 02.1

Ardbeg Very Young                                                                         Ardbeg Still Young

Brora 30 y/o 1^st Annual Release                                                 Brora 30 y/o 2^nd Annual Release

Balvenie Tun 1401 Batch 1                                                            Balvenie Tun 1401 Batch 2

The first releases finish at 223.73 points (a 123.73% increase) whereas the second releases finish at 126.87 points (a 26.87% increase). On a purely comparative basis the first releases outstrip their subsequent brethren by a ratio of 4.6 to 1.

It seems the whole concept of first releases being the ones to have is particularly strongly born out. Before I ran the numbers, I was expecting this to be the case, just not to this kind of degree.

That leads to the natural question of why first releases are so much more in demand than other releases. In my view there are a number of reasons for this –

(i)                 First releases generally (not on all occasions) consist of fewer bottles.

Distilleries will want to test out a new product unless a release schedule is planned. These are small batch releases of relatively rare whisky to start with. Take the port Ellen annual releases. We’re now eagerly waiting for this years 12^th release (put aside any issues with pricing for the purpose of this). These almost fanatically followed annual bottlings were originally meant to be a trilogy. That means we’re now on 12 of 3! The concept was proven with the early bottles, so if it ain’t broke, why fix it? On a separate point, I’m now starting to see some downward movement in values across Port Ellen official releases… has a doubling in price for the 12^th release resulted in a reduction of interest? I remain to be convinced but we’ll see.

Bruichladdich released just 6,038 bottles of Port Charlotte, PC5. PC6 saw this number all but treble with 18,000 bottles released. Inevitably demand increased for PC5.

(ii)               As time passes more collectors are entering the market.

Global broad-based interest in Scotch has, and is, resulting in an increase in the number of people starting to build collections. If I were entering the market now and decided to focus on a specific release I’d more than likely want every bottle in the set. The Icons of Arran from Arran distillery are a great example of this. Arran has garnered much interest as a collectable recently. The most recent icon (Golden Eagle) is still relatively easily available, however, the first release (Peacock) sold out years ago. This increase in demand is applying serious upward pressure on market values.

(iii)             Bottles are Continually Taken out of the Market.

This really goes without saying, however, the longer a bottle has been on general release, the fewer bottles will be left. Even old and rare examples are continually being opened and consumed. The graph below is purely for illustrative purposes (the Y axis shows the % of bottles still sealed and the X axis is time in years); however, it demonstrates the point. The more recent the release, the higher the percentage of bottles still on the market. As I say, the graph is purely for illustrative purposes and isn’t based on any research, more ‘gut feel’. I’ve supposed that the bulk of bottles are consumed in the first year of release then there’s a steady drop over time. As to what the actual percentages are, I suspect there’s no real way of knowing for sure.

There are many more factors which can affect the performance of a first release but I consider the above to be the most influential aspects.

The interesting thing is, the figures are based on a relatively short period of time and compare UK auction values. If, for arguments sake, you’d bought some of the above mentioned bottles from The Whisky Shop upon their original retail release, this is what you’d have paid –

Port Ellen 1^st Release – £95

Bruichladdich PC5 – £69.99

Bruichladdich Octomore 01.1 – £86.99

2002 Brora 30 y/o 1^st Release – £100

Ardbeg Very Young – £29.99

A grand total of £382.97 to you sir/madam! In todays market, the auction value of this small but select portfolio would be worth in the region of £1,885: An increase of over 392%.

I suspect first releases will continue to outperform subsequent releases. The challenge is finding them and ensuring they are from the ‘right’ distillery.

One of this years big releases from a personal perspective is the Diageo Brora 35 year old. Not a first release in its own right but the first time Brora has seen 35 years. Therein lies this months tip…. Keep your eye on The Whisky Shop over the next few days, a little birdie tells me news on how to order and release dates may be imminent!

Why is whisky an investment now? The Whisky Shop Chairman Ian Bankier explains…

Wine and ports have for a very long time been an established investment class. It is often said that more than 80 per cent of Chateau Lafitte is laid down by collectors and investors and never drunk.

This class of investment is highly attractive to the new and growing number of very rich people in the emerging nations such as Russia, China and India and this has fuelled the market in recent years in the same way as they have done with gold and other valuable commodities. Yet a recognised market for rare and collectable whiskies hardly exists and is only now starting to grow. Why is that?

Part of the reason is that whiskies perform in a different way from wines. Wine lends itself to investment, at least in the short term, as there is an advantage to be gained by purchasing wine ‘en cru’; that is from the vineyard in the year of harvest before it has been bottled and taxed. Consequently, the wine industry has been accustomed to having its drinkers invest in the year of make and it would seem to have been a natural step for wine to become an investment class.

