Irish whiskey

14 August, 2012

Giant's Causeway near Diageo's Bushmills distillery (image: Shutterstock)

With Irish whiskey proving a global smash, Hamish Smith looks into the growth plans of the big four players



THE IRISH WHISKEY CATEGORY IS ON FIRE,” says Stephen Teeling of Beam – echoing Diageo’s formal, but no less arresting, assessment that it is the “fastest growing spirits category in the world”. To appreciate the significance of what is happening on the Emerald Isle it’s worthwhile looking at where Irish whiskey has come from.

In laconic language, it had a 20th century to forget. Geo-political blight and the market stranglehold assumed by scotch took Irish from the world’s most abundant whisk(e)y style in the 1900s to the edge of outright extinction in the 1970s. The category has managed to reignite from barely flickering embers.

By numbers, Irish whiskey remains very small. At 4.9 million cases per year (IWSR) and 1% of the global whisk(e)y market (Diageo estimate), it is behind scotch, bourbon, Canadian, Indian and even Japanese styles – albeit the latter two are almost exclusively domestic. Four distilleries (soon to be five – more on which later) is the sum total in production terms and the brands – a good many of which are produced at the New Midleton Distillery – are owned by four of the world’s behemoth whisk(e)y companies.

Playing nice

One would think that Irish whiskey town ‘ain’t big enough for the four of them’ but Pernod Ricard (Irish Distillers), Diageo, William Grant & Sons and Beam (previously Cooley Distillery) seem to get along just fine – for now. With 2010’s 11.5% volume growth (Impact Databank) repeated in 2011 and a forecast of 7.9 million nine-litre case sales per year expected by 2016 (IWSR), there is plenty of growth potential to share around. It’s fair to say at this stage of a category re-build that an element of cooperation and good feeling is to everyone’s benefit. For those involved, competitors’ successes are the category’s successes and therefore their own.

The last of the independent Irish distilling companies to be sold was Cooley Distillery in January this year. For $95 million Beam got a 300,000 nine-litre case business made up of two of Ireland’s four whiskey distilleries (Kilbeggan and Cooley Distillery in Riverstown) and four core brands (Kilbeggan the blend, Connemara the peated single malt, Tyrconnell, a single malt, and Greenore a single grain whiskey). Beam not only bought the only remaining stake in the spirits industry’s hottest category, it legitimised its pretensions of being an independent group bent on growth and acquisition. Conjecture over Beam’s raison d’être – be it predator or prey – has kept financial analysts busy of late.

According to Teeling (now in the same role he held at Cooley’s – global marketing manager of Irish whiskeys – in the Beam administration), Beam was the last in a long list of suitors. For Cooley to grow, though, distribution to the US – the largest Irish whiskey market by an estimated six times – had to be resolved. “We couldn’t find a partner in the US and that’s where the opportunity was,” says Teeling. “[The Beam deal] was a massive opportunity and $95 million was a fair value.” But Stephen Teeling’s father, Cooley’s chairman, John, took some persuading. “My dad would describe himself as an unwilling bride,” jokes Teeling. Cooley’s board certainly didn’t have cold feet – it argued for the sale. “We had a mature shareholder base – in their twilight years,” explains Teeling.

Beam’s motives were understandable. It would have watched enviously as Jameson ploughed an almost lone furrow in the US. The brand has moved enough earth in the market to drive global sales of 3.8 million nine-litre cases in 2011 – a colossal 66% of all Irish whiskey sales.

With the blend Kilbeggan, Beam has picked its horse for the chase, but first it must close the gap on William Grant and Sons’ Tullamore Dew (currently the second Irish whiskey brand with 700,000 cases) and Diageo’s Bushmills (third with 600,000 cases). Teeling is realistic though – he wants to get Beam’s new brands to “a 5%-10% share of the category”. Beam displayed US distribution network and ambition with an order of 15,000 cases of Kilbeggan for St Patrick’s day in March – around 20 times the usual shipment.

Jameson, mind you, still has the momentum, with double-digit year-on-year growth now a matter of routine. Its Select Reserve Black Barrel launched in New York – not Ireland – in October last year, which came as no surprise, such is the market’s relevance to the brand. But Jameson’s US successes have not come overnight. “If you look at the US, people think it’s been all-out success, but it’s been a steady and constant investment with a lot of hard work over many years,” says Brendan Buckley, innovation and category development director at Irish Distillers.

