Supply, Demand, and Shelf Space - The Story Between Whisky Makers and NAS Haters

Note: no science went into the PRODUCTION of this chart

The summarized story of whisky goes something like this—In the 60s onward the rise of vodka made edgier spirits like whisky unpopular. Whisky producers started watering their whisky down and adding age statements to popularize their spirits as being of higher quality. It worked. Scotch sales were up, and soon modern cocktail culture (based heavily on an interpretation of traditional cocktail culture) brought spirit-forward drinks to the market. The whisky boom reached new heights when the premium whisky market exploded to a much broader audience. Pappy became a "thing" and the demand far outstripped supply.

Distillery expansion have been the big story over the last several years. Maker's Mark tripled its production, Bulleit Distillery is being built, and Ireland went from having 2 distilleries in the 2000s to a projected twenty within the next five years. Considering most whiskies take between four to twelve years to age, supplies are likely to outstrip demand in the future. I doubt whisky will ever be cheaper, but there might be more aged products by the early to mid 2020s.

Whisky Drinkers Taking Tips from Wine Drinkers

When comparing the wine vintage-base industry to the whisky age-based industry, the premise is different. In wine, we buy vintages. We know the 2012 won’t taste the same as the 2011, but we celebrate the terroir of that wine region and the climactic affects on each vintage. In whisky, the age-statement on a bottle is a promise of consistency. Some distilleries, with dwindling well-matured barrels, can no longer promise that consistency while maintained maturation age limits. Furthermore, these distilleries have a pressing need to release whisky.

The whisky industry isn’t suited for major swings in supply and demand. Today, there are two types of distilleries: those that have sufficient aged whisky and those that do not. Large companies that were closely optimizing whisky production based on future projects got caught off guard by this spike in demand. For large enterprises, disappearing from shelf-space is not an option. NAS whisky is released primarily by whisky makers that have a supply disadvantage, and in situations where maintaining valuable shelf-space is crucial.

While this might be a losing strategy, it’s quite possibly the only strategy available to distilleries that are going the NAS whisky route. It’s absolutely about revenue & profit, but it’s also about survival in a very competitive marketplace.

GlenOops Is Suffering

Let’s profile the fictional GlenOops Distillery. They’re a popular distillery with world-wide sales. The cost of their products (before the boom) was already 10-20% higher compared to similarly aged whisky. They’ve kept their production incredibly optimized for projected demands, and those projections were wrong.

GlenOops, caught-up in a general trend of higher demand for whisky, starts running low on quality barrels for their base 10 year old whisky. They have a huge loyal following, established distribution world-wide depending on product availability, and financial demands (whether internal or stock-market driven).

GlenOops has three options: 1) Raise the price significantly to optimize profits and decrease demand, 2) Do nothing and disappear from shelves, or 3) change the product but keep it to a similar price-point.

The first two options are likely to alienate existing customers. Along with a concern of a loss of sales, the loss of loyal consumers is huge. GlenOops spends most of its money advertising the appeal of their whisky. Without a product, they leave a gap for contenders to take away consumers they've paid lots of money to obtain. There are plenty of distilleries out there that have appropriate levels of supply, and should GlenOops disappear from shelves or discourage customers with higher prices, these GlenOops customers might find other whiskies as their new favourite.

So GlenOops goes with option three. They release newly sub-branded products with no-age statements. While they might lose loyal customers seeking age-statements, the losses are marginal by comparison to what they would face were products not on the shelves entirely. They don’t want to ‘cheapen’ these new sub-brands with a lower prices (no luxury company wants to do that). GlenOops feels it can sell these NAS whiskies at a good price-point because they feel their brand-value will carry them through.

However, and this is a big however, even if it does affect their bottom-line… having a product on shelves is far more valuable then having no product at all. Not having their star brand, mass marketed, big success whisky on shelves is a devastating option for a business functioning in a highly competitive field.

