Not Your Grandfather's Scotch

 

 

“…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 re-launch will be highlighted.

Product

In a “marketing mix”, the product typically refers to the physical product, but in the spirits industry, the product (in this case, Single Malt Scotch Whisky) is almost synonymous with the brand. Furthermore, the brand not only encompasses the product, but also the lifestyle associated with that product., How and which lifestyle a brand chooses to sell is largely done through various promotion strategies, but it is also communicated to a certain extent through packaging. As such, a traditional label showcasing iconic Scottish imagery of kilts and bagpipes may not be enticing to female consumers, and it may send the wrong message that single malts are a “cold weather” drink to consumers living in warmer regions like Brazil. When planning for a single malt re-launch, the utilization of modern logos that are more gender- and geography-neutral should be considered. Highland Park successfully implemented this sort of label re-design strategy, whereby it replaced its “average packaging” with “stylish Celtic/Norse” imagery.

Price

Not only is Single Malt Scotch Whisky an expensive product to produce, it is also highly taxed, thereby greatly limiting the kinds of pricing options available compared to other spirits like premium vodka. In addition, there is always a fine line between making a product affordable enough for more consumers, and diminishing its level of exclusivity and prestige. Even geographical pricing might not be desirable if it is consequently perceived as a lower tier product.

So how to encourage consumers to try Single Malt Scotch Whisky, especially during troubled economic times? One option involves the introduction of a single malt half-bottle. This would make purchasing single malts more financially feasible to consumers in emerging economies like Brazil, or among female consumers who otherwise might not want to spend too much on something they will not drink in large amounts. If half-bottles of Single Malt Scotch Whisky were to be sold, the price per unit volume would be the same or possibly even a little higher, but consumers would pay less because they would be purchasing less. The sale of half bottles is rather common in the wine industry, and could prove to be successful for single malts.

Place

The place (or placement) portion of a marketing mix doesn’t exactly refer to where the product will be sold, but rather how it will get there. Since an established distillery would presumably have good distribution networks, the placement in established markets like the US would likely require little, if any, effort. On the other hand, it may be worthwhile considering how to expand distribution networks in new and emerging markets like Brazil. Forming joint ventures with other distributors and owners of complementary brands is one option. One such joint venture was that between LVMH and United Distillers (UDG), which helped strengthen UDG’s distribution networks in regions where they had been weak, such as in South East Asia. Another option is exploring the use of the Internet for online sales wherever possible.

Promotion

Living in a technological age has opened the floodgates to a brave new world of promotion strategies. If used correctly, the Internet and mobile phone applications could provide novel avenues for accessing more and increasingly specific target segments and at a cheaper price than ever before. Gone are the days of pricey airtime slots for prime time television shows; today, advertising on YouTube will reach more people and for a fraction of the price. Distillers could consider sponsoring online contests on social media sites such as Facebook, where potential customers can vote for their favorite contest entry (perhaps amateur films on responsible drinking). Heineken has sponsored several DJ contests, and this not only generates publicity for the beer, but young consumers also associate Heineken with festive occasions, such that they are more likely to consume that product at clubs and parties.

Mobile applications are another promising venue for promoting Single Malt Scotch Whisky. For instance, Spain’s Mahou beer released a mobile application in 2011 promoting the beer in Madrid. The “Mahou Mola” (“Mahou Rocks”) application provided weekly updates to the trendiest cafes, restaurants, bars, concerts, clothing stores, theatrical venues, etc. Not only did the application generate publicity for Mahou beer, but also served to associate Mahou beer drinkers as cosmopolitan trend-setters. A Single Malt Scotch Whisky re-launch promotion campaign could include mobile applications that convey the desired lifestyle image—be it fancy food and Scotch pairings, weekly cocktails recipes from famed Mixologists, whisky trivia games, etc. The use of mobile phone applications as an innovative promotion strategy, if done in a savvy and user-friendly manner, could be immensely popular in both the US and Brazil…or anywhere in the world, for that matter.

