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BW Businessworld

Cheers To High Returns

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Whisky is luxury in a sip. Imagine the luxury of sipping a divine dram from 1980, a rare and vintage 40-year-old, a rich and complex 50-year-old or an elegant sherry finish… each bringing with it history and tradition of, at times, over a hundred years. Luxury crafted in the wild valleys of Scotland or the elegant countryside of Ireland or in distant Osaka. 
 
As one of the finest expressions of luxury, is whisky then only about drinking and appreciating or can we collect it as well? While most of us have been drinking and partaking of this pleasure for generations, over the past few years, whisky has acquired the status of an investment. What helps is that whisky is a non-perishable product, with a long shelf life. 
 
Investment-grade whiskies have shown strong growth over the years. Between January 2011 and December 2013, the top thousand single malt whiskies have appreciated by almost 130 per cent. In the same period, the top 250 have grown by 200 per cent and the top 100 by 230 per cent. That’s way more than rare stamps or gold. 
 
Many whisky funds invest in ‘silent stills’, or whisky distilleries that have closed down. These distilleries only have old stock or holding stock. As they will never produce again, the value of their stock goes up substantially and the whiskies are classified as rare.
 
Investments are also being made in limited releases of some iconic brands. These are released a few times a year and snapped up by avid collectors. Appreciation starts almost immediately, since the product goes off the market. Limited edition whiskies are also prime collectors’ items. 
 
Investments are also pouring into high-performing brands from Japan, the US, Ireland and Scotland. Over time, Japanese whiskies have shown good appreciation, though Scotch whisky continues to dominate in terms of investment. The buzz around old whiskies has got many collectors interested. Many of them, enthusiasts who collected whiskies as a hobby, turned investors after they saw the spirit’s potential.
 
Stocks with independent bottlers have also witnessed an upsurge in value in the past few years. Over the years, these bottlers had come to possess some great stocks. When these were bottled and sold under their own name, they possibly did not command a premium. Of late, realisation has dawned that the whiskies are of high value and quality.
 
Generally, aged whiskies fetch a higher premium. Those aged over 25 years have witnessed the highest appreciation as they are, in any case, distilled in limited quantities. Again, the demand for whisky in the past few years has surpassed all expectations. This has led to prices spurting. 
 
The unprecedented demand is largely from countries like China, Taiwan and India. The maturing process cannot be hurried and takes years. Also, in the 1980s and ’90s, distillers did not foresee demand from the new economies. They turned out limited batches. The demand, especially from Asia, has surprised all. Annual sales of single malt Scotch whisky this year increased by 190 per cent, going from $390 million to $1.1 billion.
 
The emerging countries have given rise to a new set of millionaires who feel the need to express themselves through ‘objects of desire’. Besides watches, diamonds and real estate, whisky is being seen as a ‘must buy’. The rich in these developing economies are on the lookout for sought-after bottles. Many are picked up at auctions and private previews for hefty sums.
 
The distillers themselves have no small role to play in price appreciation. Brands such as The Macallan, The Balvenie, etc., have made large investments in brand building, ensuring that their premium stocks became even more precious. Packaging is also a major attraction among collectors and connoisseurs. Resellers and portfolio managers add value to select older stocks by re-packaging them in new bottles and decanters.
 
Some of the distilleries that lead in the production of investment-grade whiskies are The Macallan, The Balvenie and The Dalmore. Dating back to the 1960s and 1970s, brands like Springbank, Bowmore, select expressions of Ardbeg and Glenmorangie, Islay’s magnificient specimens like Lagavulin and Coal ILA, besides Highland Park, are amongst the most sought after whiskies. 
 
A word of advice for potential collectors: Consider building a portfolio over at least 2-3 years. And the way whiskies are appreciating, there is no time like the present to start, even if it’s with a small initial investment.
Before starting a whisky collection, one needs to study industry evolution, limited releases, distillery capacity and brand equity, as these are key to building a good portfolio. Changes in production, global outreach of brands, rise in disposable income, and socio-economic trends are some key factors to bear in mind. 
 
Cask costs, availability and trends, selection of the correct year and limited bottles are also quiet determinants to whisky investment. 
 
Experience in trading stocks, optimising the portfolio by selling at the right time and estimating the market value of stocks are essential.
 
In the initial stages of planning a portfolio, it may be best if one takes the advice of an investment expert; someone who can guide you on the portfolio, plan investments and optimise returns. These experts have access to auction houses, whisky collectors and distilleries.
 
Whisky will never go out of fashion. Going forward, higher exposure, limited supply of premium malts, rising prices and, above all, the love for the amber nectar will ensure your whisky investments pay off.
 
Enjoy responsibly!  
 
(This story was published in BW | Businessworld Issue Dated 15-12-2014)