Whisky Advocate

What’s causing the price increases in whisk(e)y?

September 27th, 2008

We’ve been discussing how much whisk(e)y prices have increased so much more than inflation over the past few years. It seems to be across the board, from entry level to high-end whiskies. So, I was wondering, what’s causing the price increases?

I know the cost of grain has gone up but recently but, if a whisky is 15 years old, the price of barley over the past couple years has no bearing on a 15 year old whisky. If not the cost of ingredients, what then? Is it the cost of bottling and packaging? Transportation? New investments in increased production?

Are the producers taking a bigger margin? Importers? Wholesalers? Retailers?

You are an intelligent bunch of whisky enthusiasts and represent the spectrum of the whisky world. What are your thoughts on this? Why are we paying so much more for whisk(e)y?

35 Responses to “What’s causing the price increases in whisk(e)y?”

  1. Danny Kuiper says:

    Hi John,

    I think you are spot on looking into the reasons. In addition some of them would be the rising cost in storage, transportation and depreciation of currencies for the distillery. If you factor in that these cost increases will not only have an impact on the distillery but also the importers/wholesalers and retail stores that have to deal with these cost increases this will have an impact on the retailprices.

  2. Lost Pollito says:

    Hi John,
    I gotta think the reason we’re paying to much for Whiskey, is the same reason we’re paying to much for sporting events. E-bay, Stub-hub, and the folks that can afford to pay outrageous prices. The question is, where is the top of this bell curve?

  3. Supply and demand? Energy costs make it more expensive to transport, sure, and I agree that the industry is expanding, but what I read consistently is that there is not enough whisky to go around, especially considering emerging markets. In that situation, you have to expect price increases. Prices tend to go up faster than they go down, sadly.

    http://bruichladdichblog.wordpress.com/

  4. Brian says:

    I can’t claim to be one of the intelligent people you’re referring to, I just have a couple hunches.

    It helps a bit to look at price trends of all spirits for the last five years. There are some areas where the prices are relatively stable: gin (premium and regular), vodka (premium and regular), rum (premium), Tequila (regular), Irish and Canadian whisky (premium and regular). Regular American whiskey has been relatively stable, especially compared to its premium and ultra-premium brethren. Regular rum has had a similar uptick as well. Oh, and I don’t have enough experience with the prices within the class of brandies… never been a fan of ‘em.

    So the spikes have been in all sectors of ultra-premium brands, all Scotches, and premium Bourbon and Tequila. Who buys these classes of drinks? Not to stereotype, but they’re people who make a decent amount of money and have been largely unaffected by the global downturn in the economy. So their demand has been stable and possibly increasing, and the supply has a natural compression connected increased demand in their downmarket counterparts. And the customers of the downmarket counterparts HAVE been affected by the economy and so a price increase on them could lead to less sales.

    So my hunches are that demand for the upmarket brands is stable or increasing while supply trends down (supply and demand), and that the drinks companies are using the added revenue from the upmarket sales to subsidize the downmarket brands (Robin Hood effect).

    I’m a bit skeptical that the increases are directly connected to currency exchange or production costs. They may be part of the increase, but since there are large groups of imported spirits that are stable (Forty Creek hasn’t budged an inch in five years), there’s something more focused at play.

  5. John Hansell says:

    Guys, I agree with you on the whole “supply & demand” thing, that prices are going up because there’s more demand than there is supply right now.

    But my question is: Who is raising the prices? Where’s the money going?

  6. Scott says:

    John,
    I’ve said it before but I will say it again. I not only have the pleasure of enjoying whisky but also the pleasure of selling it during the day at the retail level. I can only say this for the store I work in but our mark up on whisky has stayed the same. What has changed drastically is not only the prices distributors charge but the deals are almost non existent anymore. Just last year buying such things as Highland Park and Macallan in bulk would lead to a drop of about 10 dollars (after mark up) per bottle. Now the best deals they offer only take off 2-5 dollars off the bottle cost. It’s not only The Edrington Group that has changed, Morrison Bowmore products (Bowmore, Glen Garioch and Auchentoshan) have also removed such deals. These products used to be easy to keep under 19.99 a bottle, now it’s rare to see them under 24.99. Now if the deals are no longer offered because of distributors or because of the distilleries I can not say. Hopefully this information helps shine a little light on the situation of price increases. -Scott-

  7. John Hansell says:

    Thanks Scott. So, at least from your perspective, the price increases are farther up the chain: the producers or distributors.

