Rough Times for the Whisky Industry - Punitive tariffs, Brexit and the Pandemic

Overture – Steel and Aluminium

The turbulent times for the Scottish, but also American Whisky industry started on March 9th 2018 with the imposition of worldwide punitive tariffs on the import of steel and aluminium by the USA. The punitive tariffs began on June 1st 2018 with 25% on steel and 10% on aluminium. Without stating an opinion about politics, tariffs always result in the isolation of the country from external influences and interdependencies. While average tariffs worldwide are about 2% to 4%, the 25% were extraordinarily high. Politicians around the globe were in revolt.

1. Act – Bourbon

In return, the EU also issued punitive tariffs, starting on July 1st 2018 with 25% on Bourbon and other goods. But it is also usual, that with the WTO-tariff agreement, tariffs are raised reciprocally. Therefore, the USA also raised tariffs on imports, including Single Malt Scotch Whisky, for the EU as of October 2019. The result is a decrease of 34% in export for Scotland and 41% for the entire EU.

The economy judges this matter very clearly: With punitive tariffs, there are only losers on both sides. Who as a politician thinks, that tariffs are good for the economy of their country, should have cancelled their politics or social studies. A diploma in Economics would have been more logical. Tariffs do not have winners, only losers.

That meant a great price increase on high-quality Bourbons for our German shop Whisky.de. Some prices rose so high, that they resulted in a shortage, or even in a total suspension of export. Cheap mass Bourbon was not affected as much, since the tariff is calculated with the import price. And with cheap alcohol, the tariff does not apply to single bottles, but liquid containers. And those do not include the value of the bottling process or the package.

2. Act – Brexit

On December 20th 2019 the British House of Commons, after years – who really expected less - of tenacious negotiations, agreed to the deal with the EU which was negotiated by Boris Johnson. Many were sceptical if this still would happen since, after the referendum about the exit on June 23th 2016, a bureaucratic game of hide-and-seek became the norm. On February 1st 2020 the transition period then started and ended on December 31st 2020, with the provisional law. The option of an extension up to 2022 was not taken. Since January 1st 2021, the United Kingdom is considered a third country by the EU.

Since the beginning of January 2021, the delivery of goods to the EU was no longer as easy as before. Of course, there were no tariffs between the UK and the EU. Even when Media was discussing the topic thoroughly, to those involved it was clear, that there would be no tariffs from the EU for the UK. Why? Because Britain is importing way more from the EU than it exports. The economy suppressed all proposals about tariffs. Especially the automotive industry was involved since the domestic car manufacturers do not export such a quantity to any other country, as they do to the UK. Even the exports to the USA and China are not nearly as high.

But for our Single Malts Scotch Whisky, the changes in the import process (different forms, responsibilities and staff) meant a shortage due to delays of several weeks. The German foreign minister, finance minister, economics minister and the minister of the interior could have agreed to a concentrated plan of action with the EU to handle this huge bureaucratic challenge. But the slow politics and the lacking digitization are not very helpful. Therefore, the prices for Single Malt Scotch Whisky are increasing since January 1st 2021.

But the Brexit also brought Scotland some advantages. The USA lifted all tariffs on Single Malt Whisky for four months from March 1st 2021. Scotland was able to supply their biggest Whisky export country to regular conditions again and to fill up the warehouses there.

3. Act – Pandemic

On March 11th 2020, ten weeks after the Brexit, the WHO declared a global pandemic. Even before, the media showed us closed down megacities in China. Connected to that, also lockdowns. Those who thought this was not possible here, were proven wrong on March 22nd 2020. Seven weeks of lockdown in Germany until May 4th 2020.

We from Whisky.de were also affected. However, we made preparations and equipped all employees with movable workplaces. Our infrastructure was already set in a way, that everyone could work remote and from home. Even our logistics service provider reacted professionally and flexibly. With the implementation of two shifts with 30 minutes breaks for sanitizing the workstation, infection was effectively prevented.

With the fast change of peoples’ buying habits, e-commerce boomed worldwide – even for us. Since we are very active for 25 years now, this was nothing new to us. And our decision in February 2020, to extremely increase our stock for the incoming boom, paid off. With some luck, we were also able to increase our staff for packaging and shipment, since a big stationary retailer under the same logistics service provider dropped out.

What happened next, could be seen in media. For the same growth, e-commerce needed about ten years in the past, suddenly happened in few weeks during the pandemic. And since everything worked just fine, the customers kept their habit of shopping online. Also, because they had no other choice since many stores stayed closed even after the lockdown.

The second lockdown in Germany started on November 2nd 2020 in a light version. On December 13th it was extended and on December 16th, very unfortunately for the Christmas business, retail dealers had to close their stores. The increase in mail-order business is hard to put into words. On January 6th even further restrictions were applied, which then lead to a full lockdown around the Easter holidays.

Every one of us still has everything that followed in mind.

Conclusion

When two people quarrel, the third one rejoices. The exports of Scottish Whisky to Asia booms. Global research also showed that the closed down bars and restaurants around the world did not stop people from drinking alcohol. Not only in the USA, the consumption of alcohol increased. While many of us hoarded toilet paper, Americans also emptied liquor stores. While Scottish Whisky was already missing on the shelves, the stocks of Tequila, Mescal, Vodka and of course American Whiskey were emptied. According to the Distilled Spirit Council of the United States, consumption rose about 7%. The Australian market research institute Ipsos identified an increase of 21%. This is more than double the globally determined increase of 10%. However, 8% of all Australians drank less.

Trade wars, punitive tariffs, Brexit and the pandemic strongly affected the Whisky consumption of the West but did not prevent it. Tariffs, lock-down and the interruption of trade routes did make the supply more complicated and even pricier. Good for us, that Whisky has a long shelf life. From the past until today it still applies that it is always good to be prepared so one can act in times of need.

Forecast

A dark storm is rising on the horizon. More and more the topic of inflation is coming up. The numbers for August 2021 are: USA 5,73%, Germany 3,8% and UK 2,0%. Those numbers are not frightening yet, but the first effects can be seen in the Whisky industry. The price for an average bottle of Whisky of 35€ is increasing by about 1,30€ during the course of a year. In addition, the slow processing and the partly empty warehouses on the continent are raising the price expectations of the distributors and wholesalers even further.

It can make sense to fill your private storage before winter business. We do what we can, to keep our storage supplied. We promise.