The Scotch whisky market is enormous.
Investing in whisky has emerged as a lucrative asset class, witnessing remarkable surges in value in recent times. However, for newcomers eyeing the whisky market, the prospect might seem intimidating due to the relationship-driven nature of acquiring prized whiskies. Enter Gold Oak, a seasoned guide ready to assist both novice and experienced investors in navigating the diverse opportunities within whisky investment, whether through individual bottles or entire casks.
This guide aims to delve into the world of whisky cask investments, providing invaluable insights and knowledge to prospective investors. From understanding the investment process, delving into historical aspects, to analyzing market performance, we aim to provide a comprehensive understanding of this liquid gold.
SCOTCH WHISKY IS AN INTEGRAL PART OF SCOTLAND AND THE UK'S GLOBAL EXPORT STRATEGY
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In 2019, Scotch Whisky accounted for:
75% of Scottish food and drink exports
21% of all UK food and drink exports
1.4% of all UK exports
SOURCE: SCOTCH WHISKY ASSOCIATION
Investing in whisky has emerged as a lucrative asset class, witnessing remarkable surges in value in recent times. However, for newcomers eyeing the whisky market, the prospect might seem intimidating due to the relationship-driven nature of acquiring prized whiskies. Enter Gold Oak, a seasoned guide ready to assist both novice and experienced investors in navigating the diverse opportunities within whisky investment, whether through individual bottles or entire casks.
This guide aims to delve into the world of whisky cask investments, providing invaluable insights and knowledge to prospective investors. From understanding the investment process, delving into historical aspects, to analyzing market performance, we aim to provide a comprehensive understanding of this liquid gold.
Whisky Market Performance
Whisky assets are increasingly a topical conversation piece for broadsheets and investment gurus alike. Prices have, in recent years, exploded, and there are seemingly no signs of this pace receding. In fact, the number of consumers of whisky worldwide has recently breached the 500,000,000 mark, and with continued growth looking likely, it would appear that another blistering decade of performance is on the horizon.
Accessing this market, which is often new to investors, can be difficult owing to the extensive networks required when acquiring the best casks. Gold Oak has an exceptional track record in portfolio selection, asset management, and client care.
WHISKY SUPPLY VS DEMAND: A PERFECT IMBALANCE
As an industry, Scotch single malt production is older than income tax. For decades, the market for Scotch was a domestic one- with the UK having a lesser population and fewer still that could afford to drink it. As such, there was plenty to go around. This is no longer the case.
Scotch single malt today is a global spirit and part of the very fabric of society worldwide. Statistics show that whisky now outsells Tequila in Mexico and Cognac in France. Whilst the industry has increased production levels by as much as 60% over the past decade, just 800 million (approx.) litres of whisky are produced annually in Scotland, and just 40 million litres (approx.) retained as single malt. This level might be considered small when viewed against the backdrop of 500 million generic whisky/whiskey consumers worldwide. The consequence is a hugely oversubscribed market for Scotch single malt with a perfectly inverse supply/demand imbalance.
Scotch single malt has evolved into a global spirit, ingrained in societies worldwide. Statistical data reveals that whisky now surpasses Tequila sales in Mexico and Cognac in France. Despite a 60% increase in production levels over the past decade, Scotland produces only around 800 million liters of whisky annually, retaining a mere 40 million liters as single malt. This quantity seems diminutive when juxtaposed against the backdrop of 500 million global whisky/whiskey consumers.
Consequently, there exists an oversaturated market for Scotch single malt, resulting in a stark supply-demand imbalance.
The export figures for Scotch whisky in 2019 underscore this growing demand, marking a 4.4% increase (£208 million) from 2018 and setting a new record. Bottle exports reached 1.31 billion, rising by 2.4% compared to 2018. Presently, Scotch Whisky constitutes over 20% of all UK food and drink exports, reaching approximately 180 markets worldwide.
Whisky Investment Costs Unveiled:
Investing in cask whisky presents a compelling venture known for its affordability, simplicity in management, and robust security measures. Governed by stringent HMRC regulations, single malt whisky casks must remain within Scotland and find their home in HMRC bonded facilities. These bonded warehouses, scattered across Scotland, serve not only as storage spaces for whisky but also as essential contributors to rural communities. While distillery-owned bonded facilities store many casks, distilleries often diversify, distributing casks among various locations to mitigate risks, such as fire damage.
Warehouse Costs:
The expense of warehousing a cask varies based on facility prestige and location, typically averaging around £40+VAT per cask annually, starting from the second year of your investment. Gold Oak covers all expenses for the initial year.
Management Fee:
Gold Oak applies a 1% management fee annually, calculated on your portfolio's value and payable in arrears. Invoices are issued on the liquid purchase anniversaries, with a 30-day payment window.
Insurance Costs:
Clients bear the responsibility of insurance costs, set at £10+VAT per cask annually.
Performance-Related Fee:
As per our contractual Terms and Conditions, upon contract signing and fund reception, Gold Oak commits to a 7% commission on any profits generated from the cask investment at its conclusion. Essentially, higher initial profits lead to larger subsequent commissions, aligning our interests with yours for maximum returns.
Duty, VAT, and Taxation:
While we strongly advise seeking independent tax advice, here are essential points to note:
• Gold Oak has applied for a WOWGR license which enables movement of goods with suspended duty from one bonded warehouse to another—a license obtained through rigorous regulations and interviews.
