Is Whisky a Good Investment?
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Is Whisky a Good Investment? | Growing Trends in the Market
In the past decade, the whisky market has experienced significant growth. A report published by Global Market Insights found that the market reached USD 65 billion in 2022 and estimated it will experience a Compound Annual Growth (CAGR) of 6.5% between the period 2023-2032 [1]. Whilst samples across market intelligence companies may vary, these figures are echoed by the findings across a number of other market reporting companies. Statista, for instance, estimates an increase of USD 19 billion between 2023 and 2027 [2], and Mordor Intelligence estimate a CAGR of 5.6% between 2022 and 2028 [3].
Furthermore, indices published by Rare Whiskey 101 [4] show a positive increase across nearly all of the rare whiskey indices they track, please see the chart below for further details.
To further cement the positive outlook for the industry, the price of Scotch Whisky alone has more than doubled compared to that of gold and silver since 2009 [5]. It would be fair to assume that the market boom is here to stay -for the short to medium term at the very least. But what are the drivers of growth behind this seemingly ever-expanding market and what are some historical market performances can we learn from when deciding if whisky is a good investment or not?
Is Whisky a Good Investment? | Factors Driving Market Growth
- A limited supply of certain whiskies is one of the primary factors driving whisky prices up. The amount produced in each batch is limited since it ages in oak casks. Over time, the scarcity of rare whisky can lead to significant price increases, particularly for older and well-aged expressions.
- A culture switch from quantity to quality has resulted in distilleries producing more premium and super-premium products to answer demand. The effect on the market is to increase the average price of each unit sold [3].
- There is an increase in global demand for whisky, which is not limited to the country where it is produced. In recent years, worldwide demand for premium Scotch whisky, Japanese whisky, and even emerging Asia markets like Taiwan and India have increased significantly.
- Whisky is becoming increasingly popular as an investment tool as emerging economies gain traction, driving demand and enhancing its investment appeal.
- Whisky is highly collectable, especially rare and older whiskies, which appeal to passionate collectors. Investing in sought-after editions can be profitable for investors, as the collector's market can drive up prices.
- Investing in whisky can help you hedge against inflation and economic uncertainty. While traditional financial markets are volatile during times of economic downturn, tangible assets such as whisky may hold their value better.
- Whisky tourism is a global growing industry. In Scotland alone, a record-breaking 2.1 million people visited Scottish distilleries in 2019 [6].
- The rise of craft and lesser-known distilleries has played a pivotal role in expanding the whisky market. These small-scale producers focus on quality, experimentation, and unique flavour profiles. They have breathed new life into the industry by creating innovative and distinctive whiskies that cater to a modern audience. Craft distilleries are often more willing to take risks, leading to the creation of flavoured single malt whiskies and grain whiskies, experimental ageing techniques, and limited-edition releases that capture the imagination of consumers.
Is Whisky a Good Investment? | Understanding Market Cycles
The whiskey industry, with its rich history and enduring appeal, has seen its fair share of boom and bust cycles over the years. These cycles are characterized by periods of rapid growth, increased production, and soaring demand, followed by periods of oversupply, market saturation, and declining interest. Understanding the dynamics of the whiskey boom and bust can provide valuable insights into the factors that drive its cycles.
The Whisky Boom
- Rising Demand: A whiskey boom typically begins when there is a surge in consumer demand for the spirit. This increased interest can be driven by various factors, including changes in consumer preferences, marketing efforts, or cultural trends. For example, cocktail culture and a growing appreciation for craft spirits have contributed to a whisky boom in recent years.
- Craft Distilleries: The emergence of craft distilleries has played a crucial role in fuelling whisky booms. These small-scale producers focus on quality, innovation, and unique flavour profiles, attracting whisky enthusiasts looking for something different from mass-produced brands. Craft distilleries often experiment with aging techniques, flavours, and marketing strategies, further stimulating consumer interest.
- Investment and Collectability: During a whisky boom, the spirit's collectability and investment potential become prominent. Limited-edition releases and rare bottles often command high prices in the secondary market, attracting investors and collectors who view whisky as a valuable asset class.
- Globalization: Whisky's appeal transcends borders, and globalization has expanded the market for various types of whisky, such as Scotch, bourbon, and Japanese whisky. As consumers worldwide develop a taste for whisky, exports surge, contributing to the industry's growth.
The Whisky Bust
- Oversupply: One of the primary drivers of a whisky bust is oversupply. During a boom, many distilleries increase production to meet growing demand, but this can lead to a glut of whisky on the market when demand eventually levels off or declines. Oversupply can result in a price drop, as producers compete to sell their products.
- Market Saturation: When a whisky boom reaches its peak, the market can become saturated with brands and products, making it challenging for consumers to navigate the plethora of options. As a result, some consumers may become overwhelmed, and brand loyalty may diminish.
