FDBusiness.com

By John Whelan, Independent Consultant

Irish whiskey producers may hit their target of doubling export sales much sooner than their planned 2020 date, if the UK votes out of the EU on the 23rd June.

Scotch whisky currently dominates sales across Europe selling more than €1.3 billion each year, with the biggest volume going to France. In fact France is the first market for Scotch whisky in the world.  Although there are more than twenty whisky-producing countries in the world, five nations account for almost all sales on the French market: Scotland, the United States, Canada, Ireland and Japan. Scotland dominates by far the sales, leaving only 15% of the market to other production countries.

It is easy to understand why the Scotch whisky Association have become very vocal in stressing their support for the UK to remain within the EU. The Association stated that more than £1 billion pounds worth of Scotch whisky exports could be at risk from an industry supporting 40,000 jobs if the UK leaves the EU. Diageo is one of the major brand holders and stands to face major loss of sales of its leading brands sold across Europe such as Johnnie Walker, Bells and J&B.

Diageo, the world’s largest maker of Scotch whisky expressed their strong support for staying within the EU.  Ivan Menezes, Diageo Chief Executive, stated recently: “Diageo – and specifically our Scotch whisky business – benefits greatly from the UK’s membership of the EU and we strongly believe that we should remain within that union. The Single Market gives us a level playing field and open access across the EU, while the EU’s clout in international trade helps to open up new markets with agreements favourable to the UK, reducing tariffs and resolving trade disputes.”

The French have taken a particularly strong liking to the wee dram, which now exceeds consumption of the traditional cognac as the aperitif and digestif of choice. Exports of British whisky to France were worth almost £450 million last year with more Scotch sold in one month than cognac in a year.

The main concern for the Scottish whisky producers is that outside the EU, top British producers could face bureaucratic barriers when trading with Europe. The EU single market provides common standards on labelling, certification and licencing creating a level playing field which makes overseas trade far easier for the highly regulated alcohol industry with its excise, duty and VAT at point of entry requirements.

Irish whiskey producers on the other hand, although  minnows in the global industry producing approximately 4% of global volume have been growing rapidly in recent years and could gain extensively in sales to France and across the EU in the event of a Brexit. However, a Scotch whisky industry outside the EU would inevitably push hard to sell lost volume into the major US market, which is Ireland’s largest market and has been offering double digit growth to Irish whiskey brands over the past few years. And there are of course the potential difficulties in maintaining Irish whiskey sales penetration in UK after a Brexit , although it is only the 6th largest export market for Irish.

John Whelan.

With or without a Brexit, Irish whiskey is facing major challenges due to rapid worldwide growth in demand for whiskey of all types and origins. Not least of which will be managing the rapid planned expansion to ensure that production from expanding from the established four distilleries to 17 new distilleries meets the required standards. Although whiskey may be drunk at age three years in practice whiskey is usually only begun to be drunk at 4 years maturity at a minimum. With the large capital investment made it will be tempting for distillers to release product as soon as possible to achieve some return. The sector has recently come together and there is a need to ensure strong coordination to manage and market the overall brand.

Protecting the brand is a key issue.  As its popularity grows, the opportunities for poorer lesser quality spirits to claim to be Irish whiskey or make references to Irish whiskey will increase.

There is no doubting that Europe has a taste for whiskey whether it is Scotch or Irish. Of course in a Brexit there will be winners and losers, but a Scotch industry working within the EU and helping to protect the unique provenance of both Irish whiskey and Scotch whisky is preferable to a potential unregulated situation arising from an exit.

Leaving the EU would be a leap in the dark for the British drinks industry and could lead to years of negotiations on new trade deals not least of which will be with Ireland, with no guarantees at the end.