The Distillers’ City Debate 2023

“This House believes the emergence of Whisky as a Private Investment Asset is good for the growth of the wider whisk(e)y market”

On June 6th an audience of over 100 Distillers, industry guests and other Livery colleagues convened at London Scottish House in eager anticipation of a debate of the motion

“This House believes the emergence of Whisky as a Private Investment Asset is good for the growth of the wider whisk(e)y market”

What ensued was a lively discussion around a highly topical subject, with passionate arguments expressed for and against the motion by a panel of trade experts.

A pre-debate count  revealed 13 votes in favour of the motion, 25 against, and open minded, or perhaps discreet, abstentions from the remainder of the audience.

Opening in support of the motion was Jonny Fowle (Head of Whisky at Sotheby’s). He began by observing that investment by consumers in turn enables investment by the industry, driving expansion and growth within the sector and generating wider economic benefits such as jobs and tax income.

Wryly noting that brand owners have historically been enthusiastic about price inflation, the implication was that criticism of rising prices and scarcity arising from the appetite for private investment might seem slightly disingenuous.

Choosing to focus on the prestige bottled segment of the market, in which Sotheby’s specialises, Jonny praised the investment phenomenon for not only generating a halo effect across the whole Single Malt category, but also for preserving gems of yesteryear for the enjoyment of current drinkers.

He attributed this to the enhanced emotional and financial value of such rare whiskies protecting them from release or consumption under younger age statements.

To prove his point he very generously shared a 1964 Black Bowmore and 1982 Macallan Fine & Rare with two grateful audience members – an act of bribery which Chairman Trevor Stirling magnanimously waved through, despite not receiving a dram himself. Or at least not in front of the audience….

Turning from bottled to the controversy around what he termed “bad-faith actors in Cask-trading”, Jonny suggested that, rather than being a whisky industry problem per se, this was simply an example of the fraud problems found throughout the investment world – irrespective of asset class – driven by unscrupulous individuals rather than institutional shortcomings. He also noted that no one decries the traditional model of formal investment in whisky company shares, despite the Stock Market’s distinctly chequered record on fraud and transparency…

In closing, he urged the audience to see the many positives from private investment in prestige whisky as an investment asset, rather than allowing the actions of a few ‘bad apples’ to spoil the barrel.

In opposing the motion, Isabel Graham-Yooll (Auction Director of Whisky.Auction), cited the dangers of having an “unregulated investment vehicle” at the heart of the industry, which today faces an acute problem with roots stretching back to the 1960s.

She described the current cask investment landscape as a Pyramid Scheme, from which early investors have already extracted their profits, leaving dealers urgently needing to offload stocks before the music stops.

Lamenting that industry bodies seem to show little inclination to take a lead in introducing regulatory safeguards, Isobel illustrated just how extreme and irresponsible Cask marketing has become, by quoting a series of real-life sales pitches from current businesses.

A litany of grandiose and unsubstantiated phrases such as ‘guaranteed returns’, ‘double-digit growth’, ‘will only improve with age’, ‘risk-free as well as tax-free’ served to demonstrate how recklessly  consumers are being targeted by “under-qualified brokers”.

Not only do these pose a threat to whisky investors’ financial security, their activities also create the feeding frenzy which sees mainstream press coverage in the likes of the Mail on Sunday and the Guardian, thus luring in less expert consumers who – unlike industry players – are not sufficiently cognisant of the importance of ‘caveat emptor’.

Isobel posited that the resulting spiral in cask values has also tarnished the bottled prestige sector,, with rising prices causing many whiskies to become ‘imprudent to open and vulgar to drink’, leaving no viable path other than to become dry investment assets rather than drams to be shared and savoured.

Finally, she warned that the exposure of greater numbers of investor-consumers to this phenomenon would inevitably worsen the fall-out and backlash when the pyramid collapses, concluding “the joke is on us [the industry], as it will all end in tears”

Taking a more upbeat view of the landscape  Ian Harris MBE (former CEO of the WSET), spoke next in favour of the motion. He began by apologising that, unlike Jonny,  he could not treat audience members to a dram, although it was unclear whether he meant during the debate, or on an ongoing basis…

Observing that “ investing in success is normal and healthy in a capitalist society”, Ian urged us not to be ashamed of embracing the growth of  whisky as a private investment asset. After all, he commented, success of the trade since its earliest days has been driven by the audacious efforts of entrepreneurs in search of new profit.