    I don’t know about the distributors, but in the case of some of the really high-end stuff, the mark up seems to becoming directly from the producers themselves. How much of a cut do they offer the distributors? I don’t know. Maybe someone out there can shed some light on this.

  8. David says:

    I’m not sure that the price of ingredients (or fuel) has no effect. The annual accounts won’t calculate net profit by subtracting costs 15 years ago from sales this year. If they want to maintain profit (or more likely increase it to keep shareholders happy) then income has to rise proportionate to today’s costs.

    I’m not an accountant though so maybe there is some clever way for keeping costs off the books until the corresponding revenue comes in.

    In the case of Jameson, I know where some of the money is going. Pernod Ricard reported sales growth of 21% for Jameson but only 15% volume growth (2007/2008). The previous year it was 18% and 11% respectively. Inflation accounts for some of that but the rest is Pernod Ricard edging the price up to the benefit of its bottom line.

  9. sam k says:

    I’m in agreement with David here. Gas prices change weekly, regardless of what was actually paid for the gas in the underground tanks at your local station. Whiskey is a commodity that fluctuates with market conditions, but I also think that’s just a minor factor. Again, I look at the $500 William Heavanhill being offered at the HH visitors center. That’s quite likely whiskey that was originally distilled to go into a $15 bottle of Evan Williams (and overlooked in the warehouse), but the company feels they can capitalize on market conditions and charge $500, mimicking the lead of their Scottish brethren.

    Rittenhouse 23 year old is around $150 a bottle, but it’s exactly the same whiskey as Rittenhouse BIB, which sells for less than $20, left in the barrel for another 19 years. When you look at Ancient Ancient Age 10 YO at less than $20 a bottle, it seems that a decade of aging can be profitable at a price of less than $10, or under $1 per year.

    Again, this goes back to John’s previous posting of what constitutes value in whiskey, and it seems that we as the consumer have the ultimate ability to gauge what I call the “price/quality ratio,” which would be much higher in a quality whiskey of lower price, versus a high-priced whiskey of marginally better quality. John, many of your reviews make the same point.

    The distilleries are charging what they think the specialty market will bear, and I have no problem with that, as long as they keep some good stuff affordable for the less-flush majority of us who also appreciate good whiskey.

  10. John Hansell says:

    Sam, you make a good point. If the whiskey companies can at least keep some decent stuff at a good price, most of us won’t care how high the extreme end goes. We’ll be content.

  11. Louis says:

    The answer may vary. For example, many Diageo are the cheapest they’ve been in years. Talisker and Cragganmore are cheaper in NYC than they were ten years ago. Springbank prices seem to manupulated by the importer, this was confirmed to me by one retailer. I often check prices for everyday drams on http://www.thewhiskyexchange.com. When the dollar was strong, 50% markups were frequent. Nowadays, it is down to 20%. I’ll bet that a lot of distributors enjoyed the good times, and now are not having so much fun. Supply and demand affect the distillery-distributor relationship too. A big selling distillery is in the position to dictate retail prices. But a small distillery may not have enough leverage for a fairly small number of bottles. Retailers can always mark up prices if they choose.

    Slainte.

    Louis

  12. Besides supply and demand, I forgot greed. :-)

    But pricing is not as much a science as it is an art. As with anything, the seller wants to get the highest price for a product, but if they set the price too high, their sales will go down. The only way to find that pain threshold is to keep raising the price until the sales level off. Given the (alleged) low supplies, the price might yet go higher. I agree, though, that some nice whiskies at moderate prices would be welcome.

    I miss my $40 Ardbeg 10. :-( That was a good value and a great product!

    http://bruichladdichblog.wordpress.com/

  13. Brian says:

    It’s awkward to point an accusatory finger at any part of the industry on a blog that is likely read by most of said industry. It feels like you’re testifying against your wife in a murder trial.

