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Tuesday, August 21, 2007

Irish Whiskey - A Lost Opportunity to Create Global Brands of Economic Significance for Ireland

John Jameson Distillery was founded by Scotsman John Jameson who had married into the Haig family, distillers of Scotch whisky. His son married into the Stein family, one of the biggest whisky distillers in Scotland and owners of the distillery at Bow Street, Dublin. John Jameson acquired the Bow Street distillery in the year 1780.

In years past, Irish businessman Tony O'Reilly often spoke of the value of establishing global brands and like the late Victor Kiam with his razor, O'Reilly first bought into one of his examples, Waterford Crystal, which by 1990 had linked up with English tableware brand Wedgwood, to form Waterford Wedgwood plc.

Irish whiskey like Waterford Crystal, were strong brands in the 19th century. By the time of Prohibition in the US, Irish and Scotch distillers shared the foreign whiskey market.

Many Irish distillers went out of business and in my home town of Bandon, the Allman distillery that had opened in 1825 and at times employed about 400 people, closed soon after the ending of Prohibition in 1933.

Irish Governments ignored the potential of creating significant markets overseas and no serious effort was made to rationalise the industry.

Scotch distillers responded swiftly to the re-opening of the American market, partly with the assistance of the development of continuous distillation in Scotland, as their new blended whisky could easily meet the increased demand and the Scottish whisky industry boomed.

I have argued recently that the Irish economy is more dependent today on foreign-owned firms than it was at the begining of the Celtic Tiger period and as international commercial property is the investment of choice for Irish with money, there is little hope that a significant Irish-owned sector can establish itself in international markets.

There is also evidence of what can happen when an immature business is acquired by an overseas concern.

Given that 40,000 jobs are maintained in Scotland by their whisky industry compared with about 1,000 in Ireland by the whiskey* sector, including Bailey's Irish Cream, it seems to me that we lost the opportunity a few decades ago to create a global brand of economic significance.

Irish Distillers, a unit of French company Pernod Ricard, says that Jameson, the world’s leading Irish whiskey brand has now reached sales of two million cases for the first time. (2006) Over the last decade, sales of Jameson have doubled. In the past year alone, figures in the United States, Jameson’s largest market, show an increase in excess of 20% with other countries such as South Africa, Russia and Brazil achieving exceptional growth rates.

Another mark of its international success is that for the first time, Jameson has made it into the top fifty selling spirit brands worldwide and is now ranked with the international elite. Jameson is the fastest growing international whiskey brand in the world and one of the fastest growing spirits brands.

However, Irish whiskey is not a big business.

Irish Distillers currently employs about 530 employees across 4 locations on the island of Ireland.

On the island, the Old Bushmills Distillery in County Antrim, which is owned by Guinness owner Diageo and has a payroll of about 125, is the other main distillery.

Last week, independent distillery Cooley Distillery, which is chaired by former UCD academic Dr. John Teeling, said the rise in pre-tax profits, from €1.3 million to €1.67m, reflects growing demand by younger drinkers for Irish whiskey worldwide. Turnover was ahead by 27% to €11.7m.

The company said it needed improved distribution that is dominated by a small number of big companies.

Ireland produces about five million cases of whiskey a year and six million cases of Baileys Cream Liqueur at the Diageo-owned Gilbeys.

1 billion bottles of Scotch were exported in 2006 according to the Scottish Whisky Association

Rampant Scotch

The renaissance of the Scotch whisky industry was confirmed last month when Bacardi, the Bermuda-based distiller, announced plans to invest more than £120m in Scotland to expand production of its Dewar’s brand.

The Financial Times reported that the industry has gone from strength to strength over the past year as international distillers seek to capitalise on rising demand from emerging markets in Asia and Latin America.

Last year was a record year for Scotch whisky exports, with sales revenues rising 4 per cent to almost £2.5bn. There was strong growth in premium bottled malt whisky exports, which increased by 7 per cent to £408m. The Scotch Whisky Association said: "You haven't seen this sort of investment for 30 years."

With sales to markets including Singapore, China and Venezuela growing fast, distillers are pouring money into whisky operations.

Bacardi will spend some $250m (£123m) over the next decade to expand its warehousing, blending, packaging and bottling operations. This includes building 18 warehouses and buying 100 acres of land in central Scotland.

Joaquin Bacardi, Bacardi senior global brand director, said it was responding to demand from emerging markets where economic growth was “generating a strong middle-class consumer with disposable income”.

Diageo, owner of the Johnnie Walker whisky brand, said in February it would invest £100m to build a new malt distillery in Scotland.

In July, Paul Walsh, chief executive, said Diageo planned to expand further into premium brands such as the Blue Label King George V edition of its Johnnie Walker whisky, which sells for $500. "You have polarisation of incomes . . . those who have good incomes want the best."

