Mythbusters

Mythbusters: Quantitative easing of whisky

Why it can pay to throw lots at the wall and see what sticks
By Chris Middleton
Chris Middleton
Chris Middleton
Since the GFC, central banks have used quantitative easing to purchase large-scale government bonds and assets to inject money into the economy. The whisky industry has used similar quantitative stimulus measures over the past 150 years to grow consumer sales through product development, bringing hundreds of thousands of new products to market.
In the last Mythbusters column, the quantum world of drinkers revealed the chaos of consumption that freely forms into self-organising groups, clustering into sets of classifications identified by consumer needs and wants. At the macro level, market dynamics are aroused by the manufacturers, who create demand by injecting supply to excite drinkers and consumption. Predicting and creating demand with product variations brings risks, especially as inventory forecasts for straight Bourbon are four years or more and often more than 10 years for Scotch single malts. With most new whisky products failing within a few years of launch, it makes the commercial viability of development, testing and market acceptance a precarious business.

In the early 19th century, the greatest and last ‘transformative innovation’ in spirits manufacturing was the invention of the continuous column still. This technological transformation led to transmutations enabling the formulation of new, cheaper and lighter-tasting whiskies. By reengineering column stills to accommodate different wash gravities and mash slurries, manufacturers could distil a purer distillate to formulate blended whiskies, rum, brandy and silent spirits from other raw materials such as beets and potatoes. This lighter-tasting spirit, produced at a fraction of the cost of traditional pot distillation, led to the creation of Scotch, Irish, American and Canadian blended whiskies. After the 1860s, distilleries were able to stimulate consumer demand by releasing iterations of new products, aided by new distillation equipment and more flexible excise laws, resulting in blended whisky sales skyrocketing. However, the 20th century brought new obstacles, disruptions and threats for the industry: increasing tariffs and taxes, restrictions due to wars and prohibitions, and access limitations to time and place of consumption.

After WWII, spirits consumption shifted away from brown spirits as a new generation discovered white spirits categories: white rum, vodka and blanco Tequila – most lacking in taste, odour and colour. In Western countries, these new spirits were more versatile for mixing and cocktails. Ironically, at the height of the Cold War, vodka (a product born of Russia and Warsaw Pact countries) became the Free World’s popular spirit. In the mid-1970s, vodka became the leading spirit in the US, and by 2017 it displaced whisky in the UK. The whisky industry responded to these competitive threats by making lighter formulas. Leading Scotch brands such as Ballantine’s and J&B made lighter-tasting blends, some brands launched new lines, such as Black & White Extra Light and VAT 69 Golden Light. Even the Isle of Man produced Glen Kella, ‘white whisky’ made from Scotch.

American distillers had their Federal law changed in 1968 to permit a new class of whisky, known as light whiskey, or white whisky. It was made in a ‘closed system’, to a higher proof distillation, aged in second-use barrels and filtered through activated carbon to remove colour and minimise flavour – brown spirit back to white. Dozens of products were launched, including by many leading Bourbon brands, such as Old Crow Light, Four Roses Premium and Schenley XL. Nevertheless, the white whisky segment proved an abject failure with all products withdrawn – though the TTB designation remains.

From the early 1970s, the global whisky industry began a three-decade-long contraction. The industry closed dozens of distilleries, consolidated and discounted to generate consumer sales. As the industry reached its nadir, manufacturers saw green shoots from their product development that would attract drinkers back.
Whisky’s 21st-century boom was about to start, stimulated by new packets of quantitative easing.