DYNAMIC GROWTH FOR RARE WHISKY. COLLECTORS AND INVESTORS ANNUAL REVIEW. RARE WHISKY 101

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CONTENTS

EXECUTIVE SUMMARY – IN 2014

Supply on the Open (secondary/auction) Market

Volumes

Values

Whisky Performance – Is Lustre Maintained?

Apex Indices

Negative Indices

Individual Brand Performance

The Drink/Collect/Invest Relationship

The Rare Whisky Collectors Index

The Rare Whisky Investors Index

Silent Stills – O�cial Bottles vs Independent Bottles

Summary

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04

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09

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15

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The number of bottles of collectable Scotch whisky sold at auction in the UK was up 68.22% at 33,998 (2013 = 20,211).

The £ value of collectable bottles of Scotch whisky sold at auction in the UK was up 69.37% at £7.656m (2013 = £4.520m).

Rare Whisky Apex 1000 Index up 15.82% (2013 = 23.80%).Rare Whisky Negative 1000 Index down 10.22% (2013 = down 8.52%).

Silent distilleries lead growth as independent bottles outpace distilleries o�cial bottles.

Market leader, The Macallan, sees values weaken by 7.43%.

The chart below shows volume growth over the last five years.

2014 saw a record number of bottles sold at auction in the UK. The number of full sealed single bottles (excluding bundled lots) of Single Malt Scotch Whisky hit 33,998 up 68.2% on 2013 (20,211). Compared to the 42.8% increase in 2013 v 2012, 2014 saw a rapid acceleration in pure supply. With the number of new entrants in the on-line whisky auction market increasing, this growth in volume was almost inevitable. Whilst some of the newer on-line auction houses prospered (Whisky Auctioneer and Just-Whisky, for example), other smaller organisations such as Islay Whisky Auctions and WhiskyAuction.co.uk failed.

The rise of on-line auctioneers is challenging traditional auction houses from both a pricing and service perspective and has created the corresponding commercial pressure.

Mulberry Bank Auctions appeared particularly badly a�ected, with declining stocks consigned coupled with a significant ‘unsold lot’ rate.

SUPPLY ON THE SECONDARY MARKETVOLUMES

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2014RECORDsales

SUPPLY ON THE SECONDARY MARKETVALUES

The chart below shows the growth in the £ value of the UK auction

market for full sealed bottles of Single Malt Scotch Whisky.

Correspondingly significant growth in the overall £ value of bottles

sold at auction saw value growth just outpace volume growth at

69.37% to 68.22%. Strong demand kept pace with the huge

increase in supply.

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WHISKY PERFORMANCEAPEX INDICES

Values held up impressively throughout the first three quarters of 2014 with the Rare Whisky Apex 1000 Index (RWApex1000 – the top performing 1000 bottles) showing a 14.54% increase to the 30th of September.

These increases slowed to a near standstill through the last three months of the year, where only 1.28% growth was realised. In part, this can be attributed to the staggering increase in volume witnessed at the end of the 2014 year.

December showed in excess of 100% growth in volume over 2013 (4,153 bottles in Dec 2014 vs 2,007 in Dec 2013).

Another significant contributing factor was a general broad based decline in Macallan values.

Such is Macallan’s prominence at auction that any protracted downturn in prices sends ripples through the broader market.

November and December proved challenging for all key

indices. The chart below shows the annual performance of

the RWApex100, 250 and 1000 (Annual increase RWApex100

+15.54%, RWApex250 +15.66%, RWApex1000 +15.82%).

The RWApex100 index peaked in October before a notable

year end re-trace to September levels, the RWApex250

softened slightly and the RWApex1000 flattened.

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WHISKY VALUESNEGATIVE INDICES

While the last two months of the year proved 2014 had something of a sting in the tail for the Apex indices, the negative indices were even more challenging – moving deeper into the red.

The RWNeg1000, 250 and 100 indices (the worst performing 1000, 250 and 100 bottles) declined by 10.2%, 11.7% and 7.8% respectively.

This e�ective polarisation of the market looks set to continue with the least desirable bottles/brands decreasing further in value.This critical insight confirms buyers must do their research in order to select the right bottles from the right distilleries to avoid punishing consequences.