    So who isn’t making money right now? Retailers are hamstrung right now. Their core costs are rising, but they are constrained from raising prices because their customer base is depressed and can’t pay more for the same products they bought five years ago. Distributors are in the same boat because their customers, the retailers, can’t take risks and are sticking with the brands that sell. Those same brands are the ones that have lower margins and can only make money on volume.

    To your question, who is making the money off of the price increases? The shareholders and executives of the major drinks companies. They realize that alcohol is a growth business right now and are dumping massive cash into it as a result. This reflexively leads to the public companies making choices that lead to increased shareholder benefit and the privately held companies to turn to internal greed to drive their decisions on pricing and products. In short, the investors will make the money now with the expectation that the money won’t run out.

    And, yes, that’s the nascent form of a market bubble.

  14. […] Advocate Blog Readers Weigh In On Rising Scotch Prices John Hansell has asked readers to delve into why Scotch whisky prices are moving higher so much fast…. There are some very interesting replies. The influence of supply and demand trends, and also […]

  15. John Hansell says:

    Brian, I’m not trying to point an accusatory finger, but rather gain a better understanding of why the prices are going up. One might assume that there’s a lot of greed involved, but other market forces might also be in play here and I thought it would be good for us to gain an understanding of all the variables in play here.

    And expanding on Louis’ comment, there’s more to a good retailer than just price. Sometimes I won’t mind paying a little more if the retailer has great service or goes out of their way to get me a whisky that I’ve been looking for.

  16. Rob K says:

    Actually you’re not quite right about the cost of production inputs (e.g. barley or corn) having a bearing on the sale price of whiskey made 15 years ago because what is sold today must cover the cost of what is made today. They have to charge what it costs to replace the existing stock.

  17. B.J. Reed says:

    One way to gauge this (if, based on previous posts we take the retailer out of the mix) is to see what is happening around the world – if costs are rising irrespective of importers/distributors in different countries then that points to finger at the drinks producers themselves – If we compare independents (e.g. Glenfarclas, Bruichladdich) and what there products costs relative to the big guys (e.g. Diagio) then you go back and look at importers and distributors as a focus – There is also the Hawthorne affect here – Even if Glenfarclas could differentiate the price of its product in terms of mark up would they do so if Inverhouse, Edrington and others do not?

  18. John Hansell says:

    Rob, good point. I never looked at it that way.

    BJ, I wonder if there is a market somewhere where prices aren’t going up? Even so, I suppose that the industry as a whole could keep narrow margins in one particular market if there was a good reason for it. (I can’t think of one right now.)

  19. Joe says:

    As another retailer, I can confirm much of what has been said here, but I’d also like to add another aspect to the price problem: the so-called “emerging markets”.

    If demand for whisky/whiskey is growing in the asian and other overseas markets then the U.S. is becoming less of an important customer for them.

    For example, Cardhu is no longer available in the U.S.A. partly because it is seeing tremendous growth in Spain.

    A bartender I know was recently expounding upon the virtues of Martel V.S. Cognac for cocktails, especially because of it’s value. Well, I checked the price, and it was a lot higher to me than he’d indicated that it might be. I inquired with the distributor as to why that was so, and I was informed that Martell is witnessing tremendous growth in Mexico, so the U.S. importer for Martell had removed all price supports, sending it up significantly. We might be seeing a similar phenomenon with Scotch whisky here.

    Our dollar is as weak as a kitten, so that forces import prices up, but also makes our exports (i.e. Bourbon) much more attractive to foreign markets.

    Rising fuel prices are, indeed, affecting costs as well. How long until we begin seeing premium Scotch sold in plastic bottles to save weight and transportation costs? (and, for that matter, breakage costs)?

    The Mexican government is subsidizing agave farmers, many of whom have abandoned agave for the much more lucrative crop of corn to produce ethanol. Tequila and Mezcal are important products for them, so agave cannot be abandoned outright. If the demand for ethanol continues to grow, won’t this drive up U.S. corn prices and, therefore, Bourbon prices? I could see that happening.

    There’s already a rye shortage. I’m still quite pleased that one can buy Jim Beam or Old Overholt Rye for under $12/bottle to keep us in relatively cheap Sazeracs and Manhattan cocktails, but I fret about inevitable price increases.

    But the spirits industry is struggling mightily to compete for what consumer dollars are out there, so this has let to the greater proliferation of specialty bottlings.

