Not Your Grandfather's Scotch by Ruby Marsannay (essential books to read TXT) 📕

“…the most important idea in advertising is ‘new’. Creates an itch. You simply put your product in there as a kind of calamine lotion.”

--Don Draper, Mad Men

Introduction and Background

Clad in amber and gold, Single Malt Scotch Whisky has arrived at the spirits ball, making heads twirl, tulips swirl, gavels drop, shots fire…and commanding over millions of eyes, lips, and wallets with its presence. Indeed, global exports of Single Malt Scotch Whisky have steadily increased in terms of both value and volume in recent years (Figure 1), with export revenue exceeding £744 million in 2011 alone. It is as if Single Malt Scotch Whisky has become the belle of the world spirits market after years in the shadows, emerging as something fresh and new despite its maturity.

Not unlike the product itself, which is often referred to as “refreshing”, “delicate”, and even “radiant” in tasting notes--even after a decade or more in casks. For a whisky to be labeled as Single Malt Scotch Whisky, it must be made from only water and malted barley, distilled using pot stills at a single distillery in Scotland, and then matured in Scotland in oak casks for a minimum of 3 years (though typically longer for single malts). The production and labeling guidelines listed above, as well as a legal definition of the term “Scotch”, were established in the Scotch Whisky Regulations (SWR) of 2009. In addition, Scotch whisky is now recognized and protected as a “geographical indication of origin” by both the European Union and the World Trade Organization.

These legal precautions are not unwarranted: Scotch is a multi-billion pound industry, and the Single Malt Scotch Whisky category is currently its shining star. Though the volumes of blended Scotch released for consumption in the United Kingdom (UK) has decreased by over 6 million litres of pure alcohol (LPA) between 2001 and 2010, the volumes of Single Malt Scotch Whisky released in the UK rose from 2.6 million LPA in 2001 to over 3.3 million LPA in 2010. Moreover, this 27% increase in the domestic release volume for single malts is modest compared to trends observed in certain international markets (Table 1). Considering that the UK only accounts for about 10% of all Scotch whisky sales (with Scotland accounting for only 1% of all Scotch sales), export markets clearly drive the bulk of Scotch (including single malts) sales and revenue.

While Scotch exports have generally been on the decline since 1980, Single Malt Scotch Whisky exports have been on the rise—and account for an increasing portion of the exports market (Figure 2). Although single malts only made up approximately 7.9% of all Scotch export volumes in 2011, it accounted for 17.6% of all Scotch revenue that year, likely due at least in part to its premium and ultra-premium pricing. Looking at exports by country or region, the United States (US) was the top importer of Single Malt Scotch Whisky in terms of revenue in 2010 and 2011, accounting for approximately 22% of all export revenue both years (Table 2). France was a close second in terms of revenue (approximately 18% and 19% of all export revenue in 2011 and 2010, respectively), but was the top importer of Single Malt Scotch Whisky for both years in terms of volume (Table 1). It is worth noting that both countries increased their consumption of Single Malt Scotch Whisky (both in revenue and volume) in 2011 compared to 2010 (Table 1 and 2). Within Europe, the Baltic (Estonia, Latvia, and Lithuania) and some Slavic (Slovenia, Croatia) countries increased their Single Malt Scotch Whisky consumption (both in revenue and volume) by more than 85% in 2011 compared to 2010, while countries experiencing financial hardships (Italy, Portugal, and Spain) experienced decreased revenues in 2011 relative to 2010 (Table 1 and 2).

In Asia, Taiwan was the largest importer of Single Malt Scotch Whisky, and showed substantial growth in consumption from 2010 to 2011 (Table 2). China also exhibited promising growth in Single Malt Scotch Whisky consumption, but only came in 7th and 8th place among Asian countries for volume and revenue, respectively, in 2011 (Table 2). Of the Latin American countries, Brazil exhibited phenomenal increases in Single Malt Scotch Whisky consumption (over 100% for both revenue and volume) from 2010 to 2011 (Table 2). While Brazil only accounted for less than 0.5% of total Single Malt Scotch Whisky revenue or volume imported in 2011, they are the biggest consumer in Latin America, and account for more than a quarter of all revenue generated from this region (£2.80 million in Brazil vs £8.25 million from all of Latin America in 2011, Table 2).

In light of the importance of international markets to the Scotch industry, it is not surprising (though slightly ironic) that many famous single malt distilleries are owned by non-Scottish companies. The Glenlivet, the world’s second best-selling Single Malt Scotch Whisky, is owned by French company Pernod-Ricard. Glenmorangie, the highest selling Single Malt Scotch Whisky in Scotland, is owned by LVMH, and yet another French company, Remy-Cointreau, purchased Bruichladdich in 2012. Bowmore, Glen Garioch, and McClelland’s Single Malt are all owned by Suntory, a Japanese drinks company. Multi-national UK drinks giant Diageo owns a considerable number of single malt distilleries (Glen Ord, Glenkinchie, and Glen Elgin, among others). One notable exception is Glenfiddich, the world’s best-selling and most awarded Single Malt Scotch Whisky, which is owned by William Grant & Sons, a family-owned company that also owns the Balvenie single malt distillery.,

Despite the competitive landscape (or perhaps in response to it), many distillers have re-launched certain expressions of their Single Malt Scotch Whiskies in recent years, including Glendullan in 2007, GlenDronach in 2009, and Glengoyne in 2012. However, a successful re-launch is no small feat, and a plethora of factors and options must be considered. Two useful strategic planning tools for devising a product re-launch include the SWOT analysis and the marketing mix. The ensuing sections will apply both types of strategic planning methods to the re-launch of a hypothetical (yet presumably well-established) Single Malt Scotch Whisky, with particular attention and consideration paid to growth opportunities in the US and Brazil markets. Finally, the effectiveness of the proposed re-launch as well as the long-term prospects for the Single Malt Scotch Whisky category will be evaluated.

