Escalated uncertainties confront Scotch vendors: Trump's tariffs exacerbate their strife
A Tough Tack for Scotch Whisky Distillers
Edinburgh's Holyrood distillery, established in 2019, has been grappling with a challenging landscape even before President Trump's trade tactics stirred international trade tensions.
Younger whisky products from Holyrood have struggled to secure a spot on major retailer shelves, favouring traditional brands with extended maturations. Consumers, on the other hand, have been leaning towards cheaper options, as utility and barley costs skyrocket. Add to that a global glut of whisky, causing distillers to curtail production, and you have a perfect storm of adversity.
"The spirits industry has weathered a dreadful, turbulent time," said Huw Wright, the distillery's founder. "Retailers' hesitance towards new stock is palpable."
Trump's trade war has put the icing on the cake for Scotland's 150-plus malt whisky producers, sparking a flurry of financial activities ranging from equity raises to acquisitions in a sector that contributes about one-quarter to Scotland's exports.
"Distilleries are scrambling for every lifeline available, such as debt, equity, or refinancing, to fortify their financial standing," said a leading industry executive. "But the market is simply too harsh."
In 2024, the value of Scotch whisky exports fell 3.7% from 2023 to £5.4bn, while volumes buoyed by 3.9% to 1.4bn bottles, as per the Scotch Whisky Association. Whisky contributed £5.3bn, or 3% to the Scottish economy in 2022, as revealed in the trade body's latest impact report.
The 10% tariff regime imposed by America on UK goods has added another layer of ambiguity to an industry grappling with cyclical downturns since the 1980s. Although not as severe as anticipated, these tariffs have exacerbated the uncertainty.
Trump's 18-month tariff on single-malt whisky during his first term cost the industry a staggering £600mn, according to the SWA.
"The present US tariff situation has significantly heightened levels of uncertainty and challenge," said Gregor Mathieson, director of spirits at Ferovinum, a fintech funding platform. " Certainty is in short supply, with companies adopting a more cautious approach."
Major players like FTSE 100-listed Diageo and Paris-based Pernod Ricard, who control 60% of the whisky market, have the financial robustness to withstand these impacts. However, smaller distilleries are finding it tough to adapt.
Wright plans to continue selling to the US via e-commerce channels but is diversifying marketing efforts towards Europe to minimize risks. Other distilleries are reconsidering expansion plans or weighing potential acquisitions.
The family-owned Isle of Raasay distillery off Skye, for instance, which derives about 5% of its sales from the US, had planned to dispatch marketing staff to the US just before Trump's announcement.
The tariffs have raised concerns about expansion costs and potential risks. Managing director William Dobbie is weighing the possibility of absorbing the increased costs by raising prices for his importer.
Merger and acquisition activities are on the rise, with distilleries actively seeking buyers, which would likely consider competitive offers. However, the complexities involved in Scotland's distilleries, especially those with arduous funding scenarios, are deterring potential buyers.
Market instability and potential declines in market share have even more established brands, like Lindores Abbey distillery, searching for buyers. The Fife distillery is left stranded following the Scottish government's call to sever economic ties with Russia following Putin's invasion of Ukraine.
Conversely, overseas buyers see value in the prestige parts of the UK economy, eyeing attractive opportunities among distressed distilleries that have mismanaged cash flows and fallen short of sales targets.
For Holyrood distillery, in search of £2mn in equity, Wright admits that the tariffs have added "further uncertainty" to the challenges already faced by his distillery. "It's never been easy," he said, "but the tariffs won't make it significantly tougher."
"On the brighter side," Wright added, "the future isn't as gloomy as it appeared last week [before the tariffs' announcement]. So we'll keep pushing."
- The challenging landscape for Edinburgh's Holyrood distillery has been further compounded by President Trump's trade tactics, contributing to international trade tensions.
- The spirits industry, including distillers like Holyrood, has experienced a challenging time, as retailers shy away from new stock, and consumers opt for cheaper options due to rising utility and barley costs.
- Financial activities such as equity raises and acquisitions have been prevalent in the sector, as distilleries seek lifelines to fortify their financial standing, amidst a market that is too harsh.
- The value of Scotch whisky exports fell 3.7% in 2024, while volumes increased, according to the Scotch Whisky Association. The 10% tariff regime imposed by America on UK goods has added to the industry's woes, exacerbating uncertainty and raising concerns about expansion costs and potential risks.
- Some distilleries, like the family-owned Isle of Raasay distillery, are reconsidering expansion plans or weighing potential acquisitions due to the tariffs' impact. Overseas buyers see value in distressed distilleries with mismanaged cash flows and unmet sales targets.
- The future may not be as gloomy as it seemed for Holyrood distillery, which is seeking £2mn in equity, as the tariffs add "further uncertainty" to the challenges the distillery already faces. Nevertheless, the distillery intends to keep pushing.
