Scotch Whisky Cask Investment - Top Tips

Scotch is the number one spirit traded globally and is considered the most revered tipple in the world by many. Exports account for over six billion pounds of income annually for the UK economy and it is sold into more than 180 markets around the world (1).

For the United Kingdom Government, in particular HMRC, securing the future of Scotch is vital. In the last decade, the government has worked hard on improving regulation and trade agreements between the UK and the rest of the world so that Scotch can continue to reign. Most recently, Scottish Secretary Alister Jack visited Vietnam to help reduce -amongst other items on his agenda- trade barriers that exist between Vietnam and the UK (2). With the government's support, it appears that this 'liquid gold' boom, as some would call it, will continue in the coming years.

But what makes Scotch so revered globally out of all of the whiskies in the world? And what does all this mean for potential investors? And what are some scotch whisky cask investment tips that can help you take your first steps into whisky investment? If you're just getting started with your whiskey cask investment journey and want to learn more, including finding out the reasons why Scotch is the number one traded spirit globally, then read on to find out more.

SCOTCH WHISKY CASK INVESTMENT | What makes Scotch, in particular, so popular around the world?

Obtaining the title of 'number one spirit traded globally' is by no means easy. Whilst there are many factors at play that account for the success of Scotch, below you can find a few that are considered the most prominent.

THE HISTORY

One reason Scotch is so popular is because of the history books and the deep-rooted culture that is associated with the term "Scotch" (which refers to single malt whisky). It is believed that the art of distillation was brought by Christian monks to Scotland and Ireland around 1100 to 1300. The exact time that Scotland and/or Ireland started to make whiskey is unclear; however, there is a reference to "uisge beatha’ (meaning water of life in Gaelic) which refers to whisky being consumed as early as 1494 in Scotland. By the 16th century, however, the production of whisky was in full swing and since then has grown so big that the industry itself is now referred to as a 'world of whisky' (3).

These historical records and backstories paint a rich picture and add to the appeal of the product. Originality and authenticity are everything in the world of collectables, so to have a product that is so richly steeped in history is one reason that Scotch is so marketable.

THE LOCATION

More reasons why Scotch is so popular has a lot to do with the location. From peaty malts to smooth fruits, the whiskies produced in Scotland are a reflection of the diverse natural ingredients and air that surround them. The regions include the Highlands, Lowlands, Campbeltown and Islay (Speyside and the Islands are sub-divisions of the Highlands), and each one offers its own distinct profile that appeals to many. However, taste profiles based on location are not a set rule. The taste is more so determined by the methods and utensils that are used to create them. That said, when it comes to Scotland, there are a number of characteristics that tend to be attributed to the region it is produced in. For instance, the Lowlands are known for their mellow malts, the Highlands are known for fruity and sweet whiskies, Islay is known for smoky, dry malts, and Campbeltown is known for their depth of flavour and slightly salty finish.

THE TRENDS

Trends are also an important factor when discussing the success of Scotch because they affect the demand for the product. Looking at historical data and identifying the impact that trends have had on the industry is a great way to understand the market better. One such trend is the growth of the middle class in emerging markets such as Asia, South America, and Africa, which has resulted in Scotch whisky being ideally positioned to gain from it (3). With this strong demand from other markets and the support of the UK Government, Scotch has and is reaching all corners of the globe.

Experimentation is also having an impact on the overall global whisky market. This trend, in turn, is having a positive impact on the Scotch market due to the general awareness of the product being raised. For instance, new, experimental flavours have been hitting the market recently and making a splash. Peanut butter-flavoured whisky, for example, is one such trend that is gathering momentum in America right now. Having first hit the drinking scene in the 1960s, peanut butter flavour never quite made its mark. However, the demand for experimental flavours has grown since then, and peanut butter flavour has recently been named (by Forbes) as one of the fastest-growing liqueurs in America (6). This experimentation of flavours, especially in the mass market, is opening up a new customer base driving the overall demand for whisky up whereby, once again, Scotch is perfectly positioned to benefit from it.

Right now, the current whisky boom is being felt all over the globe, with the total market reaching $88.07bn in 2023 and is further expected to grow annually by 5.18% (7) to 2027. Whilst the full reasons for this remain multi-faceted and beyond the scope of this article, the above points give some insight into why single malt Scotch, in particular, is considered by many as the most revered in the world. Not only is Scotch known for its deep history and expert craftsmanship, but greater shifts in demand and support from the UK Government are securing the future of the industry as a whole.

SCOTCH WHISKY CASK INVESTMENT | What are some top tips to help someone enter the cask whisky investment market?

In order to understand the cask whisky investment, one must also understand the bottled whisky market. Bottles are the byproducts of casks and the very same demand that influences bottles also influences casks. The following are some tips to help you understand the value of both and, in addition, identify the difference between the mass-produced market and the investable market.

UNDERSTAND THE MARKET

There are three sides to the whisky market: the collectable market, the premium market, and the mass-produced market.

The mass-produced whisky market is easily identified by the brands that feature in the day-to-day cocktails and over-the-counter whiskies that we know and love today. Well-known brands such as Bells and Jameson are two popular examples of mass-produced whiskies. Unfortunately, they are completely unsuitable for investment as they are so mass-produced that their value does not increase.