 

Conclusion

In summary, the SWOT analysis reveals that now is the best time for a Single Malt Scotch Whisky re-launch—costly regulations, high taxes, and general economic malaise notwithstanding. A strong brand name and good distribution networks are critical for a successful re-launch, and any weaknesses in these must be addressed in the Product and Place decision categories of the marketing mix. The sale of half-bottles could be a possible Pricing solution. Finally, modernity is key, not only in terms of packaging, but also in the use of various technological innovations for carrying out Promotion strategies. All of these factors, if properly applied, could lead to growth in markets like the US and Brazil…at least in the short term.

The quote provided at the beginning of this report—appropriately taken from the show Mad Men and pertaining to advertising—describes the utility of creating a sense of novelty and then exploiting the consumer’s reaction to it. However, that quote was immediately followed by a cautionary note about there being “a deeper bond with the product: nostalgia”. The same concept applies to single malts: a re-launch may attract new consumers and result in temporary growth, but those new consumers must be retained and that growth sustained in order for the Single Malt Scotch Whisky category to be truly successful.

 

 

Figure 1. Single Malt Scotch Exports in 2009, 2010, and 2011

by Revenue and Volume

 

 

 

Note: Graphs were generated using SigmaPlot software (version 11.0, Chicago, IL)

Data Sources: Scotch Whisky Association Statistical Report 2011, Scotch Whisky Association Statistical Report 2010

 

 

Figure 2. Comparison of Single Malt Scotch vs All Other Scotch Exports in 2009, 2010, and 2011

by Revenue and Volume

 

 

Note: Graphs were generated using SigmaPlot software (version 11.0, Chicago, IL)

Data Sources: Scotch Whisky Association Statistical Report 2011, Scotch Whisky Association Statistical Report 2010

 

Tables 1 & 2 are missing due to an upload error (contact author for data).

 

Table 3. SWOT Analysis for a Single Malt Scotch Re-Launch

 

Internal Factors

Strengths

 

• Strong brand name (in current markets, eg. US)

• Superior product

• Unique taste profile (has “terroir”)

• Already being made for blending

• Already have necessary machinery for bottling and labeling

• Established distribution networks (current markets eg. US)

• Scotch is protected by the EU as a “geographical indication of origin”, and Scotch Whisky Regulations 2009 ensure Scotch stands apart from other spirits

Weaknesses

 

• Weak brand name (in emerging markets like Brazil)

• High cost to make product

• Insufficient financial resources for marketing campaign

• Too little or too much supply

• Intra-brand competition (will it take away from blends?)

• Late entry into market (missed the re-launch wave?)

• Weak distribution networks (in emerging markets)

• Use of resources that are not fully renewable (peat depletion and decreased replenishment rate)

External Factors

Opportunities

 

• Currently popular and “cool” (eg, the “Mad Men Effect”)

• Younger customers interested in premium product

• More female customers drinking whiskey

• Existing customers may like “new” face if done well

• BRIC countries provide new markets increasingly interested in luxury products

• Technological innovations (internet, mobile apps) open the door to newer and cheaper ways to reach target markets

• Lowering of import taxes in some countries (eg, down to 10% in China)

• Joint ventures may strengthen product range in emerging markets

Threats

 

• Global recession (consumers may not be able to pay more for premium)

• Legislation/regulations can increase costs (eg. effective 23 Nov 2012, single malt Scotch will only be exported in bottles ready for retail sale)

• Restrictions on using new production methods (eg, SWA)

• Excessive domestic and import taxes/surcharges (eg, 150% surcharge in India)

• Popular now, but that could change

• Risk of losing existing consumers through re-packaging (eg, New Coke)

• Counterfeits and lawsuits could hurt reputation

• Increasing competition, domestically and internationally

 

Bibliography

 

Daily Record. (2011, September 19). Retrieved 2012, from www.dailyrecord.co.uk/entertainment/tv-radio/mad-men-success-results-in-global-1082217.

Daily Record. (2012, January 25). Daily Record. Retrieved 2012, from www.dailyrecord.co.uk/news/scottish-news/scotlands-whisky-industry-under-serious-1114869.

Diageo. Retrieved 2012, from www.diageo.com/en-sc/ourbrands/categories/spirits/Pages/Whiskey.aspx.