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WHISKY VALUESNEGATIVE INDICES

The chart below illustrates the rapid decline in the negative indices at the end of 2014.

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COLLECTING VS INVESTINGINDIVIDUAL BRAND PERFORMANCE

Before looking at how some individual distilleries have

performed over the past twelve months, it is worth considering

some of the key drivers in making a bottle collectable or of

investment quality.

RW101 created the DCI (Drink, Collect, Invest) Model to

highlight how a bottle hits the ‘sweet spot’, satisfying the needs

of the drinker, the collector and the investor. The drivers are

by no means exhaustive, but provide context.

Where distilleries release bottles in the DCI sweet spot they

tend to perform exceptionally as an investment, noting there

will be high demand from all buyer types.

Individual brands are ranked according to their collectability

(total volume and total value of bottles traded at auction in

the UK – Weighted 50/50) and also their investment credentials

(the highest £ average, the highest £ for a single bottle and

the overall % increase/decrease in value – weighted 10/10/80)

from the 31st December 2008 to the end of the respective period.

The relationship between the Drinker, Collector and Investor.

INDIVIDUAL BRAND PERFORMANCECOLLECTORS AND INVESTORS INDICES

- Limited Editions- Quality- Single Casks- Iconic Distillery

DRINKER

COLLECTOR- Single Distillery- Birth Year Vintage- Quality- Catch-all Collectors- Bottle From Every Distilery

INVESTOR

ID DC

CI

DCITHE SWEET

SPOT

input

Output

CostsNeed

Fulfilment

Quality

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The Rare Whisky Collectors index is used to track which brands are becoming most traded (but not necessarily most attractive to an investor) at auction and conversely which ones are seeing a decline in the relative number of bottles.

This metric reports on market sentiment for a brand as defined by the buying audience at auction. Moving up the table is not necessarily a good thing for some brands if they are being o�oaded through oversupply or underperformance.

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INDIVIDUAL BRAND PERFORMANCERARE WHISKY COLLECTORS INDEX

The table below shows the top 30 brands according to their total volume and value at auction.

INDIVIDUAL BRAND PERFORMANCERARE WHISKY COLLECTORS INDEX

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BOWMORE

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Rather unsurprisingly, Macallan retains top spot (Macallan accounts for 10% of the volume and over 25% of the total £ value traded at auction) followed by non-movers Ardbeg and Bowmore. Bruichladdich has been much more prevalent with vast quantities of low value bottles appearing at auction resulting in a significant re-trace in prices. The average cost of a bottle of Bruichladdich at auction in the UK is £115.84.

This highlights a significant gap when compared to Ardbeg’s average of £217.19, Bowmore’s average of £384.03 and Macallan’s average of £561.34.

Both Arran and GlenDronach have made significant progress taking an increased share of the wallet at auction. Both distilleries are becoming more collected with GlenDronach in particular starting to gain momentum. Islay’s newest distillery, Kilchoman, has done well from a volume perspective, but the average cost per bottle is solidly seated in the bottom quartile at £88.36. The second overall lowest average bottle value comes from Glenkinchie at £53.96 and the lowest is Glen Deveron at £45.07.

Both Brora and Port Ellen have moved down the index. In relative terms, the amount of stock appearing on the secondary market is dwindling. This trend is anticipated to accelerate as fewer bottles become available. Two significant brands, Laphroaig and Glenmorangie, have slipped two and three places respectively.

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INDIVIDUAL BRAND PERFORMANCERARE WHISKY COLLECTORS INDEX

The Rare Whisky Investors Index tracks changes in the % increase/decrease in all bottles from a distillery (80% of the index is weighed to % change with a 10% weighting on the most expensive bottle and 10% on highest average price). Often far less well known brands appear in the top 30 showing both rarity and demand for certain bottles from certain distilleries.

From a pure investment perspective, volume is vanity and profit is sanity, hence the pure volume/value of bottles traded is excluded from this index.

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INDIVIDUAL BRAND PERFORMANCERARE WHISKY INVESTORS INDEX

The chart below compares the top 30 distilleries from the end of 2013 and the end of 2014.

