Term Paper: Scotch Whiskey the Olde Distillerie: Expanding World

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Scotch Whiskey

The Olde Distillerie: Expanding World Markets

The Olde Distillerie is a small, independent producer of Scotch Whiskey based in Dumfrieshire, South-west Scotland. Once a top-producer and distributor of their line of products, sales are currently experiencing a downturn in sales. The Distillerie has relied primarily on the UK market to sustain profitability. However, recently, this market has been stagnant, at best. The Olde Distillerie has asked Global Market Research to examine the possibility of utilizing overseas markets in order to restore the company to profitability.

The Olde Distillerie produces a product line of six single malt whiskies that matured in oak barrels. The aging process takes between five to fifteen years, dependent up on the product being produced. This proprietary process gives the whiskies a distinctive taste and flavour that are the key to marketing and sales to various clientele. For example, Torhousemuir Tawny represents a strong "peaty" flavour that is popular amongst the older segment of the target market. Monreith Malt appeals to a younger demographic group, ranging from 18- to 30-year-olds. All of their products appeal to a specific target market that is distinct from the other market segments.

The Distillerie has no control over profit margins made by their retailers. All of their products vary in price according to the age and type (flavour) of the whiskey. Distillation processes also play into the price of the whiskies as well. Retailers control the final markup, and therefore the ultimate price of the final price to the consumer. Some charge a higher mark up than others. Comparative pricing to the mail order price will be used for comparison in this study. This reflects the lowest price at which the whiskey is available. The following reflects mail order prices for all six products.

Whisky Name

Distillery Shop retail price

Auchland Moor

Monreith Malt

Torhousemuir Tawny

Skein-Duh

Garlieston Grain

Aulde Lang Syne

As one can see, Olde Distillerie Whiskeys are in the mid to upper range of the market, in terms of price. Profits vary dependent upon the means and length of the ageing process. More expensive varieties are accepted to be the highest profit, based on price alone. However, there are indirect costs, such as storage space that will affect the profitability of the product, but that are not a part of this analysis.

Accounting analyses have revealed that the mail order methods of distribution is the highest profit method. This distribution method results in profits upwards of 70% per bottle on the highest priced brands. Utilizing independent retail outlets can reduce the profit level to around 30% per bottle.

Promotion:

Currently, the only advertising avenues being pursued are in the form of a promotional leaflet/flyer that is inserted into the colour supplement of Sunday Papers such as the Sunday Times, the Sunday Telegraph, the Observer, and the Mail on Sunday. Other promotion is Point of Sale (POS) at the distillery or at the retail outlet.

Distribution and Sales:

Currently, 15% of total sales are through the Visitor Shop attached to the distillery. This shop also stocks a variety of Scottish themed products such as crystal whisky tumblers made by Waterford, Wedgewood, and tartan scarves, hats, and other value-added products. Approximately 75% of the sales are through selected "up-market retail outlets located in major metropolitan areas such as Glasgow, Edinburgh, Manchester, York, Chester, Stratford-on-Avon, Oxford, and London. A portion of these retail sales are through duty free outlets in major UK airports, such as Heathrow. Only 10% of the sales are via mail order, representing sales directly from the distillery to the customer.

Part I: Market Environment

Scotch Whiskey was legally defined in the UK in 1989, when it was determined that Scotch Whiskey much meet several criteria in order to fall into this category (Scotch Whiskey Association, n.d.). This act helped to narrow the range of products that could be labeled and marketed as Scotch whiskey. All of the Olde Distillerie's products fall within the guidelines that help to define official Scotch Whiskey. There are several different categories of Scotch Whiskey. Single malt, Single grain Scotch Whiskey, Blended Scotch Whiskey, Blended Malt Scotch Whiskey, and Blended Grain Scotch Whiskey (Scotch Whiskey Association, n.d.).

There are over 2,500 brands of Scotch Whiskey sold on a global basis (Scotch Whiskey Association, n.d.). However, only approximately 200 are available to the home market. A majority are sold only locally, or to private clubs (Scotch Whiskey Association, n.d.). By law, whiskey's must age at least three years in order to be sold as Scotch whiskeys (Scotch Whiskey Association, n.d.). All of the Olde Distillerie's products fall with the older aged. whiskeys on the market.