Dow, A. (2011). Strategic Management of Channels of Distribution and Integrated Marketing Communications; Essay on the Scotch Whisky Industry. International Journal of Business and Social Science, Vol 2 No 22 , 108-113.

Fink, M. (2011, November 7). Today.com. Retrieved 2012, from http://today.msnbc.msn.com/id/45190809/ns/today-food/t/mad-men-effect-more-wome-get-taste-whiskey/#.UjafahwRW-M.

GlendDronach. Retrieved 2012, from http://glendronachdistillery.com/products.

Glenfiddich USA. Retrieved 2012, from www.glenfiddich.us/.

Heineken. Greensynergy. Retrieved 2012, from www.facebook.com/pages/Greensynergy/136466779728510.

House of Commons, Great Britain Parliament. (2010). Exporting out of recession: third report of session 2009-2010. Vol. II, Oral and Written Evidence. (p. 123). London: Stationery Office.

HRM Customs. www.hrmc.gov.uk/stats/trade-statistics.htm. Retrieved 2012

http://ec.europa.eu/trade/creating-opportunities/trade-topics/intellectual-property/geographical-indications/?message=ok. Retrieved 2012, from European Commission.

International Content Marketing Forum. (2011, May 13). ICMF. Retrieved 2012, from www.icpfonline.org/news/in-spain-colorful-actions-as-agencies-play-the-content-game.

Jones, S. (2002). Brand Building and Structural Change in the Scotch Whisky Industry. Dundee: University of Dundee.

LVMH. Retrieved 2012, from www.lvmh.com/the-grouop/lvmh-companies-and-brands/wines-spirits/the-glenmorangie-comany.

Mad Men, Season 1 Episode 13 (2006). [Television Show].

Malt Madness. Retrieved 2012, from www.maltmadness.com/whisky/glendullan.html.

Morrison Bowmore. Retrieved 2012, from www.morrisonbowmore.co.uk/partners/.

Morton, A. (2012, September 3). just-drinks. Retrieved 2012, from www.just-drinks.com/news/remy-cointreau-completes-bruichladdich-buy_id108036.aspx.

Pernod-Ricard. Retrieved 2012, from http://pernod-ricard.com/99/brands/see-all-brands.

Quick MBA. Marketing Mix. Retrieved 2012, from http://www.quickmba.com/marketing/mix/.

Quick MBA. SWOT Analysis. Retrieved 2012, from http://www.quickmba.com/strategy/swot/.

Scotch Whisky Association. (2011). Statistical Report .

Scotch Whisky Regulations. (2009).

The True Believer. (2008, July 31). Manducation. Retrieved 2012, from www.ploomy.com/2008/07/31/manducation-a-beginners-guide-to-single-malt-scotch-whiskey/.

University of St Andrews. (2012, January 25). Retrieved 2012, from www.st-andrews.ac.uk/news/archive/2012/Title,79615,en.html.

Wang, W. (2005). Marketing Expansive Strategies of Scotch Whisky in China Market: A Challenger's Perspective. Nottingham: University of Nottingham (MBA dissertation).

Wehring, O. (2012, October 18). just-drinks. Retrieved 2012, from www.just-drinks.com/news/ian-macleod-distillers-glengoyne-15-year-old-18-year-old-cask-strength_id108483.aspx.

William Grant & Sons. (n.d.). Retrieved 2012, from www.williamgrant.com/default.html.

Woodard, R. (2012, March 14). just-drinks. Retrieved 2012, from www.just-drinks.com/management-briefing/rebranding-in-the-drinks-industry-part-iii-rebranding-case-studies_id106560.aspx.

www.scotchhunter.com/distillery/single-malt-scotch-tasting. (n.d.). Retrieved 2012, from Scotch Hunter.

Zolfo-Cooper. (2011, November). "Viewpoint: On the Rocks?".

 

 

Page 9 of 21

 

Impressum

Tag der Veröffentlichung: 26.07.2014

Alle Rechte vorbehalten

Widmung:
To all of the single malt Scotch drinkers out there...