The Indy

Published in WealthWise magazine, May edition,  www.wealthwisemag.com or http://issuu.com/wealthwise/docs/wealthwise_may_2011/6.

Please note that the magazine has mistakenly given me credit for certain photos.  These should be attributed to my brother, Fred Leclezio, and Steve Adams at Wild on Whisky.

Whisky Wise

We live in a fiercely competitive world.  That’s how it is, for good or bad, particularly in the liquor business.  This gladiatorial arena is adjudicated on an annual basis by The Power 100, a survey that evaluates the world’s most powerful spirit and wine brands, with power in this case being defined as a brand’s ability to generate value for its owner.  The 2010 issue had whisky firmly entrenched in the number 1 spot chalking up a total brand score of more than twice its nearest competitor.  It is quite simply the indisputable king of spirits…but a cultured and benevolent king, with much to offer in return.

Whisky, the golden nectar of the gods, came to us somewhat appropriately from Irish monks who had transported distillation techniques from Continental Europe.  They called it “uisge beatha”, the water of life in the Gaelic of that era.  This Irish birth is believed to date back to the 5^th century AD, but whisky’s early history is shrouded by time, and the first official reference was only recorded a millennium later in 1494, when it was mentioned with little fanfare in the Exchequer Rolls in Scotland.  From those obscure beginnings in what were then backwaters it has risen to become the world’s dominant spirit.

Today whisky is made not only in Ireland and Scotland, but all over the world.  Thriving industries exist in the US, Japan, Canada, and somewhat controversially, in India, where the bulk of “whisky” is made from molasses, and therefore is not considered to be whisky elsewhere.  Whisky is generally defined as a distilled spirit made from cereals, yeast and water, so, with the exception of the Indian stuff, every whisky that you’ll encounter is made from some sort of grain, or mix of grains.  Whilst wood is acknowledged to be the single most important contributor to flavour, because all whiskies are aged in wood to some extent, it is these grains which in simple terms define the difference between one style of whisky and another.

Single malt, the heart of the Scotch whisky tradition, is made from malted barley, which is often peated.  The influence of the peat can be identified in the smoky flavours characteristic of Scotch; whiskies such Ardbeg, Laphroaig (pronounced la-froyg) and Lagavullin (laga-voo-lin) are prominent examples thereof.  The Irish counterpart to single malt is pure-pot still, made from a recipe of predominantly unmalted barley, giving its whiskeys spicy notes.  The Midleton Distillery, producer of Jameson and Tullamore Dew, is a noted exponent of this style.  American whiskeys, of which bourbon is the flagship, generally have softer, sweeter flavours, a product of the largely corn based recipes (with rye or wheat in the background), and also because ageing occurs entirely in virgin wood.  Maker’s Mark, Jim Beam and Woodford Reserve are noteworthy examples.

These are broad generalisations though.  Each style, whilst having its own unique heritage, and its own particular charm, is by no means uniform, far from it.  A floral Lowlander has little in common with a pungent Islayer.  It is the extent of variety, both between styles and within styles, that has built the lore of whisky.  As a result the enjoyment of whisky is a never-ending adventure of subtleties and nuances: there is always something new, something more, to taste, to learn, to explore, around every corner.  One can never know all there is to know.

I earlier mentioned the Power 100 2010 survey.  A total of 27 whisky brands featured in this elite group.  Whisky is big business, certainly for the corporate owners of brands and distilleries, and for the retail trade, but also, increasingly, for the individual investor.  People are realising that not only can you drink it, but you can also ride it…all the way to the bank.  There are various avenues open to the average investor.

Firstly, a variety of major distillers offer casks for sale.   You would literally buy a cask’s worth of new make spirit, which can after a time be either bottled, sold, part exchanged or further matured.  This is not a quick road to riches.  I imagine it would provide at best a solid, but unspectacular return, and at worst, if the market collapses in the future, a lifetime’s supply of whisky.  It’s best suited to a whisky lover – you typically get to visit your cask during milestone moments, taste from the cask, and have regular reports on its progress submitted to you by the master distiller.  This is investertainment at its best.

Secondly, you can readily buy and sell bottles of whisky for profit.  Until recently this was done through established facilitators such as auction houses and specialist retailers.  Auctioneers Bonhams grossed £430 000 at their Edinburgh auctions alone last year, primarily attracting collectors and investors, who to an extent are one and the same.  Soaring demand intersecting with scarce supply, particularly of old, premium whiskies made at a time when production outputs were more conservative, has driven an exponential growth in prices.  There are stories that have become the stuff of legend.  Martin Green, Whisky Specialist at Bonhams, recounted to me the history of the 1964 Black Bowmore, released in limited batches in 1993, 1994, and 1995, at less than £150 a bottle.  The whisky was a novelty, black in colour from the unusual Oloroso sherry casks in which it was aged, and became highly regarded.  The bottles released were snapped up and soon thereafter started appearing under the hammer fetching on average £2000 a pop.  The 1993 bottling now sells for over £4000 where and when available, circa 28x its original value.

Thirdly, you can invest in a whisky portfolio run by whisky “fund managers”, a relatively recent innovation.  Such has been the value explosion in whisky, and such is the potential, that a group of Dutch businessmen have established an organization called the World Whisky Index allowing investors to buy and sell authenticated whisky in a structured trading environment.  Minimum buy-in as advertised by their website is € 5000, although in recent correspondence with me they advised that this is now € 25000, so not just fooling-around money.  In practical terms, you buy a portfolio made up or bottles and/or casks with or without the guidance of the Whisky Talker (their version of the Horse Whisperer, I guess).  This portfolio is then traded on the exchange, bids are received for individual whiskies, and their values fluctuate like shares on an exchange.  In 2010 the average portfolio at the World Whisky Index increased in value by some 7.9%, or so they claim.  By European standard that’s a healthy return.

I take a measured view on all of this.  Big wins are undoubtedly possible, like they are in the stock-picking game, but I’m an efficient market theorist at heart and I believe that all publicly available information has increasingly been accounted for in whisky pricing.  The market is also changing and supply discrepancies will no longer be as acute in the future, as brand owners look to ramp up production and lay down increased stock.  Will whisky continue to appreciate – probably.  Will the strong growth of recent years continue – not sure.  You pays your money and you takes your chances.

Whether your objective is to drink it, to collect it, to invest in it, or to just contemplate it from afar (I recommend the first one), whisky has stirred our collective consciousness.  W.C. Fields, the American comedian, said:  “Always carry a flagon of whiskey in case of snakebite and furthermore always carry a small snake.”  He obviously didn’t live in mamba country, but you get the drift.  On that happy note allow me to resort to the clichéd sign-off of whisky writers everywhere – Sláinte!

Patrick Leclezio is a whiskyphile, writer and entrepreneur who has spent the last 12 years working in the liquor industry in one capacity or another.  He writes the blog Words on Whisky, and is launching a specialist whisky e-tailer called WHISKYdotcoza.  He is passionate about the culture, business and enjoyment of whisky.