SWOT Analysis

A SWOT Analysis is a method in which internal factors (S = Strengths, W = Weaknesses) and external factors (O = Opportunities, T = Threats) are carefully evaluated as part of the strategic planning process for a project or business venture. Implicit in the following SWOT analysis is the assumption that the hypothetical Single Malt Scotch Whisky being re-launched comes from a well-known and well-established distiller. Therefore, only key strengths, weaknesses, opportunities, and threats will be identified herein, with a focus on markets in the US and Brazil where applicable. A more comprehensive and detailed SWOT analysis is presented in Table 3.

Strengths and Weaknesses

Single Malt Scotch Whisky is undeniably a quality product with a unique taste profile, and is recognized as a geographical indication of origin. These are clear and undeniable advantages, but they do not guarantee a successful re-launch without a good brand name and established distribution networks. This concept was proven in the late 1970s through mid 1980s, when surplus capacity combined with declining sales led to a quarter of all distilleries going out of production, and resulted in a paradigm shift within the Scotch industry from being production-driven to being market-driven, with greater resources placed on effective brand and distribution management.

Just as having a solid brand name and good distribution networks could be a company’s greatest strengths, they could also be its greatest weaknesses. In the case of a seasoned single malt distiller, it is possible to boast brand appeal and efficient distribution outlets in a historically large import market such as the US, while simultaneously lack both vis à vis an emerging market like Brazil.

Opportunities

The single greatest opportunity just begging to be capitalized upon for a Single Malt Scotch Whisky re-launch is the fact that whisky—and Scotch in particular—is stratospherically popular right now. Despite the global recession, younger drinkers seem to be ordering expensive single malts, so much so that it has attracted the attention of industry insiders. As one affiliate of the Scotch Whisky Association stated in a Daily Record article, “Anecdotal evidence suggests younger people are being attracted to malt—partly because it’s seen as an aspirational and stylish drink.” Apparently, single malts today are not your grandfather’s Scotch…

A surprising statement, since whisky has been seen for years as “enjoyed predominantly by older males”. What is attributed as being partially responsible for this image face lift is equally surprising: the American television show Mad Men, according to a report in UK trade magazine The Grocer. Set predominantly in New York’s Madison Avenue during the 1960s, Mad Men is, at first glance, a show about nothing more than witty and cynical banter carried out while smoking and drinking whisky incessantly. The Grocer report posits that fans of the show are “emulating the glamorous characters by developing a taste for high-end spirits”, and this resulted in a boom in global sales in 2011. It is therefore not unreasonable to assume that an interest in single malts may also spike as the show and others like it reach emerging economies such as Brazil.

Interestingly, this “Mad Men Effect” is not only attributed to a rise in young consumers of expensive Scotch, but also to increased whisky consumption among women, so much so that Glenfiddich has launched a “Women & Whisky” campaign with the purpose of turning women on to Single Malt Scotch Whisky. Considering that women are estimated to make 65% to 70% of the alcohol purchasing decisions in the US, the recent upsurge in interest toward single malts among women is a tremendous opportunity for growth in established markets like the US, where up until now Scotch was mostly seen as a manly drink.

Threats

Unlike weaknesses, which are internal factors theoretically within control, threats are a bit more volatile and unpredictable. The biggest threats currently affecting the Single Malt Scotch Whisky category include regulations that can increase production costs and well as excessive taxes or surcharges, both of which are magnified in today’s global recession. One example of a costly regulation impacting Single Malt Scotch Whisky directly is the 2009 SWR’s requirement that it only be exported in bottles ready for retail sale, which becomes effective on 23 November 2012. Even though this regulation was likely intended to protect Single Malt Scotch Whisky against imitators and counterfeits, any distillers which may have previously shipped casks for bottling elsewhere (unlikely, but possible) will now need to devote money and resources to bottling domestically. An example of excessive taxes or surcharges is India’s 150% import tariff. Moreover, the threat of excessive taxation is currently much closer to home, as the Scottish government’s ardently debated Alcohol (Minimum Pricing) (Scotland) Bill is estimated to increase the price of a bottle of blended whisky by £3.50 in Scotland. While this may not directly impact Single Malt Scotch Whisky due to its premium pricing, some academics fear that minimum pricing could pave the way for other countries to increase their taxation of all Scotch whisky.

It is worth noting that regardless of being external factors, some threats can still be mitigated with the appropriate amount of planning and risk management incorporated into the marketing mix.

Marketing Mix

There are 4 major marketing management decisions: Product, Price, Place and Promotion; these are known as the “marketing mix”, or the “4 Ps of marketing”. This section will explore options within each of the four categories for a Single Malt Scotch Whisky re-launch, with a focus on how to target female consumers in the US as well as new consumers in Brazil. Wherever applicable, technological innovations that could serve as solutions towards a successful