The Independent Bottlers
Enrichment or Oligopoly?
The whisky market is in upheaval. In the 1990s, blended whisky producers still dominated the market. Johnnie Walker, Ballantine's and Chivas Regal were among the best-known whisky brands here and around the world. All together, they produced blended whiskies almost without exception. If you wanted a different whisky, you could find Jim Beam, an American bourbon, everywhere.
In the early 90s of the last century, the triumph of single malt whisky began. Of course, there were already a few Glenfiddich, Glenlivet and Glenmorangie. But this new market segment made only slow progress from the 1960s onwards. With the appearance of the Classic Malts of Scotland by the market leader Diageo at the beginning of the 1990s, even the last specialist retailer realised that a new market segment had opened up with the malt whiskies.
The Independent Bottlers
However, small independent companies in Scotland were quicker than the large whisky distillers. The umbrella term 'independent bottlers', hereafter referred to as UA for short, refers to companies that bottle malt whisky independently of the producing distillery. This independence from the producer is reflected in the designation UA. The labels of these bottles mainly show the name of the bottler. This article aims to shed light on the many, many small bottling companies on the market. Where do they get their whisky from? Are there any fundamental differences in quality? How is this seemingly still small industry developing?
Whisky Trade Flows in the Industry
Nobody bottles whisky just for fun or solely for the pleasure of the consumer. It's about money. The livelihoods of entrepreneurs and their employees' families depend on these bottles. So if we want to know what makes this industry tick, we have to follow the whisky and money flows. That sounds hard and has nothing to do with the physical pleasures that we all seek in malt whisky and do not always find. But if we want good whisky, it is worth taking a look behind the scenes.
| Exported bottles January - June 2003 | Bottles | Value |
|---|---|---|
| Malt Whisky | 22m | 121 million GBP |
| Blended Whisky | 274m | GBP 740m |
For years we have learned that malt whisky only accounts for about 5% of total whisky production. However, those days are over. Malt whisky is becoming increasingly strong. Exports of malt whisky bottles already account for 8% of blended whisky bottles. Let's go a bit further. If we assume about 20% malt whisky in the average blended bottle, the malt whisky content in the blends corresponds to 55 million unsold malt whisky bottles. This means that 40% of the malt whisky produced is sold as pure malt whisky and only 60% of malt whisky production goes into blends.
Whereas in the past it was possible to afford to bottle only the best casks as single malt whisky, today it is quite different. For many distilleries, it's all about the last cask from the last corner of every warehouse. Not a single litre of malt whisky from special distilleries can be dispensed with any more. That is how great the demand has grown. At some distilleries, the tamped clay floor of the warehouses can already be clearly seen between the few remaining casks. The current shortage at Lagavulin, Oban, Cardhu and Macallan shows how much malt is already being sold as single.
We can count ourselves lucky that the big distilleries have massively raised the production processes and above all the cask quality in recent years. Whereas in the past there were only 10 to 20% outstanding casks, today there are only 10 to 20% bad casks. Mouldy malt, poor distillation, barrels used too often and fermentation that lasts too long - these influences no longer exist today. Only the naturally grown wood of a few casks still causes surprises now and then and leads to bad malt.
Nevertheless, the multiplication of malt whisky demand is only just keeping pace with the increase in output. The big players in the whisky industry are said to be slow. That may be true. But once the heavy locomotive is in motion, no one can stop it. For over 100 years, the blended whisky industry was known for swapping malt whisky casks among themselves for its many different blends. But with the big takeover battles and the reduction of supplier diversity that we have seen for the last 10 years or so, this behaviour is also slowly coming to an end. Almost everyone now produces their entire whisky portfolio themselves. The smoky malt whisky for Johnnie Walker, for example, comes from the group's own malt whisky distillery Caol Ila. Laphroaig produces Ballantine's from Pernod Ricard for the blend. One no longer wants to be dependent on others and thus ultimately dependent.