The premium and super-premium markets include higher quality and higher-priced whisky. This generally includes bottles priced between £30 and £200. Sometimes, but not always, it is possible to find a bottle of investment-grade whisky from premium and super-premium whisky and then hang onto it for the long term for investment, but that always depends on several factors, not just the age of the bottle.

The collectable whisky market is one where investment-grade whisky is traded and is made up of limited releases and limited editions as they have the potential to increase in value and be classed as a good investment. 'Collectable' means that somebody is willing to pay a hefty price to purchase it because the whiskey itself several criteria that would classify it as a high-value product in the marketplace, not necessarily that the person who bought it is a 'collector' of whisky, they could be purchasing it for any reason.

The above are not hard and fast rules regarding classifying bottles of whisky, but more so a guide to determining the difference between investment-grade and mass-produced ones. When it comes to whisky cask investment, however, the good news is you don't necessarily need to have chosen a 'premium/super-premium or collectable' whilst making a profit - although it always helps!

Investing in casks and making a profit can still be achieved simply by selling the cask as a whole or bottling and selling the product contained -collectable or not. But the amount of profit, or even loss, depends on the total costs involved in storage and fees and the final sale price. However, by choosing barrels based on the attributes that closely match what is classed as a 'collectable' final product (bottles) your chances of making a profit greatly increase.

Set a Budget

Setting a budget is without a doubt the best way to first step into whisky investment, whether that's bottles, cask whisky investment, or a mixture of both. Your budget is going to determine the type of investment that you can make. For instance, it is unlikely that you will be able to invest in an entire cask of whisky without having funds of over £1,000 - 2,000 pounds. Therefore, your only choice -to begin with- may be to invest in bottles as investment bottles are more affordable.

Secondly, a budget will help you to determine the length of time it may take to profit from your investment (annual returns). The less money you have, the longer it may be before you make a profit. Rarity and age are two factors that can cause a whisky investment to become more valuable, so the less money you have to begin with, the less investment in quality you can make.

And finally, setting a budget can help you when purchasing via auctions. Rather than just turning up and overspending at an auction, which is easily done, setting a budget can help you narrow down the items that you are interested in and set a strategy for the actual event. For instance, sticking within your price range when browsing suitable whisky investments and planning on bidding £215 rather than £200 could be a great strategy to help you avoid overspending.

Understand Value

Understanding what makes whisky cask investments and bottle investments valuable is a somewhat complex skill. The complex part isn't that it's too difficult to learn, it's because the market is based on opinions and trends so this can greatly affect what's 'in demand' and ultimately the value of an investment. It Is therefore important to stay up to date with what's happening in the market that might affect the price, from consumer trends to the latest auction prices, all of these sources of information can help you to determine the value of whisky.

Here are a few factors that determine value:

Provenance

The history of a cask is important and that includes the distillery and the people who made it. People love stories, so having a whisky with a great backstory can make it much more valuable. Examples of provenance include the history of a distillery, the location where it was distilled, and the event that the whisky was created for.

Age

Age is a significant factor, but it doesn't always mean that you have a valuable investment; other factors must be balanced, in addition to making age matter also. For instance, a badly made whisky, no matter its age, will always be just a badly made whisky and no amount of maturation of the cask can change that into a good whisky cask investment.

Mothballed/Silent and Extinct Distilleries

Mothballed/Silent means that a distillery has halted production but still exists. One example of a mothballed distillery is Ardbeg, which was closed from 1981 to 1989, and then again from 1996 to 1997 (4). In these times of closure, no whisky was produced, creating a rarity of its existing stock. The same applies to completely closed distilleries, and stock that is left becomes rare and therefore collectable -meaning the value of the whisky increases. Rarity makes a whisky collectable and therefore valuable, particularly in the case of distilleries that are no longer in operation.

Limited Editions & Limited Releases

Most distilleries release limited editions and releases which make them collectible. 'Limited' means that there will only ever be a certain number produced and sold which creates rarity and makes the whisky collectable. These types of whiskies fall under the 'collectable whisky market category' and will often feature an extremely high quality of craftsmanship and packaging. You can follow the latest investable releases on our Limited Edition Releases Page.

Breaking into the world of whisky cask investment is easier than ever today. Despite it being advisable to gather a number of expert opinions before investing, it is possible to learn this art of alternative investment from the comfort of your own home. If this path is taken into whisky cask investment, then learning what makes whisky so valuable is an essential skill that will help you to make sound investment decisions. Scotch, in particular, dominates the 'collectable whisky market', so understanding what makes a great whisky cask investment from Scotland and thinking through your exit strategy before investing is essential.

Sources

(1) (3) https://whiskeybon.com/blog/the-invention-of-whiskey/

(2) https://www.bbc.co.uk/news/uk-scotland-20946411

(4) https://scotchwhisky.com/whiskypedia/1808/ardbeg/

(5) https://www.scotchmaltwhisky.co.uk/regions.htm

(6) https://www.tastingtable.com/764371/everything-you-need-to-know-about-peanut-butter-whiskey/

(7) https://www.statista.com/outlook/cmo/alcoholic-drinks/spirits/whisky/worldwide