Iain Russell on the Whisky Loch of the 1980s

Reports of a large surplus of maturing Scotch whisky stocks have revived memories of the great ‘Whisky Loch’ of the 1980s. Back then, vast quantities of spirits accumulated in Scottish warehouses as it became evident that production in the 1960s and early 1970s had greatly exceeded the predicted future demand. Put simply, forecasts had proved inaccurate and distillery companies made more whisky than was subsequently required by blenders and other customers. 

The consequences for the industry were profound, resulting in keen discounting of maturing stock prices; the proliferation of ‘budget’ brands; a wave of corporate amalgamations; redundancies, and severe cutbacks in production. Dozens of distilleries were mothballed or closed. Some have never reopened.

What caused this glut of Scotch? How was the loch finally ‘drained’? And are there lessons to be learned for the future? 

The Scotch whisky industry thrived in the aftermath of the Second World War.  Demand grew rapidly, particularly in the West and in Japan, as consumers enjoyed the financial benefits of rapid economic growth and whisky marketers tapped into a popular thirst for aspirational products. Premium blended Scotch brands such as J&B Rare, Cutty Sark, Dewars and Johnnie Walker dominated the leading market, the USA, and soared in popularity across the world. Brands such as Bell’s, Famous Grouse and Teacher’s thrived in the United Kingdom.

The rise of Scotch whisky appeared to be unstoppable, with export volumes more than doubling during the 1950s and again in the following decade. Companies began stockpiling spirit in anticipation of a continued growth in demand of up to 10% per annum. During the 1960s, production was ramped up at existing distilleries and new ones including Tamnavulin, Tormore, Deanston and Tomintoul were opened. Production also increased at existing grain distilleries and new facilities included those at Girvan and Invergordon. According to Charles Craig’s Whisky Industry Record, (Dumbarton, 1994) stocks of spirits maturing in Scottish warehouses rose steadily from nearly 386 million litres of pure alcohol in 1953 to nearly 2.5 billion LPA in 1973 – a year when exports of Scotch whisky reached new record levels.

But there were dark clouds on the horizon…

The post-war economic boom came to a juddering halt in the early 1970s. National economies across the world were thrown into recession by a stock market crash and the 1973 Oil Crisis.

Rampant inflation, rising unemployment and widespread disruption caused by waves of industrial unrest contributed to an erosion of consumer spending power and confidence. At the same time, there was a shift in popular preferences for alcoholic drinks with the rise in popularity of ‘light and white,’ less distinctively flavoured drinks such as vodka and white rum.

Reports of stalling and falling whisky sales began to appear in the press in 1974, with the USA the most alarming case. Belated cut-backs in production were implemented in the following years. However, by the end of the decade warehouses were awash with unwanted spirit. This surplus became known in the media as ‘The Whisky Loch,’ after the term ‘The Wine Lake’ had been coined in the early 1980s for the huge surplus of wine that had accumulated in European Union countries due to lavish subsidies.  Although sales stabilised relatively quickly, modest annual growth failed to meet the over-optimistic expectations and production plans of the late 1960s and early 1970s. 

Inevitably, there was a degree of price cutting as producers sought to clear out older stocks. The availability of cheap mature whisky in the British market encouraged the creation of budget brands for the UK’s supermarkets. Leading whisky companies introduced new ‘cheapie’ brands of their own, such as the very successful The Claymore, launched in 1979. Meanwhile the surge in exports of bulk whisky fuelled the proliferation of inexpensive ‘bottled-in-market’ Scotch in countries such as the USA, and local products created by blending Scotch with immature and cheaper local spirits. Inexpensive blends and admixtures undoubtedly stole market share from the more profitable bottled-in-Scotland brands, while the poor quality of many was believed to harm the hard-won premium image of Scotch.  

To make matters worse, the costs involved in making and bottling whisky in Scotland had soared owing to steep increases in the price of grain and fuel, and by 1976 the industry insider Ross Wilson was reporting that ‘the whisky being sold today is not providing the cost of the new whisky to replace it.’ Ivan Straker of The Glenlivet Distillers claimed that 10-years-old whisky was being sold to blenders and others at less than the cost price of new make. It did not help that borrowing costs rose sharply during this period, greatly increasing the cost of financing distillation and warehousing.      