The markets for single malt whisky distilleries have also been largely equalised. Instead of letting Lagavulin and Caol Ila work for the blends, Lagavulin concentrates on the single malt and Caol Ila on the blends. But Caol Ila, just as huge as Laphroaig, can produce for malts and blends at the same time. The said 10 to 20% of the bad or rather unsuitable casks are sorted out early on for their own blends. Within the first three years, one can easily recognise the few casks that develop below average.
On the other hand, there are the distilleries from the second league that have not (yet) managed to jump on the single malt bandwagon. They produce almost exclusively for their own blends. Only now and then do they launch a trial balloon to test the market with new malts, such as Glen Elgin 12J or Clynelish 14J. (Note: The Clynelish seems to make it).
The Caol Ila Malt Distillery
Let's get a little more specific and look at the Caol Ila distillery. It invariably produces very smoky malt whisky that is then matured in ex-bourbon casks. Only a year ago, blend whisky producers or large independent bottlers could drive to the distillery with a lorry full of 20 or more empty casks and have their smoky malt bottled for the price per litre. But since the summer of 2002, this has come to an end. The owner Diageo has stopped this 'factory sale'. Existing contracts with blend whisky producers are fulfilled, but no longer extended. There will be no more than contractually promised. Why?
With its six stills, the distillery can produce around 3 million litres of pure alcohol per year. For a medium-smoked blend, such as Johnnie Walker Red, Diageo needs 5 to 10% strongly smoked malt. If we calculate in internationally customary 0.75 litre bottles, this corresponds to 81.6 million bottles sold in 2002:
40% Alc. * 0.75l * 7.5% malt * 81.6 million bottles = 1.8 million litres of pure alcohol.
That is about 60% of Caol Ila's distilling capacity. If you add Johnnie Walker Black and the big other Diageo blends like J&B, Caol Ila's capacity is fully utilised. Now, however, the Caol Ila Hidden Malts with 12 and 18 years as well as the high-proof bottling have been brought onto the market. For the planned increase in sales of these malts over the next 12 to 18 years, a considerable number of casks must be constantly set aside.
The Big Four
For the foresighted and great independent bottlers (UAs), this was not unexpected. They stockpiled a large supply of single malts from a wide range of malt whisky distilleries. Four major UAs (The Big Four) have built up stocks of between 10,000 and 20,000 casks in recent decades (2004 data): Gordon & MacPhail's (G&M) about 17,000 casks, Signatory about 12,000, Douglas Laing (DL) about 15,000 and Ian MacLeod about 20,000.
Only Gordon & MacPhail and Signatory have fully understood the importance of these independent warehouses and bottle almost exclusively single malts. Douglas Laing is well aware of their treasures and no longer uses old casks for any blends, but fills them in the Old Malt Cask Series and the McGibbon's Provenance Series. Nevertheless, they still make significant blend whisky sales. Only the Ian MacLeod company, on the other hand, continues to serve major blend whisky brands, making deep inroads into the great cask store. How much longer can they afford to do this?
The Quality of the Malt in Storage
What about the quality of the malt whiskies in these four great warehouses? The warehouse of a distillery like Caol Ila has an average age of just over 1.5 years, because up to now hardly any casks have been older than 3 years and their contents have mostly gone into the blends afterwards. The Big Four, however, have significantly older malts in storage. But that says nothing about the fundamental quality of these malts. These malts were filled directly into the casks of the UAs, but 10 or 15 years ago, as mentioned above, the quality standards of the distilleries and the cask management of the UAs were not as good as they are today. So there is also a significant percentage of lesser quality malts in these four big warehouses, unless they have already been absorbed into blended whiskies or sold on.
Here I can hear one or two malt whisky lovers crying out in their minds. Why should these malt whiskies be bad? Aren't they just different? Don't they simply have more distillery character and less barrel character?
However, the matter is not that simple. Leached-out casks that have not allowed a malt to mature despite 20 years of storage are only one side of the coin. There are also casks that have unpleasant wood stains, taste sulphurous, have built up extreme acids or taste poisonously bitter. Some stink of vomit or urine, and others lie as if dead in the barrel. These smells are not always in the foreground. But once they are noticeable, they are a red rag for many a connoisseur. A great single malt whisky needs a good balance between cask and distillery character.
