Conduct: Mergers and acquisitions in the past have led to an industry structure, which could be described as oligopolistic. This structure may support collusions between the companies about prices. For the whisky consumer it is likely, that the brand image of a whisky is more important than its price. The industry is aware of this; approximately £7 million was spent by the Scotch producing companies on promotion in 2005. The industry as a whole aims to maintain their core consumers and to gain new groups of consumers in established and growth markets (e.g. China, India) at the same time.
Performance: Sales have steadily fallen over the last five years (16% in volume since 2001). The companies tried to win new customers by changing their advertising and packaging, but they failed. At present some companies are adopting a new approach: changing the products itself or at least its colour. Even so, Scotch is one of the UK’s top five export earning industries and employs over 41.000 jobs directly and indirectly in supporting industries i.
Supply and demand conditions: The supply conditions are good, as all the ingredients for whisky can be found in Scotland; plus there is a skilled workforce. However, the demand for Scotch is dropping, because the industry faces strong competition from substitutes in the spirit market (especially Vodka). Also younger consumers are not attracted by the product and older consumers (45+) are drinking less Scotch.
Government policy: The Scottish Executive and the Scotch Whisky Association are working closely together, for example to achieve fairer taxation for Scotch in the UK and EU. As well, they supported the introduction of duty stamps in order to reduce ‘grey’ (fake) market.
Conclusion: The main challenge in the future for the industry will be: finding a balance between increasing a younger generation of consumers, whilst maintaining its traditional consumer base. Scotch whisky will continue to be sold on a quality platform to discerning consumers, but rationalisation in the number of brands available is probable. Declining brands might be eliminated and instead expansion into growth markets could be supported by the Scotch producing companies.
The majority of the Scotch sales are externally controlled; therefore Scotch can not longer be described as a real Scottish product. The Scottish Executive should carry on supporting the industry, but at the same time they should observe the ownership-structure.
References
Baird,S. (2004) Ownership of companies in Scotland. Quarterly Economic Commentary, Vol. 29 No.3, p.45 -52.
Bruce-Gardyne, T. (2005) Drastic Measure. Sunday Herald 6 March 2005.
Keynote (2006) Drinks Market 2006 [Online]. Available from: [via Athens]. [Accessed 21. November 2006].
Mintel (2006) Whiskies - UK - August 2006 [Online]. Available from: [via Athens]. [Accessed 21. November 2006].
The Scotch Whisky Association, Scottish Executive (2003 ) Scotland Enterprising Spirit [online]. Available from: [Accessed 21. November 2006].
The Scotch Whisky Association (2003) The Economic Impact of the Production of Scotch Whisky, Gin and Vodka in Scotland [online]. Available from: . [Accessed 20. November 2006].
The Scotch Whisky Association (2005) Scotch at a Glance 2005 [online]. Available from: . [Accessed 20. November 2006].
Mintel (2006), Figure 12.
Mintel (2006), Figure 13.
Bruce-Gardyne, T. (2005).
The Scotch Whisky Association (2005), p.1.
The Scotch Whisky Association (2003), p.3.
The Scottish Executive & The Scotch Whisky Association (2003), p.3.
