Dave Broom reports on the challenges facing a determined new breed of independent bottle-distillers
Question: What do you buy the independent bottler who has it all? Answer? A distillery. Signatory’s recent acquisition of Edradour is the latest in a series of purchases by independent bottlers. Gordon & MacPhail had Benromach, Murray McDavid snapped up Bruichladdich, while Springbank – always a firm to do things differently – bought an independent bottler, Cadenhead. So, is a distillery the ultimate whisky lover’s accessory, or the equivalent of a forty something male buying a Ferrari? Bruichladdich’s Gordon Wright gave a typically punchy response. “We did it to give us a long-term future in the whisky business and also as a vehicle to promote he ideals that we used with Murray McDavid. In short, to show people how to do it right.”But why should owning a distillery give a firm greater credibility? Take Gordon & MacPhail. The firm hardly needs to find a way of being considered as a respected player. What then did buying Benromach add to the business? “The buying of a distillery opens new opportunities,” says Managing Director Ian Urquhart. “It might mean we have access to new markets but it also allows the company to grow more quickly in terms of sales. It is all about looking at the long term.” In other words, not so much a mid-life crisis as a mid-sized one. All the new independent bottler distillers are successful medium-sized firms faced with the timeless dilemma, how do you grow a business when it reaches a certain critical mass?There’s another issue. Owning a production unit is the only way an independent bottler can survive. It was the prime reason Andrew Symington took the plunge and bought Edradour, making him not just Scotland’s newest distiller but the owner of the country’s smallest still. “I did it to secure Signatory’s position in the trade,” he says. “Independent bottling won’t go on forever. Whiskies like Dallas Dhu and Port Ellen will have gone in a few years and they aren't replaceable.”Equally, as the malt market grows coincidentally at a time when there are low stock levels of mature whiskies, so major distillers are holding on to their malts, not selling them to brokers – and consumers want big-name brands. “The problem isn’t that independent bottlers will run out of whisky,” says David Stirk at Cadenhead. “The problem is which whiskies you have on your list – and which ones you don’t. New consumers want big-name brands and without having one of those as an introduction to the Cadenhead range, it is extremely difficult to get them to try something obscure.”“Big firms have growing brands, meaning I couldn’t start bottling a Glenlivet 12-year-old, while it is getting tougher to get malts such as Macallan and Bowmore,” says Symington. “The same thing is liable to happen with Caol Ila. We sold a lot of that in the past, but as distillery bottlings come along they are the ones which are bought. The major distillers have distribution, have a sales force, promotional cash – and can sell at an attractive price. Buying Edradour will bring balance to and help grow the business, not just replace any lost volume.” Urquhart agrees. “In our case we’re constantly looking for ways to grow and expand the company and sales. We could do this by increasing sales of our existing range; however, those increases would be ongoing but not dramatic. Because there are fewer distilleries operating, there might not be enough new whisky to sustain such growth. We have significant investments in cask stocks and will continue to invest in new fillings, but I don’t know how the changes in the industry structure will impact on other independent bottlers who do not hold such stocks.”Not only are big producers reluctant to sell casks on the open market, they are also extending their ranges. In the past an independent bottler could at least offer a well-known brand at a different age, or from a different type of cask. Not any more. “Remember when there was one version of Glenlivet?” asks Wright. “Now look at how many there are. It’s getting increasingly difficult to find the gems in the ever decreasing pool. We’d still be in business if we hadn’t bought Bruichladdich, but it would become more of a struggle and the range offered would probably be less interesting.” The whole business is tight … and getting tighter.It would be hard enough if there were only four or five independent bottlers, but as interest in malt has grown so there are a host of small firms fighting over the same stock, which isn’t always of the highest quality. There may be greater choice, but a cask from a famous distillery provides no guarantee that the whisky is any good. Personal experience shows that there is an unacceptably high level of bad, or dirty, or simply neutral casks being bottled up. A recent example was a ‘Black Bruichladdich’ which had been turned that colour through copper contamination. The whisky was faulty, poisonous even, but was still bottled! “The market is getting flooded,” says Stirk. “There are no barriers to entry. If I bought four casks in the ‘80s there’s nothing to say I can’t just bottle and sell it. The problem is over quality. Everyone uses the same brokers and while we will reject a batch because it is not of sufficiently high quality there will always be someone else who will bottle it.”