“In the past few years there has been an accelerated trajectory of sales growth and we’ve achieved a critical mass that’s allowed us to invest more in advertising and going on TV. But it goes back to the product. As marketers we’d like to say there’s been marketing magic but if we’re honest it’s the product, the whiskey – it delivers a flavour and smoothness that whiskey drinkers enjoy,” says Buckley.


Taste profile

The smooth, some might say uncomplicated, taste profile of blended Irish whiskey seems to be what young whisk(e)y drinkers are looking for in the US. According to Beam’s Teeling, scotch is the preserve of the 50-plus age bracket in the States, for Irish it’s 25 to 35-year-olds.

So with a young following, 3.8 million cases is probably just the beginning for Jameson. Irish Distillers certainly thinks so. In December last year it confirmed it will spend €100m on the expansion of its Midleton distillery, the site where Jameson and a number of other blends and pot still whiskeys are produced.

The 15-month project will see pot still capacity rise from 10 to 22 million litres and grain from 20 to 40 million litres. Anna Malmhake, chairman and CEO of Irish Distillers, said of the investment: “This expansion project is a reflection of the international success of Jameson and the great future potential for the brand. The brand reached the three million cases milestone in 2010 – one million of which were sold in the US. With this investment we are confirming Midleton, where the tradition of distilling dates back to 1825, as the global centre of Irish whiskey production.”


Positive mood

At camp Diageo the mood is positive, despite it no doubt feeling irked by the continued category dominance of its old foe Pernod Ricard. The London-headquartered group owns the number three brand, the Northern Ireland-based Bushmills, which sold 600,000 cases in 2011 and saw a 17% volume hike in the second half of the year.

“The Irish Whiskey category is showing fast and consistent growth. The fastest growing spirits category globally,” says Samantha Reader, global brand director of Bushmills. “The smooth, easy-going character, approachable taste and heritage of Irish whiskey is attracting more and more consumers to the category, who find it sociable, authentic and an easy transition from American whiskey or vodka. The total Irish category still represents under 1% of whisk(e)y globally so there is considerable room for growth.”

Bushmills’ list of top markets mirrors that of the category. It comprises the US, Ireland, global travel retail and the Middle East, France and Great Britain, but the brand has managed to sniff out sales in other regions too.

“Russia and eastern Europe offer great growth opportunity for the brand,” says Reader. “For Diageo’s financial year ending June 2011, the performance of Bushmills was driven by a 29% net sales increase in Russia and eastern Europe. Bushmills is now the fastest growing Irish whiskey brand in Russia. With such a burgeoning category, there is room for competition and growth from all of the big players.”

For Diageo to talk so inclusively, the garden really must be rosy. The group has also looked to strengthen through diversification, by venturing into the controversial territory of flavoured whiskey. Bushmills Irish Honey went on trial in the US in March and Diageo has signalled that it will roll out to other markets this summer.

Tullamore Dew is the world’s number two whiskey and is not short on news either. William Grant & Sons bought the brand for £300 million in 2010 from the Magners cider owner C&C and in the last days of March this year the group announced plans to take the brand back to the town from which it took its name.


Coming home

“The E35 million distillery in Tullamore is clearly good news for the brand, but it’s also great news from an Irish whiskey perspective,” says Maurice Doyle, group marketing director of William Grant & Sons. The distillery is due to be completed by the end of 2014. “From a marketing point of view it means the brand is coming home. It adds to the integrity and authenticity of Tullamore Dew.”

Indeed, like Bushmills and Beam’s Kilbeggan, Tullamore Dew will benefit from having somewhere it can call home (although not its grain whiskey component, which will remain with Midleton). For all of the category’s venerability, dependence on Midleton has left many of its brands short on identity – especially when compared to the 100 or so distilleries in Scotland. The sales story of Tullamore Dew will be further strengthened by the new visitor centre in Tullamore, due to open this September.

Like the other members of the quartet, William Grant sees the US as key. “The US has massive potential given the success of Jameson,” says Doyle. “Globally Tullamore Dew has a 14% share of the market, but even to get 14% in the US that would have significant growth implications. Jameson has done a great job in the US of introducing people to the category, but we’re very clear that if we’re to be successful we’ll have to do something very different to Jameson.”