- Changing Consumer Tastes: Consumer preferences are not static, and shifts in taste can impact the whisky industry. If consumers move toward other spirits or beverages, such as gin, tequila, or wine, it can lead to a decline in whisky consumption and sales.
- Economic Factors: Economic downturns can also contribute to a whisky bust. During periods of economic uncertainty, consumers may cut back on luxury purchases, including premium and aged whiskies, leading to reduced sales and profitability for distilleries.
The whisky industry, like any other, is subject to the cyclical nature of markets. Whisky booms and busts are part of its history, shaped by factors ranging from consumer demand and craft distilleries to global influences and economic conditions. The Scotch Whisky Loch, in the early 80s, for instance, was caused by an overproduction of single malt Scotch and numerous distilleries were mothballed [7]. Understanding these cycles can help investors navigate the complex and ever-evolving whisky landscape. While booms bring innovation and excitement, busts provide opportunities for consolidation, adaptation, and resilience within the industry. As long as whisky continues to evolve and adapt to changing consumer preferences and market dynamics, it will remain a resilient and enduring spirit.
Is Whisky a Good Investment? | Cons and Risks
Investing in whisky casks can be an enticing proposition for those who are looking for alternative investment opportunities. However, like any investment, it comes with its own set of benefits and downsides. Here are some of the key advantages and disadvantages of investing in whisky:
Benefits of Investing in Whisky:
- Potential for Appreciation: Rarity can appreciate a whisky significantly in value over time, making it a potentially lucrative cask investment. Some bottles have seen their prices soar on the secondary market.
- Tangible Asset: It's a tangible asset that you can hold in your possession, unlike stocks or bonds. This can be appealing to investors who prefer physical assets.
- Diversification: Investing in a cask of whisky can diversify your investment portfolio, reducing overall risk. Whisky's performance may not necessarily correlate with traditional stock markets, offering a hedge against market volatility.
- Tax Benefits: Depending on the location, investors can benefit from VAT and Capital Gains relief.
- Collector's Market: Whisky has a strong collector's market, with enthusiasts actively seeking out rare and limited releases. This demand can drive up the value of certain bottles.
- Low Correlation: Prices may not be closely tied to economic fluctuations, making it less susceptible to economic downturns.
Downsides of Investing in Whisky:
- Lack of Liquidity: Whisky is not a highly liquid investment. Selling can take time, and finding the right buyer at the desired higher price may be challenging.
- Storage Costs: Proper storage is crucial to maintain the value of investments. You may need to invest in specialized storage facilities or cabinets with controlled temperature and humidity, incurring additional costs.
- Market Volatility: The market can be volatile, and not all bottles appreciate in value. Some investments may not yield the expected returns.
- Counterfeiting: The rare market is susceptible to counterfeiting, with fake bottles making their way into the market. Investors need to be cautious and ensure the authenticity of their purchases.
- Knowledge and Expertise: Successful investing requires a good understanding of the market, brands, and trends. Lack of knowledge can lead to poor investment decisions.
- Regulatory Risks: Whisky investment may be subject to various regulations, including import and export restrictions, taxes, and licensing requirements, depending on your location and the bottles you acquire.
- High Entry Costs: Acquiring rare and limited-edition whiskies can be expensive, and initial investment costs can sometimes be substantial.
It is essential to approach this type of investment with caution, conduct thorough research, and consider the potential risks and costs involved. Diversifying your investment portfolio and seeking advice from experts in the field can also help mitigate some of the associated downsides.
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Is Whisky a Good Investment? | Final Notes
Whisky investing can be enticing for investors who are seeking long-term returns and/or looking to diversify their investment portfolios. But, can we, ultimately, say that whisky is a good investment? The answer is a tricky one. Like any investment, whisky is subject to market volatility and risk of counterfeiting, so potential investors should keep this in mind. Provided an investor carries out their own due diligence and carefully assesses their risk tolerance and investment goals before making an informed decision, Scotch whisky has the potential to make a great investment.
References
[1] https://www.gminsights.com/industry-analysis/whiskey-market
[2] https://www.statista.com/forecasts/1136834/global-whiskey-market-size
[3] https://www.mordorintelligence.com/industry-reports/whisky-market
[4] https://www.rarewhisky101.com/indices/market-performance-indices/index-comparison-chart
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Quick Q&A
Is investing in whisky safe?
Investing in whisky carries risks, and it may not be considered a safe investment by traditional standards. While some rare and limited-edition whiskies can appreciate in value, the market is relatively illiquid, prone to counterfeiting, and subject to fluctuations. Moreover, success in this type of investment often requires specialized knowledge, storage costs, and a long-term perspective. It can be a rewarding endeavour, but it is not a risk-free or an easily accessible investment option for everyone.
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