02 Apr Whisky sector highlights sustainability and diversity
Graeme Littlejohn, Director of Strategy & Communications, Scotch Whisky Association, discusses the Scotch whisky industry’s plan to regrow its exports in new and trending markets and its decade-long efforts to increase sustainability in its practices.
Why has Scotch whisky remained a popular choice for so long?
Scotch whisky has a history that goes back at least 500 years, and probably a lot longer than that. The first documented recording of Scotch whisky production was in 1494 in the Exchequer Rolls where it was noted that a friar, John Cor, was granted eight bolls of malt for production of aqua vitae, which is the Scotch whisky of today. The practice has transformed in those last five centuries from a Highland industry into a Scottish industry before moving into a British industry and global phenomenon. Now, Scotch whisky is exported to around 180 markets in the world every year. A total of 40 bottles of Scotch whisky are exported from Scotland every single second. It is a huge global industry and enjoyed by people in various ways all around the world. The fact that we can trace it back to these unique beginnings and the fact that it is made from just three natural ingredients—water, yeast, and cereals—is phenomenal.
Scotch Whisky remains the preeminent world whisky. It exports more than Irish, Japanese and American whisky combined in a year. Having said that, other world whiskies are growing, and there are several new productions beginning. France currently has over 40 whisky distilleries and China is beginning to build their own. There has been a huge increase in interest in whisky around the world, which is excellent for Scotch whisky. The more people who are aware of whisky and its different flavor components, characteristics, quality, heritage and provenance, the more people will eventually find Scotch whisky. They may try Irish, American, Japanese or some other world whiskies but they will come back to Scotch whisky because of our story and quality. It is a unique Scottish product.
How has the Scotch whisky sector rebounded from challenges caused by the COVID-19 pandemic and other recent hurdles?
It is an exciting time for Scotch whisky after a challenging couple of years due to the global pandemic, a change in our trading relationship with the European Union and a tariff levied on exports of Scotch whisky to the United States. Looking ahead, the Scotch whisky industry is optimistic. We are continuing to grow and get back to pre-pandemic levels of exports, which reached nearly £5 billion in exports in 2019. Exports in 2020 were £3.8 billion, which was a 23 percent drop due to the impact of the COVID-19 crisis. As a global export, the global pandemic had a sizable impact on our industry. Hospitality has been severely impacted around the world. If you look at markets like China and Brazil where the consumption of Scotch whisky is predominantly done in the hospitality environment, the pandemic has had a sizable impact. Both leisure and business travel have also reduced significantly in the last two years, which impacted global travel retail or airport retail. This is a huge sales channel for Scotch whisky. Until global travel gets back up and running, Scotch whisky is going to suffer.
We began to rebound in 2021 due to fewer restrictions, although they are not all gone at this point. While new COVID variants in various countries are on the rise, the industry is rebounding slowly from the decline in exports last year. In the first half of 2021, exports grew again by over 20 percent. We expect to see 2021 as a larger year than 2020, perhaps reaching exports worth £4 billion. We are still seeking to get back to pre-pandemic export levels by attracting new consumers to Scotch Whisky around the world.
Trends are still emerging. We are still learning lessons from 2020 in terms of the pandemic and the new trading relationship with the European Union. We ended 2020 in the U.K. by exiting the transition period from the EU. This has meant changes in customs procedures and how we physically get products from Scotland and ports in the U.K. to the EU. There were some teething problems in the early part of the year, but these are beginning to iron themselves out. One of the more challenging trends—which has remained and will remain for the midterm at least—is some supply chain pressures on the industry that are not only experienced by the Scotch whisky industry but other industries in general. These include rising packaging, glass and shipping costs due to trade shifts caused by the global pandemic. These are challenging because they increase overall costs and reduce productivity.
How successful has the Scotch whisky sector been in switching to e-commerce platforms to mitigate the recent dip in overall revenue?
We saw a shift toward e-commerce before the COVID-19 pandemic hit, but the trend accelerated once opportunities for direct consumer sales had diminished because of restrictions. We saw a rise in two ways. The first was in traditional Scotch whisky tastings, which were formerly done in rooms with people hearing the story of Scotch whisky. This switched to online environments; many tasting packs were sent to consumers for enjoyment in a virtual setting. The second shift was the move by Scotch whisky companies who had not previously considered the e-commerce environment to accelerate their online offerings to protect their business. These companies quickly adapted to selling Scotch whisky in the online environment and setting up new systems and processes to do so. This was the case for not only for the largest companies in the world but single-brand producers in the industry. All our member companies are now in some way selling in the online environment, which is here to stay. All whisky producers—not only in the Scotch Whisky environment but around the world—are looking to introduce whisky to more global consumers. The more avenues we have to sell, the better we can tell the story of Scotch Whisky to the world.
What strides has the Scotch whisky industry taken to lower its carbon footprint and support the nation’s sustainability strategy?
People have become a lot more concerned about the story of sustainability behind products they buy, particularly in the last year. Consumers are looking at what companies are doing to protect the climate for future generations. This trend will continue to grow in coming years as countries move towards keeping global warming beneath that 1.5-degree target set for 2050. Of course, the focus has shifted in Scotland due to the 2021 United Nations Climate Change Conference hosted in Glasgow. While many sectors are now thinking about greenhouse gas emission targets and increasing renewable energies in their respective energy mixes because of the changing science around climate change, this is a journey the Scotch whisky industry has been on for the last decade. The Scottish Whisky Association had our very first environmental strategy published in 2009 and have been working towards making Scotch whisky a more sustainable product ever since.
