The smell of ageing whisky, known as the angel’s share, wafts across from 9,000 oak barrels stored from floor to ceiling in two vast warehouses at Scotland’s historic Annandale Distillery in the town of Annan, Dumfries and Galloway. “Annandale has seen a huge boom over the last few years,” the facility's general manager David Ashton-Hyde said as workers milled around the site to check the vast casks for leakages.
The spirit is surging in popularity as an alternative investment as inflation stays stubbornly high, with many investors keen to diversify assets to safeguard their cash. Alternative investments are those that do not fall into conventional categories of financial instruments such as stocks, bonds and gold. Art, antiquities, fine wines, classic cars and luxury timepieces are usually classed as alternative investments, and over the past few years, single malt Scotch has joined this list. Investors can either buy by the bottle or by the cask, but, as with all assets, the key is to pick the right one. “Whisky has always been an asset class which has performed,” said Benjamin Lancaster, a founder of VCL Vintners, which specialises in marketing casks. While some industry experts toast whisky as “liquid gold”, yet others call for caution owing to scams.
Annandale in Scotland sells its whisky both directly to customers worldwide and also via two specialist investment firms, one of which is London-based VCL. The global whisky market hit $87 billion last year, according to UK-based drinks market research firm IWSR, which forecasts it will top $100 billion before the end of the decade.
The sector has been boosted by some record announcements in recent years, including the sale last year of one 1975 cask of single malt whisky for £16 million (about ₹164 crore). It was sold by Scotland’s Ardbeg Distillery, which is owned by luxury goods group LVMH, to a collector from Asia. In 2021, a four-decanter lot of Glenfiddich single malt from the 1950s went under the hammer for £830,000 at a charity event, setting a record for Glenfiddich sold at auction, reports Forbes.
The market for rare bottles of whisky has taken off in the past decade, with annual price increases of 20% on average, according to London-based Bordeaux Index, which deals in fine wines.
Investing in wines and spirits isn’t for everyone, though. “Alternative investments appear to be luring in more people, partly through frustration with returns from the stock markets, which have been hit with waves of volatility as inflation has soared,” noted Susannah Streeter, head of money and markets at Hargreaves Lansdown. “Figures showing dramatic increases in price are often specific to a type of rare-bottled whisky,” Streeter added. “If you aren't an expert and haven't done your homework, there is a big risk that you could be duped out of hard-earned savings.”
In other words, whisky as an asset class is quite specialised and can only be an additional investment, after one has built a balanced and diversified portfolio. The risks can be high and the returns not always as expected.
Ashton-Hyde of Annandale conceded that “the world of whisky investment is sometimes a bit murky”. A 200-litre cask from Annandale starts at £3,000 (about ₹300,000) for newly-produced whiskey from the distillery founded in 1836. According to Ashton-Hyde, the price of most of its casks doubles in value within five years, while trebling over a decade.
As with any investment, it is rarity that gives it high value. “The main attraction of aged whisky as an investment is that supply is limited,” said Tommy Keeling, head of IWSR. “Most products were created decades ago.”
IWSR forecasts the whisky industry will hit $105 billion by 2027, driven largely by Scotch whisky but also by growth in Japanese and US offerings. Keeling pointed to increasing investment demand especially in China, but also in India which has “a big whisky-drinking tradition”. He said that the pandemic also played a role as consumers had time to look into investing.
According to consultants Knight Frank, investment in rare bottles of whisky have been more profitable over the past decade compared with high-end cars, fine wines and luxury watches. Their progress, however, is seen slowing, with such bottles rising only three percent in value last year, far below inflation levels around the world. As for casks, a good annual return would be 8-12%, according to Lancaster at VCL Vintners, enough to attract a wide spectrum of investors.
As for Annandale, Ashton-Hyde said it was focused on a quality product. “Annandale as a distillery doesn't offer returns on investment,” he said. “That's not our business. We're in the business of making a wonderful spirit.”