In the past few months the brand has launched its marketing campaign, Irish True, on television screens in its major markets of Germany and the Czech Republic and in digital form in the US. Perhaps more importantly, the brand will introduce new global packaging from June.

“We knew that the packaging held the brand back in new markets such as the US,” says Doyle. “It was a challenging brief because in markets like Czech Republic and Germany the packaging was quite liked, but it was strongly disliked in the markets where it wasn’t strong. So we have come up with a packaging design that is true to the brand’s roots but is much more contemporary and premium.”


Pot still whiskeys

Exactly a year ago the talk was of Irish Distillers’ push for the yet-to-be-EU-ratified single pot still category. In short, single pot still whiskeys are a mash of malted and un-malted barley distilled in pots stills at a single distillery. Of course this is not an innovation, rather a reincarnation – most of the big Irish whiskeys half a century ago, including Jameson, Powers and Paddy were made in the style.

Two single pot still expressions arrived in May last year, Middleton Barry Crockett Legacy and Powers’ John’s Lane 12 Year Old, joining Irish Distillers’ existing pot still whiskeys Redbreast and Green Spot. The International Spirits Challenge saw fit to award Midleton the Best World Whiskey title and the Powers expression took best Irish Whiskey in Jim Murray’s Whisky Bible 2012 – the best score ever achieved by an Irish whiskey.

Since then we’ve also seen a Redbreast Cask Strength, which took 12 years to mature and seven days to sell out after its launch at Whiskey Live in Paris. “Things have gone better than I expected,” says Irish Distillers’ Buckley. “Our sales are well ahead of where we forecast, but most gratifying has been the reception of the whiskeys themselves among consumers, critics and the trade. We’ve committed to produce two new pot still whiskeys every year for the next 10 years.”

So if single pot still whiskey is in Irish whiskey’s blood, and represents Ireland’s home-grown version of scotch’s single malts, surely the other brands have followed suit and released their own versions? “Right now we’re the only company producing single pot still to market,” says Buckley. “We would be delighted to see other producers join us. Like any category, the more players, the more investment, the more talk that is created around it the better.

“William Grant’s decision to build a distillery in which they specifically mention they will be producing pot still whiskey – I can take from that that at some point they will be producing pot still [Tullamore Dew] whiskey as well,” says Buckley.

William Grant’s Doyle certainly doesn’t rule it out. “It’s going to take time for us to gain the benefit of having the new distillery; it won’t be operational until the end of 2014. Then the whiskey takes time to age. We’re still a long way off being able to confirm those kind of plans but the new distillery gives us options going forward.”

Perhaps then Beam, with its reputation for whiskey innovation, may have pot still plans. “We can do it but we’ll concentrate on single malts,” says Teeling. The company, though, has experimented with the idea in both distilleries and released a small batch of single pot still new-make poitín (a high strength distillation, not a whiskey) but Teeling doesn’t see it as a move towards authenticity in the same way as Irish Distillers does.

Economics not craft

For Teeling, the use of unmalted barley in the mash was born out of economics, not craft. “There wasn’t any tax on unmalted barley, so it was cheaper,” he says. He also sees an issue with market understanding. “Pernod Ricard will have to do a lot of educational work. Consumers will need to know what single pot still whiskey is – they understand single malt whiskeys.”

Diageo’s position is similar. “100% triple-distilled malt whiskey is at the heart of all of our blends and malts and is planned to remain so,” says Reader. “Malt whiskey is also a premium whisk(e)y style/terminology that is easily understood by consumers due to scotch malt whisky.”

It seems to be a case of wait and see. For this new segment of the category, though, there’s no rush. Single pot still whiskies will be positioned as more high-end than high-street and, as with scotch, volume is to be found in the blended market.

As far as export markets are concerned, Asia and Latin America at this stage are hardly worth mentioning – their consumers have been weaned on scotch blends and will barely take notice. The US is the real engine room of the market – with Europe flanking in support – and has plenty of room for the Irish blends to spread their wings. Here, the converging whisk(e)y giants of Diageo, Pernod Ricard, William Grant & Sons and Beam can happily cross paths without fear of collision.





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