“We may be reaching a point of saturation in the independent bottling market and I guess we are one of the many culprits,” admits Wright. “It has certainly become a lot easier to find a couple of casks of malt, some bottles, labels and someone to bottle it. I do think there will be some contraction in the years to come.” Symington also believes a shake up will occur. “In truth there are only four true independent bottlers. The rest are labellers,” he says. “They are the ones that will disappear whereas the true independents [who have a distillery, bond and bottling line and, by inference, greater control] will survive. The rest will get what they can and the consumer will have to put up with the variable quality.”If buying a distillery is the best way to guarantee continued profitability, then which distillery to choose? Gordon & MacPhail and Murray McDavid both picked up silent stills, but Signatory went for an operational site. “It’s easier to buy an open plant than a closed one,” argues Symington. “I don’t need to renovate the site and there isn’t a hole in stocks. Edradour was a perfect fit for us. It only makes 90,000 litres a year and we won’t need to sell casks to raise cash. Crucially, it it also has a successful visitor’s centre which gives us a source of revenue to set against costs.” For Reynier, Bruichladdich was the culmination of a decade-long ambition. “It was an opportunity to show what really can be done with a premium distillery which had been left to wither on the vine,” he says. “The big players have made a hash of quality and individuality and are hopelessly unimaginative. It’s a crime that the heritage of Scotland is allowed to disappear into oblivion purely because of a decision made by some multinational company’s accounts department in some far-off office. Can you imagine it happening in the vineyards of France?”Buying a distillery may be a long-term way of building the business, but in the shorter term it also lands the independent bottler-distiller with a new challenge: building a brand on an already saturated market. Bottling and selling a single cask is different to establishing and funding a brand, but Urquhart saw Benromach as offering new opportunities for the business. “The Benromach range fits with the Gordon & MacPhail portfolio,” he says. “In due course we’ll have larger quantities to bottle, so we’ll be offering some savings due to economies of scale. More importantly we can control the styles and quality of new whisky available to the company and can control whisky from the raw material right through to the bottled product. It’s also possible that we may wish to carry out distillation experiments.”What of the new Edradour? Symington sees it as a brand which has been overlooked in the past. I remember meeting with the then Brand Manager in its Pernod owned days. “So what plans do you have for it?” I asked trying to make conversation. “Nothing really,” he said with a Gallic shrug. “It’s so small you don’t really have to do anything.” Symington has other ideas. “We can sell the existing brand, have a cask strength variant, vintage expressions, non chill filtered releases. It’s so small we can easily experiment with different types of distilling, try out different woods. I estimate that we can sell up to 25,000 six-bottle cases per annum if we up production.” It’s not a figure which will cause Glenfiddich’s sales teams sleepless nights, but bottler-distillers are working in a slightly different frame. “Edradour will always be a niche product. It’s boutique and it can succeed at that level. We are a growing firm and eventually Edradour will take a share in that. It will both benefit from Signatory and lead people to Signatory,” says Symington.Ask the Bruichladdich team the same question and you'll get a similar answer … to begin with. “No one can take on the big boys directly,” says Reynier. “Glenmorangie spend more in a year on advertising than we did on buying the distillery and all the stock!” But, Wright adds, that doesn’t mean they can’t challenge the major brands. “Several years ago a buyer from a leading high street chain told me that one of the top guys in one of the distilling groups said to him ‘we look upon malts as blends with more of a margin’. I think we can take on the big boys and beat them. We were always firmly decided on building Bruichladdich into a top five single malt. We have the inventiveness, flexibility and courage in our ideas and the implementation of them to offer the consumer more of a genuine and quality malt experience.”Despite slightly different approaches, each firm is working on the principle that the way forward in malt whisky is specialisation. Big firms are simply too cumbersome, too inflexible for an ever changing market. Giant firms are good at selling mass-market brands, their argument goes, but malt is essentially a niche product. The re-emergence of the vibrant independent distiller infers that there are as many opportunities for small players as there are for the large. Will we see even more independent distillers emerge as major firms shed surplus units and brands? “If I were a betting man I’d put a small wager on it,” says the (allegedly) vice-free Wright. Though Gordon & MacPhail may be happy with Benromach, Symington, still familiarising himself with his new role as proprietor, doesn’t rule out further expansion. “It’s going to take five years for Edradour to stand alone and that’s if everything goes to plan. Distilling is an expensive game and making a 10-year-old malt, even with small production, is a big, long-term investment. It’s one thing buying it, quite another to start selling it, but it would be nice to think I could add to it – in the future.”
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