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Hand sanitiser production is just one aspect of business that's altered for £5bn industry, writes George Frier of Shepherd and Wedderburn
The whisky industry continues to captivate consumers and entrepreneurs. Record exports continue and, within the sector, the emergence of new brands and the rejuvenation of existing brands demonstrate a vibrant sub-set of the Scottish food & drink economy.
As new distilleries continue to open – for example at Lagg on Arran, Hawick, and other locations not traditionally associated with whisky production – so too new entrants continue to seek the competitive edge, a way to carve a niche for themselves and build distinctive brand recognition as well as a loyal following.
Financing, through overseas or home-based investors, has allowed the sector to grow and develop and, while security can be taken over maturing whisky stock, we have seen that, inevitably, many distilleries will also distill white spirit such as gin or vodka to assist with cash flow along the way.
Against this backdrop, the impact on many smaller distilleries of the Covid-19 crisis could be immense. Many are dependent on tourist visits and gift shop spend, all of which will have collapsed in recent times; it may be that those with an online presence will be better placed to adapt to the prevailing conditions and weather the storm. It will also be interesting to see if recent developments give rise to any market consolidation or changes to sector business models though, unlike white spirits, with single malt whisky little can be done to alter the key ingredients, especially that of time.
Larger M&A opportunities do arise in the sector, despite the tight control exerted on many companies and brands, in some cases through family ownership. Last year, for example, the Shepherd and Wedderburn Food & Drink Group acted for an Asian private equity fund in the multi-million-pound acquisition of the Loch Lomond Distillery Group, which produces both premium malts as well as blended whisky and vodka from its three locations in Scotland.
The deal involved an auction process with competitive bids, and a winning bid that retained key management stakeholders who shared the buyer’s vision of the opportunity to further develop the export potential of the Loch Lomond brands in emerging markets.
What does the future hold?
Some of the anxiety about the impact of Brexit on the Protected Geographical Indicator (“PGI”) status of Scotch whisky has been addressed with the proposed transitional arrangements. At the time of writing, the Covid-19 lockdown is in force across the UK and almost all key export markets, with controversy over whether whisky distillation can be regarded as an essential business.
Any possibility of adverse PR has, however, diminished with the offer by many spirit distilleries, large and small, to produce hand sanitiser (a key ingredient of which is ethanol), which is able to be produced after appropriate modifications. An interesting slant on the “water of life”.
George Frier is head of the Food & Drink Group at Shepherd and Wedderburn LLP and has been active in advising leading whisky and drinks companies for 30 years.
For more information, contact George at [email protected]
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