It’s quite possible that whisky makers entering the NAS category are making the only choice they can make. However, consumer memories of the ‘good old days’ are justified.

Wine drinkers don’t shy away from being critical of vintages because seasonal changes affect the quality of wine. Climate plays a big role in the equation. Being a whisky drinker is not unlike that, except the emphasis on climate is replaced by the emphasis on the supply of high quality barrel matured whisky.

Some years we get better whisky compared to other years, and that’s okay. In the 80s and 90s we were flooded with well-aged whisky the industry couldn’t sell. Age statements became a marketing ploy that worked. Age statements were all about selling you a whisky at an inflated price. It just happened to be that there was a lot of quality whisky available at the time.

Admittedly, this is a new and uncomfortable time for many long-time whisky drinkers. Thinking like the wine collector does help, with an understanding that there will be better and worse vintages of whisky. In truth, though, the overall availability of whisky has never been greater. There's an incredible amount of whisky out there, but the old familiar brands are changing, and consumers are having to seek out new offerings. Pappy drinkers moved on to W.L. Weller 12, for example, until Weller 12 became relatively unattainable. Consumers then moved on to Weller 107, and so on.

NAS whisky does have an unfortunately bad reputation. Equivalent or better whiskies can be produced without the age statements. The thing is, the supply of quality barrels of whisky is decreasing, and we're feeling that on every level of the whisky being made whether it be the new NAS release or our favourite 18 year old whisky.

There are also plenty of new fantastic whiskies available today that the market would not have sustained ten to twenty years ago. In bourbon, it's been the rise of cask strength whisky. From Scotland, it's all about really well finished whiskies (there's also some bad ones in this category, of course). Whiskies from India, Australia, and Taiwan would never have had the opportunity to explore global markets with such success without the supply constraints hitting the big whisky countries. 

Looking forward, there is going to be a flood of whisky within the next decade. Irish whiskey will be a big part of that movement in the next several years. Bourbons had plenty of supplies, but no-age statement bourbons are trending. Kentucky and Tennessee distilleries are continuing to expand production at big rates. Japanese supplies, on the other hand, have boomed and busted rapidly; supplies have not kept up with demand. Age-statement Japanese whisky has all-but disappeared from the market outside of Japan with some very rare exceptions. 

The Industry Is Keeping a Brave Face Despite Troubling Times (Way) Ahead

Scotch whisky, so dependent on age-statements in previous decades, is seeing decreasing sales and a competitive field from new and old whisky makers. I have no doubt that big companies like Diageo are doing the wrong thing by expanding their portfolio into less-authentic products. Anyone confusing whisky for vodka, with a belief that fancy labels will lead to better sales, hasn’t been watching the vodka industry closely enough.

Just as with wine, whisky will have better or worse years in terms of flavour. Unlike with wine, where changes are year-to-year and variation is expected, whisky undergoes several years swings in supply. It's a problem for consumers that only want single malt scotch, or only want aged bourbons at an affordable price. These are reasonable expectations in contrast to the incredibly heightened demand for premium whisky. There's no equitable solution here. 

Many scotch drinkers moved to bourbon, and now that bourbon is hitting shortages, those consumers are moving onward to other spirits entirely. Rum, tequila, mezcal, brandy, and other spirits are being explored. Whisky drinkers are becoming spirit drinkers. There's a huge market with authentic under-appreciated complex spirits. It's a further step away from the inauthenticity of flavored vodka that was once so popular. The next decade will be an interesting time for the whisky industry that's experiencing a well-deserved boom, but it'll be how they treat their consumers over the next decade that'll decide their success further down the line. 

That's the one thing about whisky. It's not a quarterly business. One can't measure success by comparing year-over-year sales. If a distillery starts making bad whisky anywhere in the process, that's not going to be obvious for a year, five years, or even a decade ahead. To modify a phrase from the restaurant business, you're only as good as your last bottle of whisky sold.