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CITY COMMENT
THE BUZZ BEHIND THE MONEY
Oil price pressure
Eugene Bacot looks at the havoc the rising cost of oil will wreak
on the spirits market – and the very real prospects of alcohol
shortages as producers look to markets outside supermarket-
dominated Europe, where they can maximise their profit margins
SELL IN May and go away is an further. Graham Page, liquor Tequila, dependent on the agave returns. If that continues, there will
adage from less volatile days in services consultant at Nielsen says, plant, must be considered especially be rationing here. Champagne has
stockbroking. “One South African distiller of vulnerable, as was shown some always rationed to maintain its
With one eye on the markets, premium spirit asked, ‘why should I years ago when crops failed. exclusivity. Why not Scotch or
another on the economy and the spend more on making high-quality So here is a ray of sunshine for other spirits?”
third (the one at the back of your spirit when I can get a better return some distillers: vodka is Britain’s He adds: “Of course the major
head) on the threat of the sack, the from making something cheap and favourite spirit and Scotch whisky supermarkets have a lot of clout. As
summer months are troubling ones dirty to fuel a truck?’” imports are booming. Scotch ever, it will be smaller retailers and
for City folk this year. Most will be Edwin Atkinson, director general exports reached £2.8 billion last year independents who suffer should this
sitting tight at the their desks, if of the Gin and Vodka Association, at shipping prices, a 14% increase scenario happen.”
they’ve still got one. says that issues related to price and on last year. Nor does supply seem Others see an intriguing situation
Here’s another one from an availability of feedstock and spirits to be a problem. Over £400 million where the internet auctions held by
earlier age. Shop early for supplies have arisen almost daily has been invested in new distilleries supermarket buyers are reversed. At
Christmas. It’s a phrase that echoes this year. and bottling plants in recent years. present producers of gin and vodka,
with memories of austerity Britain, “A one-penny increase in Mothballed distilleries are being for example, will be asked for
shortage and rationing. So unlike feedstock for a distiller is a brought back into production and competitive bids. The winner is the
prosperous, modern Britain, you considerable cost to absorb, or to new ones are due to open shortly. lowest bidder. This holds down
might think. try to pass on, even though it may One of them, Kilchoman on Isla, prices across the board.
Then think again. Not only is the be very small by the time the where production started in 2005, Now such an auction may be
drinks industry looking seriously at product reaches the supermarket should bring its first product to turned on its head with buyers of
the prospect of alcohol shortages, shelf. As ever, the most important market this year. Scotch in particular competing on
there is even a whisper of alcohol factor in retail price is taxation Nonetheless, a survey of Scotch internet auctions for supplies. But
rationing by major spirits brands in which accounts for most of it.” whisky producers at the end of last don’t hold your breath too long.
the shops this Christmas. Grain prices on the spot market year showed that they were paying Others see grey markets emerging
According to one retail analyst, for distilling gin and vodka rose 90% between 35% and 100% more for where the margin between prices in
price increases are also on the cards last year and are still rising this year. cereals, up to 20% more for glass different countries justifies a profit
for the festive season – and the “You can’t look at alcohol supply and a similar amount for turn elsewhere.
prospect might fill a lot of people, without taking into account grain packaging. In the notoriously Someone will benefit from all this.
from the government to the on- supply, the price and the competing competitive UK drinks market, these The government would be pleased
trade, with good cheer. pull of biofuel production,” says cost rises are difficult to pass on. if prices rose and supply were
In a world seemingly awash with Atkinson. Also under price pressure All the more reason, then, that restricted because it would go some
vodka, rum and wine, shortage is molasses – a bi-product of sugar Scotch looks abroad for sales. The way to reducing consumption, it
might seem unlikely. But then oil at cane and the feedstock for rum major international brands can reap believes. The anti-drink lobby would
$150 a barrel was unlikely 12 production – which is used for much bigger returns from India or be pleased. The on-trade is having
months ago. The extraordinary hike lower priced and own-label gin China, for example. So why should a miserable time so anything which
in grain and other foods stuffs is and vodka. Diageo or Pernod Ricard sell in the makes them competitive with
related to the dash to make Gin and vodka are fortunate in UK or other European countries home drinking is good news.
biofuels. This means product gets some respects because the lead where supermarkets trading on low Shareholders in Diageo, Pernod
diverted from production of potable time between production and sale prices as their USP hold down the Ricard et al, could also be overjoyed
alcohol to industrial alcohol. is short. Scotch whisky producers, by over-the-counter price? as rising returns from emerging
As wheat, barley and other contrast, or Cognac and rum Graham Page says: “The big markets and higher prices in
products rise in price so the producers, where ageing is key, brands are flexible. They will seek Europe boosts the share price. It’s
feedstock cost to the distiller rises must wait years for a return. markets where they get the best an ill-wind… sb
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