The Big Four and the small UAs
When we talk about UAs, a round dozen names come to mind that have not been mentioned in this article. But not all that glitters is really gold. We do not want to mention any names here either - it would be to favour or devalue individual companies. We therefore only mention the four big ones with their own warehouses and not the many small ones.
Here are representative top bottles from these four suppliers:
Hide-and-seek
Behind these many unnamed names of the small players, however, there is also a lot of window dressing and hide-and-seek. In addition to the big and well-known label, each of the big four has at least one other bottle label that suggests a larger number of market suppliers than there really are.
The best known and larger series among the many small UAs are precisely these second bottlings. Spirit of Scotland = G&M, McGibbon's = Douglas Laing, Dun Bheagan = Ian MacLeod and Dun Eideen = Signatory. What's left of the volume after these series is really small.
Whisky Broker
So where do the malts of the many unnamed small bottlers come from? And what about the bottlings of the whisky associations, whisky clubs and private individuals? As a matter of principle, those responsible write on each bottle that this cask has been carefully selected and contains only the finest malts. But is that true? Let's be honest - anyone would do this. Isn't it just marketing talk?
You can never buy single, selected good casks directly from the distillery, even if some marketing professionals like to claim so. This has always been impossible. Only the distilleries themselves freely select from these stocks for their top products, such as Macallan 25 Years or Glenrothes 1971.
Where do these old casks come from? In principle, there are two sources for these malts. In the past, the distilleries sold their surplus malt whisky casks via brokers to the numerous small blend whisky producers. And these brokers were happy to divert one or the other cask to the small UAs for a significant premium. Easy money, as the English say!
This was, for example, the only opportunity so far to taste a malt from the legendary Kininvie distillery. Although the producer had put a token amount of another malt into this very light refill cask for devaluation, it was still bottled as a Vatted Malt. Like the owners of this distillery Wm. Grant & Sons, who wanted to prevent exactly this, reacted afterwards, everyone can imagine for themselves.
The second option is to acquire casks from former master distillers who received whisky casks as part of their payment. Preferably as a bonus at the end of the year. This is the ideal source for top malts! But these casks are extremely rare and very hard to find in the market.
As a result of these and the unifying efforts of the big players in the industry, the profession of whisky broker has declined sharply. Why should the big industry pay a broker when it no longer needs him?
The few brokers remaining in the market face two problems. The number of barrels has declined sharply, as many of the big producers have stopped dispensing altogether. And due to the better negative selection of distilleries, the average quality for malt whiskies has also declined. On the customer side of these brokers, however, demand has risen sharply. Too many small UAs are on the market, in desperate need of casks.
In this 'seller's market', brokers have changed the rules in their own favour in recent years. They almost no longer offer advance barrel samples of their barrels for appraisal. Even individual barrels, they call it stock-picking, can no longer be purchased. Brokers instead lump several barrels together into larger lots and offer those lots to their best customers first. Good, bad, small and large barrels from well-known and unknown distilleries are thus lumped together. If the top customers knock out a lot, it moves further and further down the market. This 'not being able to try' looks fatal at first glance. But it enables even the smallest UAs at the bottom to get a better barrel once in a while. But only if those further up the 'food chain' do not pay the prices demanded.
Since all these casks are not traded at blend raw material prices but at higher single malt prices, it is not possible for an individual UA to mix a blindly bought bad cask with a blend. The financial loss would be too great. So these casks are individually traded down the food chain and eventually all bottled. The connoisseur must approach individual barrels moving in the market with great caution. There are also rumours circulating that the available samples did not correspond to the later contents of the bottles. But we have only been told about this by angry purchasers. We have no proof of this.
All-round Provider
In the meantime, the original task of the brokers has been taken over by the four big UAs themselves. They not only sell barrels to the small UAs - they also fill them for them. They create labels and outer cartons and also store the bottles again tax-free. Customs clearance and shipping are done exactly when the bottles are really needed in the market. They have gone from being a UA to a 'full-service provider', or in other words, an all-round provider.