Chivas Brothers, the whisky and gin business owned by Irish Distillers owner, Pernod Ricard, and which includes the Glenlivet and Ballantine’s brands, has invested millions of pounds in Scotland this year to expand bottling operations.

The FT said that whisky accounts for 13 per cent of Scottish exports, excluding oil and gas, and services 200 export markets. It makes up about a quarter of the UK’s annual food and drink exports.

More than 40,000 Scottish jobs depend on whisky production, including cereal suppliers, bottling, labelling and packaging companies and transport suppliers.

Although the bulk of jobs are at large plants in central Scotland, the industry also provides steady – if low-paid – jobs in the Highlands and Islands, where employment opportunities are limited. Distilleries account for 25 per cent of Scotland’s five-starred tourist attractions, attracting 1m visitors a year

Bacardi, which has five distilleries in Scotland and employs 300 people, expects to add about 100 new jobs as it expands production.

Irishman Richard Burrows, chairman of the Scotch Whisky Association, said the industry’s prospects were brighter than they had been for many years. “I’m greatly encouraged that distillers, large and small, are investing in facilities in Scotland and taking advantage of opportunities worldwide, with markets in Asia, North and South America offering strong potential for growth.”

Richard Burrows who is also the Governor of the Bank of Ireland represents Pernod Ricard on the Scotch Whisky Association.

Irish Whiskey since the 1960's

In the early 1960s the export of Irish whiskey was insignificant and in 1966 three of the remaining distilleries merged in a new company called the United Distillers of Ireland (UDI). The name was subsequently changed to Irish Distillers (IDL). The three distilleries were John Powers & Sons, John Jameson & Sons and Cork Distilleries (Jameson - founded in Dublin in 1780; Powers - established in Dublin in 1791; and Cork Distilleries which dates from 1825). In 1972, the Old Bushmills Distillery, Co. Antrim becomes part of Irish Distillers.

In 1975, IDL centralized all its production at a new £9 million distillery, Midleton, in East Cork. The new Midleton distillery was built behind the old Midleton Distillery.Within a few years, Canadian company Seagram’s bought both IDL and Irish whisky industry now held only one percent of the global whisky market.In 1988, French company Pernod Richard bought IDL from Seagram’s.

Given the challenge that we have in developing scalable high-tech companies of world class, the near death of the Irish whiskey industry until the 1960's and then as appendages to Canadian and French companies, appears to have been a huge opportunity foregone.

Today, it's effectively too late to pull the fat from the fire.

We've had some success in tapping into the US market but with Scotch making big advances in emerging markets in Asia, the battle has already been lost

The $970 billion global market for alcoholic beverages is experiencing a period of unprecedented change. While about 60 percent of the market is still in the hands of small, local enterprises, truly global players are steadily emerging according to an Accenture report.

*The word for the Irish product has an 'e' - whiskey.

4 Comments:

  • No doubt Irish industy in general has been sold out to foreign invetsors - but I disagree that the oppoertunity to create a world mark for Irish whiskey has been irretrievably lost. Here in Brasil, there is a very large untapped market for malt whisky and the many small Brazilian whisky manufacturers could be convinced to joint forces with any Irish entrepreneur with the capital to invest, the marketing knowhow and the will to get off his *** and do something like the Scots did. Any takers?

    By Anonymous Anonymous, at November 15, 2007 3:51 PM  

  • I'm trying to trace family history. My mother was born Ann Francis Jameson and still has her father's signet ring, the crest of a ship as seen on Jamesons Irish Whiskey. The crest was awarded by the monarchy to John Jameson’s forefathers for capturing pirate ships on the west coast of Scotland. My grandfather was a sub-manager in the Bank of Ireland in Sligo and a bank manager in Dun Laoghaire and his name was Thomas Francis Jameson. Folk lore in our family has it that two brothers came from Scotland to Ireland, one went into the whiskey business, the other went into the church, ours was the church side. Anyone know any more? Sally

    By Blogger Chris, at March 05, 2008 5:30 AM  

  • Hi Sally

    If you visit The Church (now a bar) on Mary Street, the Rev Jameson (can't rmember his fist name) preached there and apparently married Arthur Guinness.
    His headstone is on the wall inside the front door.

    Niall (ngately@idl.ie)

    By Blogger NGately, at August 20, 2009 12:22 AM  

  • Whiskey is an area we should be activley promoting in Ireland. There are only a handful of countries which produce whiskey. Ireland certainly lags behind presently but it is a growth area and one we previously led the world in. We have the oldest distilleries and a fantastic brand as a country. The government should give tax incentives to those setting up distilleries in Ireland instead of property. Irish pubs around the world could be incentivised to promote Irish Whiskey. Instead of giving the US president useless shamrocks why not give him a bottle of Irish Whiskey which he might actually enjoy??!

    By Blogger Edmond, at March 15, 2011 3:06 PM  

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