While there was a spike in exports at the very end of the 1970s, they flattened again in the early 1980s. To make matters worse, industry watchers such as the investment company Wood Mackenzie issued warnings that the crucial American market, which had been particularly sluggish, would see minimal growth for some years to come. In response, more drastic measures were introduced to ‘bring production back into line with projected demand.’ 

The Scotsman reports on the latest wave of cutbacks, 25 January 1985

Distillers Company Ltd [DCL], Scotland’s largest whisky firm, had been ruthless in closing distilleries deemed surplus to future requirements in the prolonged slump which followed the Pattisons Crash in 1898. It took a lead once again in 1983, shutting eleven of its 45 malt whisky distilleries, including Port Ellen and Brora, along with the Carsebridge grain distillery. Other companies joined DCL in making further closures during the following years. The consequences were devastating for many communities, particularly in rural areas such as on Islay, where whisky distilleries provided vital employment. Warehouses, bottling plants and other facilities on the mainland were also hit by redundancies and short-time working. There was a profound impact on the corporate structure of the industry, with famous companies such as Hiram Walker (Scotland) and Invergordon Distillers changing hands and the sale of some distilleries, notably Ben Nevis and Tomatin, to new owners. Even the mighty DCL was a casualty: criticised by City investors for alleged poor performance over many years, it was acquired by Guinness in 1986 after an acrimonious takeover battle. 

The excess stock hangover did not end in the 1980s. Disposing of surplus inventory remained a challenge well into the following decade, when it appears that many famous brands contained blends of whiskies much older than had been the case in the early 1970s. Indeed, some of the major companies’ new ‘cheapie’ bottlings were believed to contain whiskies of suspiciously similar maturity and character to those of their more famous premium-priced stable mates!

By the end of the 20th century the whisky industry had recovered well from the travails of the Whisky Loch years.  It embarked on more than two decades of generally consistent growth in the volume and value of sales, propelled by premiumisation and the increased promotion and popularity of single malts and aged blends as luxury items.  There were significant bumps along the road: the banking crash and financial crisis of 2007-08, for example, persuaded many to scale back production temporarily. But recovery was swift and stronger than expected, to the extent that there was a shortage of aged malt whisky stock in the mid-2010s, when ‘no age statement’ bottlings of leading brands such as The Glenlivet and Glenfiddich had to be introduced in some markets to take the pressure off demand for standard age-stated offerings. 

Unfortunately, the harsh lessons learned in the 1980s were forgotten or ignored as volume sales soared and premiumisation yielded ever-increasing profits.  Soaring demand persuaded companies once again to take a bullish view of future demand.  There was a rush to build new distilleries, by established players and newcomers, and the production capacity at existing distilleries was greatly increased. As in the 1970s, however, unexpected shocks – in this case caused by such events as the Covid pandemic, the war in Ukraine and punishing American tariffs - have disrupted the world economy.  In another parallel with the 1970s, there have been significant swings in popular drinking preferences, including the growth in popularity of rival products such as tequila, alcoholic RTDs [ready-to-drinks] and no/low alcohol beverages, not to mention whiskies exported from countries such as Japan, Ireland, the USA and Canada. Whisky stockpiles have grown again, as sales failed to meet predicted demand. Just how the current loch will be drained is unclear, although there are suggestions that 1980s-style strategies involving cuts in warehouse prices and an increase in bulk exports have been revisited to some extent.

The world has changed and the whisky industry has evolved rapidly in the past 20 years, but another of the most important lessons learned in the 1980s remains relevant today. It is dangerous to rely unduly on forecasts of growth in one major market, as happened with the USA. India has been touted as the next great opportunity for Scotch, but there is no guarantee that reduced tariffs will open the door. Indians might prefer to drink their own whisky; Indian distilleries are already producing well-regarded malt whiskies, and leading drinks companies including Diageo and Pernod are investing in distilleries which will inevitably compete with Scotch in the local and other markets. Caution might be the watchword.

It may take a few years to drain the current loch, but sales of Scotch whisky remain strong especially in the high-value market for very old and rare spirits. The history of Scotch whisky suggests that the industry is cyclical and that better times will lie around the corner. If only we could predict how far away that corner might be!