In this sense, he suggested speculation in whisky is no different to any other alternative asset class which attracts public interest, with the same inherent uncertainty around outcomes.

Some, such as the 1980s Timeshare boom, prove to be white elephants, whilst for others, such as Solar Panels, the jury remains out. However, for the most relevant comparison to the current whisky investment trend, Ian cited the positive example of Fine Wine, with its record of financial appreciation, not to mention tax benefits. Supporting evidence took the form of a discreet anecdote about a necessarily anonymous rock star whose extensive interest in Bordeaux First Growths was allegedly motivated less by passion for the wines than the failure of traditional investment vehicles to give him any satisfaction…

However, Ian observed that most influential benefit from Fine Wine’s very public success as a private investment asset was the creation of Consumer Aspiration, which directly drove U.K. growth in the popularity of everyday wine over the 1970s & 80s. He argued that this  halo effect is also an opportunity for Whisky at large, as the PR driven by investment-level sales helps foster global understanding and interest in all Single Malts. He contended that this increased Aspiration amongst the wider whisky cohort has been a significant driver of  the 12% sales growth enjoyed by Prestige Plus whiskies (>£400/bt) over the last decade.

Furthermore, he finished, this combination of growth and premiumisation leads in turn to stronger profits for producers and their international partners, enabling their further inward investment in quality products and drinking experiences, thus rounding off a virtuous circle which benefits all in the wider whisky domain.

As final speaker of the evening, Nick Morgan (Industry Historian, Commentator and Author) stepped up to contest the motion, applying his historical perspective to warn that the current trend for unregulated cask trading will soon take its place alongside other ignominious episodes in the whisky annals. Professing a strong sentiment of déjà vu, Nick urged that lessons from yesterday be applied to today, referencing a number of past examples, such as 1887’s Kidd Eunson failure, whose consequences offer a stark warning to those encouraging, or even tolerating, the marketing of whisky  as a private investment asset.

 A feature common to all these examples was the departure from safeguarding the good name of whisky,  as “a noble spirit to be treated with reverence” ( Sir Robert Bruce Lockhart) and instead succumbing to short-term greed, right across from value chain.

Nick bemoaned the current short-sighted approach, which he declared risks both financial and reputational industry damage, with its rise and fall both  amplified to an unprecedented degree by insatiable social media and a gleeful press.

Continuing, he questioned why an industry with a “long and hard earned reputation for integrity and probity”  seems happy to stand by, whilst its good name is “hawked  around an unregulated marketplace by imposters”, with trade associations seemingly feigning indifference to the risks.

Whilst accepting that not all cask businesses are bad actors, Nick observed that, sadly,  “one bad apple IS enough to spoil the whole barrel”, especially as the hyperbolic claims and high-pressure sales pitches seem common to all.

Finding parallels in the investment crises of the 1880/90s, he quoted the Pall Mall Gazette from the time, which cautioned that “careful scrutiny must be made before indulging in investment” and warned that “a boom has to be paid for, and usually by the investor”.

This latter point illustrates the Duty of Care which, Nick contended, the industry owes to its customers and which is arguably being ignored at present in the field of cask investment. Furthermore, he continued, quite apart from the question of business ethics, the public is not just purchasing generic ‘casks’ -it is buying into the heritage and reputations of the specific  distilleries whence they came. So the responsible collective imperative should be to protect both the good name of distilleries and the financial security of consumers who have put their faith in those brands without any legal safeguards or recourse.

The apparent lack of any real motivation to act on this imperative, Nick concluded, means that the industry is setting itself up for a major fall and whisky as a private investment asset is “far from  ‘good for growth’ – it is, in fact, good for nothing”.

Chairman Trevor Stirling then invited questions from the floor, which variously expressed scepticism around the concept of any halo reaching the mainstream from esoteric collector whisky, generally acknowledged that transparent investment in rarefied bottled whiskies (ie auctions) was a different question from the concerns around cask investment, and suggested that the urgent introduction of regulation of the latter would be a popular solution.

A concluding vote then demonstrated that the debate itself had further swayed opinion against the motion, with 40% of the audience actively opposing  the view that “This House believes the emergence of Whisky as a Private Investment Asset is good for the growth of the wider whisk(e)y market”.

Offering thanks to participants and guests, The Master then invited all present to continue the conversation over drinks, whereby convivial discussions continued well into the evening, ably assisted by the generous sponsorship from Chivas Regal, Warner’s Gin, Everleaf non-alcoholic aperitifs and Double Dutch mixers.

Nick Morton