INDIVIDUAL BRAND PERFORMANCERARE WHISKY INVESTORS INDEX

DISTILLERIES

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INDIVIDUAL BRAND PERFORMANCERARE WHISKY INVESTORS INDEX

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The most striking change through 2014 is Macallan’s movement from top place down to seventh place. Total Macallan values re-traced 7.43% over the course of 2014. Putting that into context, as mentioned earlier, Macallan accounts for a quarter of the total £ value (£1.987m out of £7.656m in 2014) of the whole UK auction market: That huge portion of the market fell in value by 7.43%. Many iconic Macallan bottles remained relatively static or increased slightly with others moving down in value significantly.

The 25 year old Anniversary Malts increased by 3.77% over the year and the 18 year old vintages moved up by 3.57%. These heavily collected bottles appeared to buck the general trend for Macallan.

Many limited edition and more modern Macallan bottles took the brunt of the falls – The Royal Marriage, Coronation and Diamond Jubilee bottles had a combined worth of £3,190 at the end of 2013, and that fell by 17.71% to £2,625 by the end of 2014. Market sentiment for Macallan appears to have shifted significantly. There are a multitude of reasons behind this rapid fall from grace.

Silent distilleries saw strong growth through 2014 with,interestingly, independently bottled limited releases showing stronger gains than o�cial distillery released bottles.

The chart below shows the gains of the top 50 bottles of Scotch from silent distilleries by independent bottlers compared to the top 50 o�cially bottled.

The value of the best performing 50 o�cially bottled releases from silent distil leries increased by 18.36%, whereas the top 50 by independent bottlers increased by 21.98%. The growth in value for bottles from silent distilleries again confirms the rapid polarisation of the market where exceptional bottles perform exceptionally and average/poor bottles fail.

Towards the end of 2014 the value of o�cial bottles from silent distilleries tailed o�. The Port Ellen index (which tracks the first 8 o�cial releases of Port Ellen from December 2008 to December 2014) fell by an incred ib le 15% in the fina l th ree months o f 2014 (however annual growth was still an impressive 32.28% for the full year).

Anecdotal ly, the suspected cause is that the rapid increase in primary market (retail) prices for the annual releases is turning buyers away from the brand in search of perceived better value elsewhere.

The last three years have seen retai l prices for the Port Ellen annual releases increase from £600 in 2012 through £1,500 in 2013 to £2,200 in 2014. This paper is not the place to discuss or challenge primary market pricing policy; however, these increases feel unsustainable.

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Diageo’s 2014 Special Releases had a combined total retail sales price (RSP) of £24.741m – more than three times the total size of the UK auction market. The combined RSP of the 2014 Port Ellen release was £6.5m alone. Can the market cont inue to absorb these pr ices?

Independent bottlers are perceived as providing better va lue in the market for certa in s i lent d ist i l ler ies . Many Independent bottlers have stocks of equal and sometimes superior quality to those of the original brand owner who main ly fi l led for b lends , rather than for single malts.

SILENT STILLS28

SUMMARY

2014 saw a significant change to the overall landscape of collectable Scotch with The Macallan (25% of the market) falling by almost 7.5%. Conversely, certain other less traditional ‘collectors’ brands succeeded, enjoying dynamic growth, with GlenDronach (a possible replacement for Macallan in many cases with its heavy Sherry influence) and Arran being good examples.

Virtually all silent stills performed well, with some of the less well known distilleries such as Ban�, Littlemill and Glenugie becoming both increasingly scarce and increasingly sought after as evidenced by impressive increases in price.

Volumes show no sign of slowing down to any significant degree and it would be anticipated that some primary market whisky retailers will dip their toes into the auction environment during 2015. As auction houses become the ‘go-to’ places to buy rare and/or old whisky many traditional retailers will lose customers.

RW101 research (carried out on 49 of the Icon 100 Index bottles) points to an average 44.37% saving for bottles bought at auction as opposed to retailers (VAT inclusive retail price – auction price includes an assumed 15% commission plus VAT). In e�ect, buying bott les at auction costs almost half the price of buying from a rare whisky retailer.

As the age of NAS (No Age Statement) whisky dawns, grows and matures, older bottles, older vintages and Scotch which has a perceived better quality should ensure the secondary market stays buoyant, with increased gains for the ‘right’ bottles.

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