• All cask whisky held under bond in Scotland is VAT exempt. When deciding to bottle and remove the cask from bond, excise duty and VAT apply. Typically, the cask is brokered while in bond, exempting it from these taxes.
• For UK taxpayers, Capital Gains Tax is generally not applicable to cask whisky due to its classification as a 'wasting chattel' from evaporation ('angel’s share').
In summary, whisky investment presents a low-cost, secure opportunity, and we foresee it becoming an integral part of diversified investment portfolios. At Gold Oak, we're committed to transparency and maximizing returns for our investors."
The Gold Oak Whisky Investment Process Demystified:
nvesting in whisky casks might seem complex, but at Gold Oak, we believe in a straightforward, transparent approach to guide our clients through this venture. Our structured process ensures a smooth and informed investment experience:
01
Commencing the Journey
We exclusively offer whisky casks owned by Gold Oak, eliminating uncertainties related to 'Option to Sell' scenarios. Each listed stock is meticulously assessed, purchased, and owned by us, ensuring quality and reliability, regardless of its destination—client or within our stock portfolio.
02
Cask Selection
Engage with your dedicated cask broker, who will guide you in selecting the right investment according to your preferences. Upon your decision, a 'Certificate of Acquisition' is presented, outlining the cask's specifics. You'll need to provide a signed copy alongside Anti Money Laundering Documentation (Photo ID and Utility Bill).
03
Transfer of Funds
For a seamless progression, ensure timely transfer of funds via bank transfer or cheque.
04
Transfer of Ownership
Upon the completion of necessary paperwork and the full fund transfer, we issue a receipt, along with your Unique Cask Number and details of the HMRC-regulated bonded facility in Scotland where your cask is stored securely.
05
Cooling-Off Period
Our commitment to your satisfaction includes a compliance check by our management team within seven days of your purchase. This check ensures that you're content with our service and under the Distance Selling Act, grants you the right to a refund if needed.
06
Ongoing Support
Your cask broker remains your reliable point of contact, keeping you updated on any developments concerning your cask and the dynamic whisky market.
At Gold Oak, we prioritize transparency and support at every stage of your whisky investment journey. Our goal is not just to facilitate investments but also to provide comprehensive guidance throughout your experience in the world of whisky investment."
Navigating the Impact of COVID-19 on the Whisky Market:
The coronavirus pandemic has left its mark on various asset classes, yet the whisky market, particularly in terms of cask investments, has displayed a different narrative. Unlike some assets, the pandemic hasn't adversely affected whisky investments. Production halts in distilleries due to the pandemic have resulted in a restricted supply, a factor expected to significantly impact the whisky market's supply-demand dynamics, enhancing the long-term appreciation of casks.
Despite the global challenges, the Scotch malt whisky market has demonstrated resilience. Approximately 33% of Scotch malt whisky export markets managed to maintain stability or even grow amidst the pandemic in 2020.
Export destinations that experienced an increase in value during 2020 include:
Export Destination | 2019 | 2020 | % Increase |
|---|---|---|---|
Latvia |
£142m | £176m |
+23.6% |
China | £89m | £107m |
+20.4% |
Western Europe (non EU) |
£82m | £93m |
+11.5% |
Specific export markets for Scotch Whisky, measured by volume in 70cl bottles, demonstrated growth in 2020:
Export Destination | 2019 | 2020 | % Increase |
|---|---|---|---|
Poland | 33m bottles | 37m bottles | +14.6% |
Latvia | 35m bottles | 39m bottles | +11.9% |
Brazil | 43m bottles | 45m bottles | +5.7% |
France | 173m bottles | 176m bottles | +1.5% |
It's important to emphasize that regardless of the export market fluctuations, cask investors remain insulated from these changes. The impact of the pandemic on various export destinations doesn't significantly influence those investing in casks, as their investments operate within their specific supply and demand dynamics, independent of global market fluctuations.
Recent Trade Agreements Reshaping the Scotch Whisky Market:
The UK government's recent efforts in securing multiple free trade agreements have emerged as a significant catalyst for the Scotch whisky market, guaranteeing seamless trade post-EU departure. Currently, 60 agreements have been established, notably including the Free Trade agreement with Japan. Notably, this agreement replicates the former arrangements from the UK's EU membership, ensuring no tariff impact. Japan, a key importer, received a notable 45 million bottles of Scotch in 2020, contributing substantially to an export value of £114 million.
Furthermore, the UK is actively pursuing membership in the Trans-Pacific Partnership (TPP), comprising 11 countries encompassing Japan, Australia, Canada, and Vietnam. The Asia-Pacific region currently constitutes 25% of the total export market for Scotch globally, signifying immense growth potential.
Of particular importance is the free trade agreement with Vietnam, gradually phasing out the hefty 45% import tariff on Scotch whisky. This milestone significantly advances the UK's journey toward accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), opening new avenues and markets for Scotch whisky and other products within Vietnam.
Additionally, the December-sealed Mexico-UK spirits agreement secures post-Brexit protection for both Scotch whisky and Mexican spirits in both nations. Mexico emerged among the top ten export markets for Scotch whisky in 2020, contributing substantially with a value of £120.9 million, ranking sixth globally in Scotch whisky volume trade.
These trade agreements reflect a strategic maneuver by the UK, ensuring sustained growth and stability for the Scotch whisky market across vital global regions. Moreover, they pave the way for expanded opportunities, fostering increased market access and penetration for this iconic British product.