    Sam K, I don’t blame you for being cynical about Heaven Hill’s William Heavenhill 225th Anniversary bottling, but I really don’t think that they found the Bourbon “lying around the warehouse”. They aged it for precisely 225 months – almost 19 years- to commemorate the 225th anniversary, and there are only 225 bottles of it, so it is exceedingly rare. I’ve tried it, it’s pretty smooth and delicious. Not worth $500 to me, personally, but a pretty nice gift for someone who can afford to buy it. The premium is on the rarity. Compare that to their 23 year Evan Williams at $350 bottle, also only available at the Bourbon Heritage Center, which is much less rare. As they say, a product is only worth what someone is willing to pay for it, and these are very nice gift bottles or serious self-rewards.

  20. John Hansell says:

    Thanks Joe, for the retailer perspective. Good thing we still have inexpensive rye whiskeys to enjoy.

  21. Todd says:

    Prices of the best whiskies have gone up 3-5 fold in some cases. So 15% increases in storage or transportation costs do not account for this. Even the plummeting US currency can’t account for this magnitude of price increase. Premium single malt and bourbon/rye prices have gone through the roof because that is apparently what the market will bear. If we don’t like the prices (or obnoxious changes in packaging that are coupled to price increases like Glenmorangie), then we don’t have to buy. However, we should acknowledge that these products have been undervalued for decades. Even the distilleries and the companies that owned them had no idea of what they were sitting on. How many priceless casks of Ardbeg were indiscriminately dumped into Ardbeg 30 year old and watered down to 40% just a decade ago? Savvy consumers are the ones who have awakened the industry by recognizing largely under priced quality whiskies. The internet brought together enthusiasts and provided a means for instant identification of the best available bottlings. Let’s face it, we’ve enjoyed in the past many bottles that that were worth much more than what we paid for them. What has changed is that a well informed consumer with an average income could afford to buy the best whiskies as they came to the market. Not now. John, you could change the cover story of your next issue to “The best whiskies you are never going to drink (because some Wall Street guy supported by your Bush bailout tax dollars is sipping now)”.

  22. kallaskander says:

    Hi John,

    the prices go up an up because they can. It was said that other spirits are not moving up in price as whisky does. That is true. Cognac for example. In comparison to whisky cognac is dead as far as the demand goes. Even in France more whisky that cognac is being drunk nowadays. As nobody cares for cognac there is no move in prices and if it is more downward tha up.
    But whisky is a bonanza. It`s boomtime mates! It is amazing what people are prepared to pay for whisky. And the producers spurr the galloping horse on and on. It will die eventually, emerging markets or not.

    The cost of producing whisky has risen. But not as dramatically to justify what the producers ask for their spirit just because they can.

    They claim that they have to ask higher prices because what they sell has to cover the running costs.
    The matured spirit has to pay for producing the new make. And of course there has to be a price component which covers the costs of warehousing an maturing the casks.

    But is that true?

    It is not. Only a few years ago when you bought a 12 yo whisky you had a vatting in your bottle that was much older and the age detemining casks in that vatting were the minority. Means that a standard 12 yo bottling consisted mainly of cask much older and up to 20 and some cask even more years. So the heart of a 12 yo was in average 15 or 17 yo ore more.

    Today when you buy a 12 yo whisky it is just what you get a vatting of 12 yo casks with some 15 at the most 17 yo casks thrown in. The older casks that were used in years gone by to rise the level and quality of 12 yo standard whiskies are today sold as whiskies of their peer group. e.g. 15 17 18 or 20 yo expressions.

    If you watch the figures the drinks giants puplish quarterly you see where the rieses in price comes from and where the money goes.
    The sell much whisky in the emerging markets but they do not sell cheap there.

    The prices go up because the producers have to satisfy greedy share holders.
    It is true that they have costs not doubt and they invest huge sums of money.

    But they let us pay for all that.