For many reasons, whisky has not lent itself to purchase or investment at the equivalent stage. Attempts to create that sort of opportunity have been unsound and often tainted by fraud.
In the past there have been numerous ‘investment’ schemes involving the purchase of casks of newly filled Scotch whisky by private individuals who have laid them down for consumption in the future. These schemes have been fundamentally flawed for the following reasons:
- The promoters have unscrupulously taken too much money up front leaving no investment uplift.
- The promoters have masked the real practical difficulties of purchasing whisky
in this format.
- There is a big customs duty payment to be made upon releasing the cask from bond, which is rarely factored in to the equation.
- Very few distillers will handle the emptying and processing of an isolated single cask.
- Many of the casks offered have been unexceptional – the really good ones are rarely available.

Fundamentally, a single cask of malt whisky when disgorged results in far too much whisky of the same make and age. The normal consumer wants more variety.

But the fact remains that the market dynamics for rare and collectable whiskies are very positive. There are regular whisky auctions with a recognised following. Certain sought after makes are no longer available due to distillery closures.

Unlike wine, whisky will never go off, so collectors have found it an attractive long term prospect. Whisky in general is in short supply and commodities such as sherry wood are extremely short. Retail prices of whisky have increased sharply in the past two years because of duty increases and shortages, most recently in March.

And now the mainstream media has picked up on the potential. They’re realising that there’s an untapped market in whisky offering much better returns than the finance markets, where returns to savers through traditional means are currently very meagre because of low interest rates.
So the opportunity is there, but exactly how can you take advantage? Read on…

The Whisky Wishlist – Our Experts’ Choices. We put our experts on a budget and sent them shopping…

How do you go about making money from whisky? Rare whiskies and investment expert Andy Simpson of Whisky Highland explains…

Andy Simpson runs Whisky Highland and has the most advanced research in whisky trends. Dominic Roskrow spoke to him…

Meet Darren Leitch, manager of three branches of The Whisky Shop and encyclopaedic whisky specialist, and meet his advice on investing in whisky…

David Robertson is responsible for rare whiskies at Whyte & Mackay, whose malts include The Dalmore and Jura. Here he offers investment advice…

Investment: independent whisky bottlers vs official bottlers?

So what next for  whisky investment? Andy Simpson runs Whisky Highland and has the most advanced research in to whisky trends. Dominic Roskrow spoke to him

Q. What are the trends affecting whisky prices going forward in to 2012, and is this good for collectors?

What I’m seeing at the moment is a broad increase in values across all ‘collectable’ single malt Scotch. There is, however, an interesting polarisation emerging. The most sought after bottles from the most desirable distilleries are increasing rapidly, whilst the less desirable bottles are further decreasing in value; a sort of rich get richer and poor get poorer effect but with whisky bottles.

This is largely brought about by an increase in the number of ‘collectors/investors’ entering the market. New collectors/investors are (rightly so) sticking to well-known rarities from the best performing distilleries. We’re seeing rapid increases in value for the likes of Macallan, Dalmore, Brora, Port Ellen Glenfiddich and Balvenie.

“On the flip-side of the coin, some examples of decreasing values are being seen,  and many lower value bottles from the likes of Imperial and Lochside. Given time, and once the market matures a little, I’d expect to see the value of these bottles reach a natural floor then start to gradually increase.

I’m also seeing increases in value for what I term ‘defensive’ bottles; iconic relatively high value bottles where prices have remained broadly constant and the risk of losses are minimal. This includes bottles such as the Black Bowmores and the 1965/66 Springbank Local Barley.

The main risk this year is distillers start to charge what is perceived as too much in the market for their bottles. Successful bottlings such as the annual Port Ellen releases will always leave some ‘value add’ for the collector/investor. If this years Port Ellen release were to be released (in similar Quantities as last years) at £500 – £600 it would have a serious effect on increases in the secondary (auction) market.

Q. How important is taste to a collectable whisky? Could a whisky package  really become collectable if the bottle was full of cold tea?

A. The quality of the spirit is critical to the success of the bottle as an investment. There’s a reason why the best performing distilleries remain highly sought after. They produce some of the best quality spirit available to drink. There are exceptions to every rule and this is no different. Loch Dhu Black Whisky originally retailed for around £18 a bottle and now sells for £90 – £140 at auction. It is the only bottle of whisky I have ever poured down the sink! Rarity also plays a part, even the worst tasting bottles from Port Ellen will ultimately increase in value.

From a personal perspective, I never buy anything if the phrase “I’d love to drink that” doesn’t pop into my head when I’m buying it. What someone uses as an investment today could well be opened and consumed in five to 10 or 20 years.