What is not communicated by the independent bottlers and by the brokers is the negative selection in the barrels when they are distributed from top to bottom in the market. What cannot be sold at the end is offered on the private market of the whisky clubs and private societies. The very last remainder is then shipped abroad and thus also to us. These offers then regularly flutter across our table into the wastepaper basket.
The overall situation seems rather hopeless for the small UAs in the market. The four big cask warehouses are getting emptier and emptier and due to the blockade of the big whisky companies, only few supplies are available.
So far, we have been pretty indifferent to the fact that there was no independent Glenfiddich from 1994 onwards. Nor did we really mind the general absence of Glenmorangie from the UA market. But if in future we will no longer receive Ardbegs, no Caol Ilas, no Bowmores and no Linkwoods, then that will be bitter.
Are the Malt Whisky Sources for the UAs drying up?
The four big UAs have recognised this and are trying to get the last out of their warehouses. Less rich casks are being decanted into fresh casks or finished, i.e. post-matured, in special casks. The general tenor among UAs, however, is moving away from independent bottlings. Three of the 'Big Four' have already bought their own distillery and are trying to become full-fledged single malt whisky producers. They don't want to bet the entire future on the single card of independent bottlings.
Not all single malt whisky sources have dried up yet. However, here is the list of whisky companies that we know have already stopped releasing casks:
- Glenmorangie plc (Glenmorangie, Glen Moray, Ardbeg).
- Wm. Grant & Sons (Glenfiddich, Balvenie, Kininvie)
- Diageo (Lagavulin, Caol Ila, ... more than 40 distilleries. You can find the list here)
- J. & G. Grant (Glenfarclas)
- Highland Distillers (Macallan, Highland Park, Glenturret)
- Springbank
Currently still available are malt whiskies from selected distilleries of Pernod Ricard. But the more successful this number 2 on the world market becomes, the more the supply of casks to UAs will decline. They will also need them themselves in the future.
Outlook
How should we consumers behave? What should we buy and what not? Can we influence the market in any way? What should we beware of?
We do not want to give specific advice for your shopping behaviour, as we do not know your taste. Nevertheless, we dare to make a few basic statements.
- Single cask whiskies from the 'Big Four' are certainly excellently selected. However, the rarer the distillery (e.g. Port Ellen, Glen Albyn or Imperial), the more risky in terms of taste their selection becomes.
- Limited original bottlings are usually above average. This also includes the cross-distillery series such as the Flora & Fauna series.
- Caution should be exercised with lesser-known independent bottlers. Especially when it comes to pale yellow, light whiskies with an age of over 12 years. Most of the time, these are casks that have been filled over and over again and sent on their way to the blenders during the last run due to a lack of barrel character. Here the advice is: buy only after tasting!
- You should be particularly careful with bottlings that are already very rare. If you decide to buy a bottle of Kinclaith or North Port from an unknown bottler today, you should really think about whether you want to open this bottle. It may well be suitable as an investment.
Even if everything sounds very sad, unfair and oligopolistic now. Nevertheless, I would like to give a positive outlook at the end of the article.
Four independent bottlers have bought their own distilleries in recent years (Murray McDavid = Bruichladdich; Gordon & MacPhail's = Benromach; Signatory = Edradour and Ian MacLeod = Glengoyne) and two new malt whisky distilleries went into operation in 2005/6 (Glengyle, Ladybank). In addition, there are four more independent distilleries, Arran, Speyside, Glenfarclas and Springbank. Even though the prices of these distilleries are naturally oriented towards the big ones, they can definitely be counted as independent bottlers. Glenfarclas has a great warehouse from which new bottlings are constantly coming out. Only Springbank is a bit tight at the moment. But the current 12- to 15-year-old bottlings are coming back. Speyside launched its first 12-year-old in autumn 2003 and Arran is already offering malts from 1995.