  23. B.J. Reed says:

    John

    I doubt there is any market where prices are not going up – I think this is the basic supply/demand issue – They key issue is whether the stages of cost are varying to any substantial degree – Do importers and distributors in Sweden take a different cut then those in the U.S.? – What is the rate of increase of cost at each stage from producer to retail sales – I think this was your original question. I suspect the largest impact is with producers. Figure Glenmorangie repackaging their 12 YO Finishes and then increasing the price significantly or Dalmore discontinuing their 12 for a 15 and, I suspect increasing the cost significantly (the existing Dalmore 12 probably has a lot of 15 and above in it anyway) – These are producer decisions and importers and distributors while varying to some extent are not the major drivers.

  24. John Hansell says:

    Todd, Kallasander, BJ: one common thread to you comments is that the companies are now wiser (and more shrewd?) about how they market their whisky. No more rare Ardbegs watered down and dumped into a big vatting. And 15 year old whiskies are sold as 15 year old whisky (at a higher price), not blended in with what’s being sold as a 12 year old whisky.

  25. As a retailer (bar owner) here in the home of Single Malt Scotch, I think the answer lies in some or all of the above.

    Companies require to pay for the increased costs from their whisky operations now, irrespective of the costs and years when it was distilled. I have noticed significant increases this year, led primarily by the Diageo malts – prior to this, I was able to price the classic malts on the first rung of my pricing ladder (with the exception of Lagavulin 16yo). However I have found that now I have them priced on the third rung.

    There will be the argument that the age of the malt in the bottle is older eg. Glenkinchie 10yo instead of 12yo, and I keep hearing rumours that other bottlings eg Balvenie 10yo are being discontinued in favour of an older version (Signature) with a consequent increase in price. I’m not sure what the position is in the USA, but in many outlets in the UK, including major supermarket chains you can only purchase the Macallan Fine Oak version.

    Supply and demand are clearly a factor and I’m sure that price is being used to try and balance the equation. In this respect I have some sympathy for the producers, I have found myself having to raise the price of certain malts eg Port Ellen, because I know if I sell them at a normal mark-up, they will be targeted by malt connoisseurs as being a “bargain”.

    Finally, as a seller rather than a collector of whisky, it seems to me that the producers are no doubt encouraged by the high prices paid by consumers for the specialist, one-off, anniversary, limited-edition bottlings. The vast majority of these go into dusty storage, to be sold on at a later date at a premium, therby giving further encouragement to the industry to keep raising prices.

  26. John Hansell says:

    Graham, Balvenie 10 is definitely on its way out. It’s nice to hear your views, as a bar owner. Thanks.

  27. Mike M says:

    Putting myself in the shoes of a distiller, my costs have recently risen due to increases in the price of malt, labor, oil, taxes etc… so the whisky I am distilling now costs more and I won’t see the money for it for 15 years. Thats a long time to have money tied up. I don’t know if that whisky will be successful in 15 years or not, but I do know that the whisky I am bottling now is good, so I raise the price and take profits now and reduce my risk. Make hay while the sun shines. The whisky I bottle today, has to pay my expenses today and buy the ingredients for the whisky I make today for sale 15 years from now. The price I get for the whisky is a balance between the supply I have on hand, the demand, and the price the market will bear in terms of today’s money. I can’t take the money I make from the sale of a 15 YO bottle of whisky and buy groceries at the store at prices from 15 years ago. I have to charge a price for the whisky that gives me a profit that makes sence in terms of the value of today’s money.

  28. John Hansell says:

    Mike, It’s nice to get a distiller’s viewpoint. Thank you for that. The sun is definitely shining (for now, anyway). After what the stock market did today here in the U.S., that sun looks like it’s might get stuck behind some storm clouds I see on the horizon.

  29. Jay S says:

    As your basic consumer with limited budget this is a very interesting discussion and I appreciate all of the various vewpoints. Much of the information matches what I suspected. I agree with an earlier post, as long as there is good whisky available for a decent price it doesn’t matter too much that many people are boxed out of the higher-end. For me over the last 5 years I’ve become much more value conscious, taking great care in my choices. Certainly bourbon and rye have gained more of my shelf space. Even premium bourbons, which have also shot up in price, remain relatively attractively priced. Also, I’ve gotten into the habit of splitting bottles, sometimes three ways, with friends. This gives a lot of variety for the shelf without breaking the bank.
    John, on a related note I can’t help but notice that WhiskyFest has increased in lock step with scotch prices. 11 years ago we payed $50 for a fabulous event. Today, still a fantastic event, but now $120 (or $160 VIP). Minimally a 140% increase in just over 10 years.

