The Rise of the Single Malt in China

The Rise of the Single Malt in China

The Growth of Whisky Tourism

In summer 2018 regular direct flights began between Edinburgh Airport and Beijing. Like distilleries expanding their premises to accommodate voracious demand for their malts, Scotland itself is expanding its capacity to welcome tourism from the far East. Visitors from China are hurrying to Scotland, spending large sums while breathing in the dour ambience and gingerly prodding at mounds of haggis.

The flags of Scotland and China merging.

Coming to see the homeland of Scotch whisky is a significant attractive force for many, as Scotch is really starting to gather attention as a perfect social drink in China. And where there’s interest in whisky, there are bottles being sold to keep that interest watered. Is China going to follow the trend seen in the West, where whole casks of whisky are seen as a better bet for investment than individual bottles?

Scotch Imports Begin Stabilising Across China

Scotch whisky has been prestigious worldwide since the mid 1800s, and nowhere is this more true than in Asia. A fine bottle of Macallan, Glenlivet or Balvenie has often overseen gatherings of successful individuals, cemented the bonds they made and assured the group that their host was of sound calibre and impeccable taste.

Display case and two bottles of Macallan 'year of the pig' special release.
Macallan’s Lunar New Year 2019 Release: Keeping the Chinese Market in Mind.

Scotch does well in this kind of environment, especially at the very affluent, elite end of the market. The influential and affluent were Scotch’s first foothold in China. There was a brief wobble in 2015, though. In a bid to crack down on conspicuous consumption, the government began to reign in lavish expenditures on gifts, and the market for whisky got caught up in this. Fortunately, a taste for fine Scotch is not easily set aside and the luxury market recovered very quickly.

For the exporters of whisky, it helped them shake off a bit of complacency. As the market for luxury Scotch temporarily flattened, it became clear that making profits in the Chinese market required a more diversified clientele. Luckily, a new class of consumer had presented itself.

Strong Growth Driven by a New Consumer Class

China’s economic development has seen the rise of a powerful, aspirational, youthful and above all; large middle class who have been the perfect candidates for the diversification of Scotch sales. The prestige value of rare Scotch still works its magic, but these younger folk have more modest means and are looking for different bottles to mark their successes.

A Chinese dining table with strong spirit being poured into small glasses.
A Place at the Table for Scotch?

Pernod Ricard, owners of the Chivas Regal and Ballantines blends and several Scottish distilleries (including Aberlour, Glenlivet, Longmorn and Strathisla), have been well rewarded by their strategy of targeting the emerging middle class, who are an overall more stable group of consumers.

In 2015 a £3m Whisky Investment fund was organised by the Single Malt Club China (SMCC) with the aim of importing even more rare and valuable malts. On a trade mission in 2015, First Minister Nicola Sturgeon praised the group’s efforts and emphasised the growing relationship between Scotland’s producers and China’s consumers of the Scottish national drink.

The efforts of these groups have boosted Scotch’s profile in China: 2017 saw a 25.9% growth in export volume and 45.3% increase in export value to China, no doubt assisted by a 50% cut in import duty on Scotch in the same year. 2018 saw a further 34.8% increase in exports, with an above international average 28% of these being single malts. It’s on its way.

So, how does a Scottish staple fit into Chinese life?

Single Malts Are Earning a Place at the Table

Strong spirits enjoy a great deal of attention in China, as they are seen as a vital accompaniment to lubricate a social meal. Toasts must be proposed and shared, spirited friendships must be forged, the host must be seen as a generous provider, the guest as a rugged consumer. Most importantly, once a toast is proposed, it should not be declined. An awful lot can get drunk in one night.

Expensive-looking display of 'Moutai' Chinese baijiu bottles.
Moutai: A Popular Brand of Chinese
báijiǔ. Beautiful Designs and High Prices at the Top Level

Traditionally, báijiǔ 白酒, often a sorghum or rice-based clear spirit, is drunk at such occasions. In character and use, there are a lot of comparisons that could be made to whisky. Its alcohol content is often high – between 28-65% abv – and so it tends to be served in very small measures. All the easier for repeated toasting.

The strength and the branding are both seen as virtues for báijiǔ. With labels prominently displayed for diners to see and a hearty vocal-facial response in response to a quick punch of >50% abv firewater, a lot of attention and appreciation is given to the spirit. Scotch can happily work this way on a dining table – beautiful label loudly displayed, and cask strength expressions in the 60s for abv, Chinese drinkers’ heads are already turning Westward. Additionally, as an international import, Scotch’s prestige benefits from being seen as more exotic and of higher quality than something locally produced. A good bottle of Scotch, single distillery, single cask, can well serve the singular need to be an impressive host.

