Should you add a shot of whiskey to your investment portfolio?

  • Diageo and other alcohol giants think the future is bright for the whiskey market
  • Investors who wish to take advantage of the growing demand can also invest directly in the spirit

It’s called Disneyland for whiskey lovers. At the end of Princes Street, Edinburgh’s central thoroughfare, is the new home of Johnnie Walker, the world’s most famous Scotch whiskey brand. Inside an eight-story building – which once housed a House of Fraser department store – visitors are taken on a ‘complete sensory adventure’ through the history of the 200-year-old business now owned by the giant drinks Diageo (DGE).

Complete with a cocktail bar and keg cellar, and opening as part of Diageo’s £185million investment in ‘Scottish tourism’, the attraction is a towering sign that the FTSE 100 company believes there is a very profitable opportunity in whisky.

“All over the world there is a higher degree of interest in the higher end [whiskies]says Cristina Diezhandino, Marketing Director of Diageo. “We think the future is bright for Scotch.”

Diageo, where Scotch net sales rose 8% in the year to June, isn’t alone: ​​From Scotland to Japan, a number of alcohol companies around the world are betting big on whiskey. Even individual investors are now buying bottles and kegs in the hope that the growing demand for spirits will yield giddy returns.

For retail investors looking to add a little drink to their portfolio, the market is full of opportunities. But is the future really bright for whiskey or have some people just been drinking too much?

Not just for Mad Men

Whiskey is an acquired taste. The smoky mind is usually associated with a hardy male population: think of Don Draper who shrewdly raises a goblet in Mad Men, or Detective Philip Marlowe perpetually drinking bourbon in Raymond Chandler’s novels.

But whiskey is now more than just an old man’s drink, says Diezhandino, who adds that she likes to mix it in an old-fashioned cocktail. Diageo, she says, wants to encourage different ways to drink Johnnie Walker. At its new Edinburgh attraction, which opened in September, visitors are offered whiskey in over 800 different flavor combinations.

If whiskey becomes a more popular choice, it could help Diageo make more money from the recent trend in mixed drinks. After a disappointing start to 2020 for the business, prompted by the closure of pubs during the lockdown, the company says a rebound in sales has been driven by a craze for homemade cocktails, as well as young people who choose spirits such as whiskey over wine and beer. .

The profile of people who drink pure whiskey is also diversifying: outside of Scotland, the traditional birthplace of the spirit, more and more drinkers are getting a taste for premium Scotch. Scottish distilleries opened their doors to a record 2.6 million tourists in 2019, the year before the pandemic, according to a survey by the Scotch Whiskey Association. The distilleries were mainly visited by foreign travelers, especially from the United States.

Besides Diageo, a number of other companies are taking advantage of this opportunity. Lens exchanged Craft Spirits Company (ART) sells bottles ranging from £48.40 to £1,450 through its global retailer, The Scotch Malt Whiskey Society: ahead of listing this summer, it said annual sales had risen sharply by a quarter to £15million over the past two years. In September, the French alcohol giant Pernod Ricard (FR:RI) announced the acquisition of another retail site, The Whiskey Exchange, for an undisclosed amount. Investors immediately welcomed the news, sending its shares up 3% in one day.

Whether neat, on ice or in a cocktail, more and more people around the world are drinking whisky. The companies behind the industry’s biggest brands could become increasingly attractive investments.

A storehouse of wealth?

In their wills, many parents bequeath money or a house to their children. Andy Simpson says his son will likely inherit his whiskey collection.

Simpson is the founder of Rare Whiskey 101, a site that tracks the market value of premium whiskey bottles. While investors can gain exposure to the booming whiskey market through companies such as Diageo and ASC, a growing number like him are investing directly in spirits. Simpson, who says he started collecting bottles as a teenager, believes the drink itself can be “a store of wealth”.

According to the Rare Whiskey 101 index of 100 “iconic collector’s bottles”, the value of these items at auction has increased 319% since the start of 2013. As demand for whiskey increases across the world, the price of some bottles has increased. so much so that some owners view them more as investment assets than drinks.

Hoping to capitalize on the growing interest, a host of websites have sprung up on the internet offering whiskey lovers the chance to purchase rare bottles or even whole casks of Scotch. But investors should proceed with caution.

While the market value of some whiskeys has skyrocketed in recent years, these gains hide a number of risks. Fraudulent sellers are common online, while the price of bottles at auction can also drop: Rare Whiskey 101’s Vintage 50 Index, which compiles some of the oldest bottles of Scottish single malt, has fallen around 3% in over the past two years. Even those who manage to sell for a profit can see their money gobbled up in auction fees and sales taxes.

But for the right investor, this emerging asset class could offer a unique opportunity to diversify a small portion of their portfolio. As connoisseurs know, a beautiful bottle of Scotch is made to last. Simpson, who refuses to say exactly how much he spent on whiskey, expects his collection will still be very valuable once his young son comes of age.

“He could go out in a blaze of glory and drink really good whisky, or be a really rich man,” he says.

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