By Chris Middleton

Quantitative Easing II: The era of incremental innovation

Chris continues to examine the economics of motivation
The whisky industry’s second round of quantitative easing stimulated demand for the new millennium. Two megatrends, category premiumisation and the relaxation of distillation licenses, presaged the proliferation of new product expressions in the new century. The outcomes of these trends resulted in a substantial upsurge in production and the pursuit of higher-quality liquids, with more flavour-differentiated whiskies. While national regulations rigidly constrain production standards in different whisky jurisdictions, within these legal canvases, near-limitless opportunities for interpretation permit distillers to finesse flavour nuances by modifying formulas, distilling techniques and maturation methods.

In the 1980s, the global industry cut production in response to declining sales. The total number of whisky distilleries worldwide contracted to less than 140 at this low water mark. By 2020 distilleries had increased twentyfold worldwide, with a tenfold increase in the number of countries manufacturing whisky. Over the past three decades, case sales almost doubled, and whisky’s value quadrupled, with two-thirds of the sales value in new premium-priced and artisanal labels. Whisky’s third revival was afoot, and it was global.

The seeds of the recovery began gestating in the 1980s as the industry sunk to its lowest point in consumer demand. As Scotch production fell by 35 per cent in 1985 and sales receded, single malts bucked the decline and started their ascent from less than 2 per cent of total Scotch export volume in 1981 to 20 per cent in 2019. It was fostered in 1982 by DCL’s Classic Malts series and the first cask finishes. In parallel response, sales fell in the dominant blended Scotch segment; however, niche luxury and deluxe blends capitalised on the premiumisation trend, experiencing double-digit growth. Accumulating stock amongst the 18 million casks held in bond was inventory for future whiskies as demand for older age statements climbed.

While the decline was steeper in the US, the first green shoots also appeared in the 1980s when a Japanese distributor requested a bourbon comparable to Scottish single malt. In 1984, the first mainstream single-barrel release, from Blanton’s, appeared. Within four years, America’s largest straight whisky brand, Jack Daniel’s, launched their first premium line extension: Gentleman Jack. Soon, a stampede of premium brands hit retailer’s shelves.

Those breakthrough products spawned a flood of incremental product innovation. Thousands of line extensions, new brands, including new artisanal distilleries and independent bottlers, inundate the international marketplace every year. Manufacturers tweaked flavours from peating levels to heirloom and hybrid grain varieties, malting specifications to yeast strains, novel cask woods to batch blends, experimental maturation and more.

Finished products grew older in age statements, with higher bottle proofs, while brands clamoured for attention with more seductive claims and backstories. Collectors and investors with more dollars than sense sent the prices of some brands into the stratosphere. Consumers became more sophisticated as they joined clubs, attended shows, and confetti-loads of awards each year prompted impulse point-of-purchase or affirmed loyalty. Wood finishing became the stable of many distilleries releasing new expressions each year. The single barrel concept became a new customised segment expanding to ‘barrel picks’ where retailers, clubs, companies and individuals acquire casks directly.
As competition increased, product quality and brand differentiation sent distillers to scrutinise the science and experiment with every granular component of ingredient matrixes and manufacturing processes. The explosion in incremental product flavour innovation was the catalyst behind the manufacturer’s stimulus packages that provoked renewed consumer interest. Under this round of quantitative easing, consumers rallied, discovering the calibre of whisky was never better, nor more varied – good times for whisky, again.