  30. John Hansell says:

    Splitting bottles with friends is a good idea.

    About those WhiskyFest prices: Yes I agree the prices have gone up a lot. More than I would want them to. Our major cost is the hotel (you would faint if I told you what they charge) and I think our hotel costs have gone up about 250% over the same period. That’s just one example, but I hope you see my point.

    Still, $120 is in line with other events, like the Scotch Malt Whisky Society events here in the U.S.

  31. Tom D says:

    About two years ago, a customer of mine returned from a trip to Shanghai, with photographs and stories about the bar scene there. An emerging “middle class” there was blowing big bucks on ordinary bottlings of Scotch and Bourbon Whiskies, she observed. This got me to thinking; What is the only thing you can’t make in China? What is the only thing they will not eventually make better and cheaper in China? If China’s middle class is growing exponentially, and they are largely self-sufficient, save metals and energy, what is the one thing you can profit from enormously by owning the manufacturing rights too in the coming century?

    The answer is clearly certain kinds of alcohol. You can’t make scotch, bourbon, or bordeaux in China. You may be able to make wine or whisky, but not scotch.

    I own a liquor store in Kansas, and we have only two large liquor distributors for our state. One is Standard, started and owned in state. The other distributor was purchased by Glazer’s.

    In the past year, we have had to deal with multiple month’s out of stock problems on the following whiskies, in order:

    Old Charter. Out for a month.
    W.L. Weller. Out for over two months.
    *Gasp* Maker’s Mark. Out for a month.
    Old 1889 out for a month and counting.

    When Heaven hill burned, supply of their products was not noticeably impacted. Evan Williams went up a hair in price, but that was all. The last great price hike was the tequila scare some years ago.

    How can a distributor run out of Maker’s Mark? They advertise that product! You don’t spend any money on advertising a product if it’s in high enough demand that you will run out of it!

    I’m not sure if the Kansas out of stock problem’s were related to crappy management from Glazer’s (As Old Charter comes from the other distributor) and are therefore not indicative of wider supply problems in the country or not. However, combined with my observation of the price of scrap metal (China) Concrete (China) and Gasoline (China) I suspect that producers are sending every spare drop of their whiskies to the Far East, to quench that middle class. It’s a supply and demand issue, in my opinion.

    If you could sell all your whisky for $300 per case in China, why would you bother selling any in Kansas for $100? Ever see Four Roses Bourbon any more? It was the top seller in the U.S. for over 20 years. They still make it. They just don’t bother selling it here.

    I think my out of stock problems were indicative that Buffalo Trace is shipping every drop they think they won’t sell domestically over-seas, running a little short on a few things here, and our distributors jacking the price up as a result. I think Maker’s followed suit. We’ll see.

  32. Tom D says:

    In other words, forget the price of Tea in China, What’s the price of Elmer T. in China?

  33. tzvika says:

    i just read all ur coments and i agree that as long as thers a good priced whisky im ok.
    but u see it from the point of people that live in the us and got a wide range of brands.
    im from israel and i used to mangae a bar here.
    im lookin at webstores such as bevmo.com and im jelouse with the prices.
    JD for 15$ hell..im payin here 175NIS that is 50$
    JW black label for 43$(1liter) here it costs 350NIS that is 100$
    Ardbeg 10 for 62$(ill take a case now!) her i pay 810NIS that is 230$(!!!) per a bottle
    the taxes are increasing and the prices goes up
    ill take ur problems anyday!

  34. John Hansell says:

    tzvika: Thanks for giving us a true global perspective. $230 for Ardbeg 10 in Isreal. Wow! Is that mostly due to taxes, I wonder?

  35. tzvika says:

    i guess its mostely due to taxes.
    but u know..the rich ones can afford buyin the good stuff and i cant wait for someone to fly to the states to bring me something special like Jon mark and Robo for example for 30$.
    becuse everything is so expenssive i really cant remember the last time i bought a bottle of whisky at a store im just waiting for someone to buy me at the dutyfree.
    so all i get is just the regular stuff and nothing special..no special edition or Independent Bottlers that id love to try

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