Q. What are the trends to look for in the future? I’m thinking styles, regions, countries, ages etc?

A. Heavily peated whisky from the icons of Islay will always be sought after. There are an ever growing number of ‘peat heads’ (I’m one too!) who ensure demand is always high for good quality releases from the likes of Lagavulin, Laphroaig, Bowmore and Ardbeg (although some Ardbeg values have re-traced over the last three to six months). As ex-sherry casks have become increasingly expensive stocks are in high demand. A good example is Macallan. Their ‘Fine Oak’ series is broadly not desirable from an investors perspective, however the wholly sherry matured spirit is in even greater demand than ever.

From a perspective of the ‘regions’ of Scotch; it’s more about choosing the right distillery than broadly saying bottles from, say, Speyside are worth more than bottles from say Campbeltown. There are iconic investors distilleries in each one of the whisky regions. I pay no heed whatsoever to the region, it’s all  about the right bottle from the right distillery.

I’m also keeping a watchful eye on certain Japanese whiskies. There seems to be some early indication of good gains, particularly with single cask releases from karuizawa.

Q. Do you think Diamond Jubilee bottles will dominate?

A. Simply, no. The Diageo special bottling released for £100,000 doesn’t represent an investment, nor is it meant to. It’s a great idea to raise money for charity. In my opinion we won’t see any increases in value for that particular bottle. Whilst I’m not seeing a huge inflow of limited bottles released for the diamond jubilee, I’m sure if Macallan released something similar to their Royal Marriage bottle of last year it would perform well.

Q. What do you tell people who ask you whether whisky’s a good investment?

A.It’s like any investment. Unless you understand the market, the risk for disaster is every ounce as real as with stocks and shares. My rules for investing in Scotch are –

1 – Love whisky! If the market ever crashes at least you’ll enjoy what you have.

2 – Patience is key. I always advise a period of investment from 10 – 20 years. When I buy bottles I always look to its potential in 20 years time. Whilst there are genuine opportunities to make significant short term gains, these should be viewed as a bonus. Buying a bottle today and auctioning it tomorrow always comes with risks. Short term traders are almost akin to ‘day traders’ in the equities markets. Big risks, potentially big gains……and losses!

3 – Never invest what you can’t afford to lose. The key for any investment.

Q. Any pitfalls or potential dogs on the horizon?

A. Highland Park ‘Thor’ was eagerly anticipated by the collectors/investors market. This has not turned out to be the investment/collectable many were anticipating as there were 23,000 bottles released. Had there been more like 3,000 – 5,000 it would have been very different. Simply too many bottles and relatively expensive for a 16 year old. I’m expecting to see an increase in the volume of fake and forged bottles as whisky becomes more popular and values increase. If you’re at all suspicious of a bottle, check its provenance, speak to an expert or a collector who has a genuine bottle and if still in doubt simply stay away.

Q. As whisky investment grows, how quickly will the small investor be squeezed out or the market mature to the point that it becomes difficult to find bargains – weeks, months, years?

A. Very interesting question. I genuinely believe there’ll be constant opportunities. What I do think will happen is that very old whisky (for both new releases and previous bottlings) will see rapid price increases over the next five years. This may well place certain bottles out of the financial reach of many. In terms of the opportunities available, take the new Balvenie Warehouse 24 release ‘The Cooper’. This was a tiny initial release of 300 bottles at a cost of £65. It will be one of this year’s investment gems. The impending Macallan Easter Elchies release will be an essential bottle for many. If I were a betting man I’d also put ‘odds on’ seeing another Dalmore distillery exclusive, following the sellout success of their 2011 release. If we look to the medium/long term, when you consider how many distilleries have their bi-centenaries in the 2020s (largely thanks to the 1823 excise act), there’s plenty of scope for some pretty special releases to keep collectors/investors happy well into the future. I already have my name down on a list for a bi-centenary bottling from a distillery established in 1819. I won’t hold my breath then!

Q. Finally, what would you say that whisky is not an investment opportunity, to it has peaked, or the bubble is about to burst?

A. Firstly, I don’t see whisky as a ‘bubble’. Whisky only really started to become a ‘collectable’ in the early 1990s. The timeframe for it being an ‘investment’ is even shorter. It’s by no means a mature market, so it still has plenty of legs. Price volatility is far less of a risk than some other investments, although it can and does happen. Do I see the bubble bursting eg a catastrophic crash of the market? No. Whisky is driven by supply and demand. A catastrophic crash can be likened to the share price of HMV. A 2009 high of £1.50p has now come down to under 0.05p per share. If I put that into perspective with whisky, it would mean you could pick up a Glenfiddich Snow Phoenix from its £125 high for just £4.20, an Ardbeg Kildalton for £12.60 and a Dalmore Aurora for £93.00. …… will that happen? Not a chance! Not unless there’s a far more fundamental breakdown of the economy and society in general. Demand for bottles of ‘Investment grade Scotch’ is increasing every year. This will continue to drive whisky as an investment. There will be price fluctuations (certainly for some distilleries) and some bottles will outperform others….. Just like any other investment, alternative or otherwise.