It’s a fresh market to tap, as well. At present, only ~2% of alcoholic beverages consumed in China are imported from the West, while báijiǔ alone has a market of £24bn. This makes it one of the biggest markets for spirits in the world. Even a modest increase in whisky’s share here has potentially huge returns. And it looks like the Scotch whisky producers have more than modest aims in exploring this nascent market.

The Prestige & Exclusivity of Rare Whisky Casks

So far then, we know there’s a strong market for very prestigious bottles to adorn tables in China. There’s a middle-class market on the rise, ready to be tapped like casks of single malt at a key point in their maturity. The bottles will be shipped to meet their demands. But just like in the West, we predict that demand for bottles of fine Scotch will mirror an increase in demands for entire casks of the same. Here’s why.

A bottle of malt from a distillery such as Macallan or Highland Park already has a considerable wow factor that will be flaunted at any social gathering. But imagine the reaction to a bottle that’s not just made by Macallan distillery, but that has come from a cask chosen and kept by your illustrious host. This particular bottle, only available on one dining table in the world. A private cask Scotch. It’s an arresting thought, and one that will appeal to anyone that seeks to captivate their audience.

A racked warehouse of maturing oak casks.
Casks Maturing and Appreciating

As a bonus, the sheer size of a cask guarantees a large amount of whisky – the lower overall price of spirit bought in quantity is very attractive when compared to buying an equivalent number of bottles of similar age. The owner of a cask has far more control of whisky at its source.

And speaking of control: auspicious numbers and dates still play a significant role in the management of affairs in China. One may consult an astrologer for the perfect date to hold a wedding or to inaugurate a new business. Some people will even make a consultation to determine the most fortunate date to purchase a new set of clothes, to ensure that their wardrobe is imbued with good energy.

It would seem to be an equally crucial decision for whisky. Bottling from the cask is already an auspicious enough date – it’s effectively the metamorphosis of the whisky, the date from which it takes its final form. This date ought, therefore, to be chosen carefully. With ownership of a whole cask comes the ability to choose exactly the date at which the whisky will be bottled. This level of fine control is very attractive. Will a whisky bottled on the 8th of August 2028 taste better? May well do – Getting the timing exactly right can add a lot to its appeal.

Whisky Cask Investment Guarantees Authenticity

To the darkside for a moment. A high profile case in 2015 drew attention to the counterfeiting culture that has inevitably mushroomed up beneath the sunny canopy of Scotch’s high demand. The SWA initiated proceedings against the ‘Anhui Guangyu Packaging Technology Company Ltd’ for producing bottle caps labelled ‘Scotch Whisky’ intended to seal up bottles of counterfeit hooch. The SWA won the case easily, reassuring people that Scotch has both Scottish and Chinese authorities invested in its authenticity.

That said, it drew attention to the possibility that a bottle’s contents might not necessarily match their label. One way to ease anxiety over this is to invest right into a cask rather than a bottle. Each cask must mature in Scotland and the cask can’t be transported across borders if it wants to maintain the ‘Scotch’ status of its contents. The bottling itself has to be done under the purview of HMRC before the bottles are shipped internationally. Each of these checks and balances keeps the whisky under close scrutiny, and bottling from one’s very own cask virtually guarantees that there’s no misrepresentation. This is an attractive prospect indeed in China, where the spectre of counterfeiting still looms from time to time.

A Compelling Case for Casks

Overall, the arguments that are turning Western investors towards cask rather than bottle investment are equally pertinent in Asia. There are even some local traditions that a full cask of whisky can snuggle up to.

Indeed, since China is still a relatively young market for whisky, it is far more plastic and responsive to new methods of investment. If given the right opportunities, the new investors that are currently being courted by Scotch whisky importers may well turn to whole casks as a means, not just to bring whisky to their tables, but also as an attractive alternative income stream via investment.

A large and imposing cask of whisky, top half.
A Cask of Whisky: A Patient Investment

Most importantly, Scotch has the strength, the beauty, the versatility, the authenticity and the prestige to compete with local báijiǔ, and even a tiny sliver of that market is a hefty economic slice. The elite drinkers have been here for a while (and their private jets can be glimpsed on the tarmac at Aberdeen from time to time), and the up and coming middle classes’ curiosity for Scotch has been piqued. The non-stop flights from Beijing to Edinburgh are speculated to be partly due to the travel demands of malt-fanciers.

It feels like we are on the cusp of a period where a well-placed cask of single malt could become quite the asset.

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