A majority of the whiskey bought and sold is for consumption. However, there is a small market for whiskey speculators. This is, whiskey bought with the intention of selling it later at a profit. Whiskey bought as an investment represents a small sector of the market (Scotch Whiskey Association, n.d.). The type of bottling is a factor that can influence the collectability of a particular type of whiskey. Olde Distillerie whiskey is among the class of whiskey that is excellent for this type of market. Yet, this niche market has not been explored.

In addition to a "Collector's" market, a "whiskey exchange" also exists that operates just as any other commodities market (Scotch Whiskey Association, n.d.). There is no officially recognized list of buying and selling prices for whiskey of various types and ages (Scotch Whiskey Association, n.d.). However, the buyer's market determines the fair market price. Olde Distillerie whiskey has a unique flavour and typically does well on the exchange. It is typically classed among the higher priced whiskeys. Olde Distillerie's price on the exchange in evidence that it is clearly positioned among the higher priced whiskeys on the market.

Whiskey could be considered a highly competitive niche market. With approximately 2,500 different brands of Scotch whiskey and the regional nature of production, this market appeals to whiskey connoisseurs around the world. On a local level, the market is saturated. Scotch whiskey is a staple in the UK, especially around the holidays. Certain brands of Scotch Whiskey have tapped the global market, particularly in the U.S. And in Canada. However, this is largely an untapped marketing resource. Scotch Whiskey, even of poor quality, typically commands a high price in these established global markets. This indicates that a demand exists, but that the supply is currently limited. This is the basis for Olde Distillerie's plan to explore untapped global markets in order to prop up lagging sales.

The top ten world whisky markets by volume in 2005 were:

Scotch Whiskey 2004

Scotch Whiskey 2005

Scotch Malt Whiskey 2004

Scotch Malt Whiskey 2005

Greece

France

Spain

US

Taiwan

US

France

Spain

UK

Trinidad & Tobago

UK

Sweden

Taiwan

Bahrein

Thailand

Antigua

Italy

Portugal

South Korea

Italy

Spain

Saint Lucia

Greece

Spain

Germany

UK

Venezuela

Switzerland

Canada

Cyprus

Brazil

Canada

Japan

Venezuela

Germany

Greece

Sweden

Source: (Ludo, 2006)

One of the most interesting facets of this list is that the UK ranks third or below. This indicates that there is a considerably larger market outside of the UK. France is one of the largest markets, but there are also Asian, North American and other European markets that hold promise. The international whiskey market is led by India and the global whiskey market accounts for 130 million cases sold per year ("

Research and Markets: The Global Market for Whiskey").

Part 2: Competitive Market and Attractiveness

Whiskey relies on a traditional market, but is attempting to attract a younger crowd in order to assure continued sales and the older population diminishes ("

Research and Markets: The Global Market for Whiskey"). The whiskey market is subdivided into sectors. The largest sector is the Scotch whiskey sector. There are currently two higher-end premium brands that dominate the world market, with combined sales of approximately 7 million cases ("

Research and Markets: The Global Market for Whiskey"). There are also 17 lower priced "average" brands that average sales of 1 million cases per year ("

Research and Markets: The Global Market for Whiskey"). Although local sales have been slowing for the Olde Distillerie, global sales continue to climb. This is a marketing avenue that holds considerable potential.

The global market holds particular possibilities for the Olde Distillerie because it is already priced among the "premium" brands in the UK. The Olde Distillerie holds promise to become a global leader in the premium category of Scotch whiskeys. This is the area in which this study will concentrate, entrance into the global market among the premium brands.

Cultural Aspects of Scotch Whiskey

Wood barrel aging is what sets whiskey apart from clear grain alcohols, such as vodka or gin. This aging process gives the whiskey its amber hues and imparts a variety of flavours and aromatic effects. Scotch whiskey has a long history dating back to the ancient Picts (Beverage Testing Institute, 2007). Since that time, whiskey has been an integral part of Gaelic culture.… [END OF PREVIEW]

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"Scotch Whiskey the Olde Distillerie: Expanding World."  Essaytown.com.  December 27, 2007.  Accessed July 21, 2019.
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