It’s fair to say that many of those employed in the British booze business woke up on the morning of June 24th with something far worse than a simple hangover. Very few of them had expected the United Kingdom to vote to leave the European Union and fewer still of them welcomed the eventual decision.
This was particularly true in Scotland, a country still reeling from the bitter divisions wrought by last year’s referendum on Scottish independence. Prior to that vote, almost everybody in the Scotch whisky industry believed that ending the country’s centuries old union with the rest of the UK would be a disaster for an industry that turned over £5 billion a year. Of course, very few of them were willing to say so in public.
Now, in the wake of Scotland’s overwhelming vote to remain in the EU, the prospect of going through the whole ghastly process has once again reared its head. Will a second independence referendum be held? If so, what would be the likely outcome? Of course, it’s way too early to predict the answer to either of those with any degree of certainty.
In the run-up to the Brexit vote, many in the Scotch industry were considerably more frank about their views than they had been the year before. One individual with particularly strong views on the matter was Ivan Menezes, Chief Executive of Diageo, the company behind Johnnie Walker, 20 other blended and single malt whisky brands and 29 distilleries
Addressing the issue, he said: “The EU’s clout when it comes to international trade helps to open up new markets. It also delivers agreements favourable to the UK, reduces tariffs and helps resolve trade disputes.”
David Frost, the Chief Executive of the Scotch Whisky Association, pretty much echoed Menezes, saying: “EU membership has many advantages for Scotch. The single market gives us a level playing ﬁeld and open access across the EU.”
Both men are now having to accustom themselves to a changed world, and both are trying to put a bravish face on it, with Frost saying: “The process of leaving the EU will inevitably generate signiﬁcant uncertainty.
“Of course, we are conﬁdent that Scotch whisky will remain the pre-eminent international spirit drink. There are, however, serious issues that now need resolving in areas of major importance to the industry, all of which require urgent attention. Most obviously, we need to determine the nature of the future trade arrangements with both the single market and the wider world.”
Diageo’s official statement, however, was a little more circumspect, saying: “We respect the views of the British people in the EU referendum. As one of the UK’s leading exporters, Diageo remains committed to the long term prosperity of the Scotch whisky industry. We will now work closely with the relevant industry bodies to seek clarity with regard to the transition process.”
In fact, a great deal more dust will have to settle before anything like clarity emerges. What is clear at the moment, though, is that the ramiﬁcations of this will be widely felt across the international booze trade. This will have consequences both outside, as well as within, the borders of Britain and the wider EU.
Given that it is a relatively small country, with a population of only around 65 million, Britain punches well above its weight in the wines and spirits world. By value, the UK is the second largest importer of wine in the world (after the United States) and by volume (after Germany). Trade in this sector has more than doubled over the last 10 years and, according to a 2016 report by the Wine and Spirit Trade Association [WSTA], the UK wine industry generates some £17.3 billion of economic activity.
In the case of spirits, Scotch is obviously the big player, although Britain also exports significant quantities of white spirits. It is also at the forefront of the craft distilling boom, making many of the boutique gins and vodkas found behind so many of the most fashionable bars in Hong Kong, China and throughout Asia. Perhaps less surprisingly, it is also a major supplier of many of the craft beers that are going down so well across the region.
In the run-up to the EU referendum, a lot of drastic predictions were made by both sides of the debate. Those particular voices seem to have gone relatively quiet since the largely unexpected outcome. Certainly, at this point in time, quiet diplomacy on both sides of the English Channel would better suit the booze business than any talk of punitive tariffs and restricted market access.
Once the Brexit negotiations begin in earnest, the international booze business will have a considerable stake in the exact form and wording of the subsequent divorce settlement. This will be especially true of the major players, such as the French-owned Pernod Ricard group. Among its many subsidiaries are Chivas Brothers and 10 distilleries in Scotland, making it the world’s second largest Scotch whisky producer Similarly, France’s Louis Vuitton Moet Hennessy owns the Glenmorangie and Ardbeg distilleries. There is even a French stake in English wine production. Last year, Taittinger, the premium Champagne house,
“Quiet diplomacy would better suit the booze business than talk of tariffs and restricted market access ”
announced it had acquired land in the Southeast of England and was planning to make sparkling wine.
Britain is also the third largest market in the world for cognac – though well behind China and the US, in second and first places respectively. It is, however, well ahead of France in fifth place and Germany in fourth. In total, the British drink more than twice as much cognac as the French.
Going the other way, France is the world’s second largest importer of Scotch whisky by volume and, in recent years, it has been trading up from the moderately priced spirit to the premium stuff. Over the last decade the value of Scotch exports to France has risen by almost 68 percent.
How all of these varied interests will be affected will become clearer over time. In the short term, though, Asia will clearly beneﬁt from the weakness of the pound, something that seems likely to persist until any new world order emerges.
Premium whiskies, gins and English sparkling wines should all become cheaper. A number of such wines are now recognized as being of equivalent quality to Champagne, although they have suffered by also being equivalent in price. Visiting the UK will also be cheaper. For whisky lovers, this is the ideal time to book that tour of the Scotch distilleries you’ve been promising yourself.
Overall, though, if barriers to trade do go up in Europe, the Scotch business, in particular, is likely to focus even more intently on the Asian markets.
The world’s third largest Scotch whisky market is currently Singapore, mostly because of its high level of re-exports to its neighbouring countries and to China. Taiwan, then, is in fourth place, with South Korea coming in at 10th.
While the current austerity measures are in force, the Chinese Mainland might prove a difﬁcult market for premium Scotch. We could, though, see greater emphasis placed on the more modestly priced blends, with significantly more marketing spend put behind them.
In the event of a second referendum on Scottish independence – and assuming Scotland votes to go on its own way – the position would be quite different. It is, however, far from sure that a newly independent Scotland would automatically accede to EU membership. Nor is there any guarantee that there is the political will to put the choice to the country again, given the last referendum was so recent.
Still, putting a brave face on it all is very much the British way, with Mile Beale, Chief Executive of WSTA exemplifying that particular trait. Clearly looking to rally the troops in the wake of the shock result, he said: “While many of our members felt that the wine and spirit industry was stronger within the EU, we will work to assist the government in preserving our access to the single market, supporting British drinks exports and agreeing the best possible international free trade agreements.”
Good luck with that one mate.