We have seen significant progress. When our strategy launched there was only a three percent mix coming from renewable energy in the Scotch whisky industry. Today, renewables fulfill 39 percent of our consumption. We have hugely increased the amount of renewable energy used to produce Scotch whisky, which is an energy-intensive process due to high temperatures used to heat up stills for distillation. We also managed to reduce greenhouse gas emissions by 53 percent in the same timeframe while increasing production due to global demand. This has been done by increasing the use of renewable energy and increasing a number of efficiencies in our process. We are trying to use water, cereals and yeast more efficiently. At the beginning of 2021, the Scotch whisky industry launched a new sustainability strategy to take us beyond what we promised to do 10 years ago. Science has changed and there are new legislative targets in many countries, particularly in the U.K. We are aiming to reach net-zero carbon emissions by 2050 in the U.K. and 2045 in Scotland. The Scotch whisky industry has set a target to have net-zero emissions from production by 2040. We have also set other targets around water use and land sustainability. There is a 2025 target to make all our packaging recyclable, reusable or compostable. The industry is determined to achieve our goals over the next few years. Given that our product is often 18 years old, we have reduced times in which to our net-zero targets significantly. We need to have a clear focus on achieving our targets. Whatever the case, sustainability will always be a key focus for the industry.
How significant is the U.S. market in terms of export of Scotch whisky?
While France is the largest market for Scottish whiskies by volume, the U.S. has for a long time been the Scotch whisky industry’s largest global market by value. The market was the first to surpass the billion-pound mark in 2019. Unfortunately, we had a period of tariffs caused by an aerospace dispute that was not of our making. Then, the global pandemic struck. We are in the process of building back the U.S. market. The impact of the tariff was stark. There was a 25 percent tariff on single-malt Scotch whisky imported to the U.S. That factor alone had a drag effect on all exports of Scotch whisky into the United States; the industry lost around £600 million in the 18 months in which the tariffs were imposed. We were very pleased and welcomed the suspension of the 25 percent tariff for a period of five years in June 2021. This was extremely positive for the industry and allows space to solve our underlying aerospace disputes.
As Scotch whisky moves into growth again in the United States, we must look at emerging trends within the market. There are changes in how people consume spirits and alcohol. Consumers are now looking for an experience, not just consumption of alcohol. Spirits and whisky in particular play well into this because we can make world-class cocktails at home. Over the course of the pandemic, various states around the U.S. reduced restrictions around where alcohol could be purchased and how it could be consumed. Our sister organization, the Distilled Spirits Council of America, is looking into how the market can be—in a sense—deregulated to ensure that modern consumers enjoy spirits like Scotch whisky in the way that they want to enjoy them.
How do you brand Scotch whisky in the U.S. market?
The history of Scotch whisky is key. We have a unique story to tell that relates directly to the United States because a lot of Scotch whisky is matured in bourbon casks. The U.S. whisky industry is very kind to us in that they only use their casks once. We have a symbiotic relationship between the two industries. This story allows us to tell the provenance of Scotch whisky. The fact that a relatively small country with its unique landscape and environment can have so many different characteristics of the spirit is astonishing. We are a country of only 5 million people and geographically quite small. However, we are at the same time quite diverse. You will get a completely different whisky from the Highlands and in Speyside than you will from the small island of Islay. You can get a peated whisky from the west coast and enjoy a grassier characteristic spirit from a lowland distillery. A huge variety of whisky is available. This is important for consumers who are wanting different experiences and to know how their product is manufactured. There is a lot of work going on to introduce Scotch whisky to the market, which is as much a historic product as a modern spirit. We are making vigorous efforts to introduce our product to new consumers looking for provenance, heritage and quality.
What is Scottish Whisky Association’s current growth strategy?
Our priorities for 2022 sit in two different areas. The first is building back global growth and reaching pre-pandemic levels. One of the main ways to do this is focus on pursuing a trade agreement between the U.K. and India. Formal negotiations are now underway. India is the largest whisky market in the world, yet Scotch Whisky only holds two percent of the market. There is a huge opportunity to grow in the Indian market, which we can do by reducing the 150 percent tariff in the market currently put on Scotch whisky. There continue to be opportunities in large future markets such as China and Brazil. Rebuilding older markets like the EU and North America are also key priorities.
Another priority for 2022 is diversity. There is a misconception that Scotch whisky is for middle-aged white men, but this is not the case when you look at the global context. In Mexico there are as many women drinking Scotch whisky as there are men. We must try to make sure that people are aware that Scotch whisky is a spirit for everyone and can be enjoyed in various ways. We also need to make sure Scotch whisky is seen as an industry that everyone can work in. There are jobs, skills and a career for every gender and ethnicity. We have launched a diversity and inclusivity charter that our member companies have signed; we will be doing a lot more work in 2022 and beyond to increase the diversity of our workforce and consumers around the world. Scotch Whisky is there to be enjoyed by everyone.