IF THE PAST YEAR has taught us anything, it is that the emerging markets of the world are no longer the paragons of sales growth we thought they were. As Scotch producers are finding out, many of these seemingly evergreen feeding grounds are starting to lose their colour, even wither. So when exactly have emerging markets emerged, and at what point can we say they are in decline? 

China, emerging markets HQ, is now languishing out of the top 20 of Scotch markets, proving that ‘emerging’ is indeed a temporary status. The SWA’s results for 2013 have also exposed the west as a beacon of Scotch growth, not the economically beleaguered doom-land that it is often still lazily labelled. 

Scotch’s top two markets are bristling with growth and holding things together in the face of Asian disrepair. The US is flying its flag at the top of the Scotch value charts, piling on another year of impressive import growth (+8%, 2013, SWA for all figures henceforth) and France has rebuilt its towering volumes (+15.5%), after a destocking hiatus in 2012. 

But set against Scotch’s recent years’ triumphs and trumpeting, 2013’s overall flattish growth was a scrape with a new reality. A reality in which the new star pupils are starting to play up. So let’s look at those markets hiding behind their ‘emerging’ status. Besides, Spain, Greece and Italy have surely had enough.

Asia

After the US and France, Singapore is the next biggest buyer of Scotch in the world. The bare numbers would have us believe this city-country of 5 million people got through £330m of Scotch last year, which seems a dash unlikely. 

This isn’t the entire story; it isn’t half the story. Singapore acts as a gateway to Asia, and a conduit to China, whose 27% drop in volumes and 28% slide in value will likely reverberate back to Singapore in time, which is only currently 3% down on 2012. Next year could be grim for the trading hub.

For a while there, Scotch producers had us believe that China’s gifting clampdown would mainly affect Cognac and high-end baijiu. With the regulation change now really starting to bite a hole in Scotch’s bottom-line – the likes of Chivas Regal, Johnny Walker and Royal Salute have all delivered declines in Asia-Pacific in the recent sales results – this seems like unrecoverable ground, especially at the super-premium and above segment. Laws tend to stay made in China. 

Here’s John Burke, global category director for Scotch at Bacardi, which owns Dewar’s and William Lawson’s: “China is going through turmoil at the moment. The market will come out the other side, but will look different when it does.”

What is clear is that Asia is not consuming as much Scotch as it once was. Political instability in emerging market Thailand saw volume drops of 30% while the once-emerging, now-emerged and possibly declining trio of Taiwan (-15%), South Korea (-15%) and Japan (-15%) all saw value declines on top of a disappointing few years.  

Taiwan is in transition from blended scotch to single malts, which is likely to mean fewer bottles and less revenue overall. Single malts now make up 19% of Scotch sales globally and Diageo’s head of Whisky Outreach Nick Morgan, says the market is split between the two segments. 

“Taiwan is an anomaly. The change was led by Macallan, which has been very successful. Diageo’s big focus in Taiwan is to develop single malts there.” 

In South Korea Diageo’s Windsor and Pernod Ricard’s Ballantine’s do battle over a dwindling stock of consumers who have been peeling away to white spirits and beer. Pernod Ricard has gone on the record to say there is a “marked decline” in its Imperial and 100 Pipers brands due to their “significant exposure to South Korea and Thailand”. 

But there are those still finding room in the market. “South east Asia and South Korea in particular continue to present positive opportunities for our brands,” says William Grant & Sons chief marketing officer Maurice Doyle.

“Early signals indicate opportunities shifting from blends to malt whisky, although we still see plenty of headroom for blended Scotch and the region offers a diverse range of opportunities dependent on stability of distribution and legislative context.”  

Japan, which is a traditional Asian market for Scotch, has its ‘grey market’, in which savvy dealers import Scotch through unofficial channels from other countries and sell domestically at discounted rates. This presents pricing issues for Scotch companies.

The bright spot of Asia and one of the few worthy of the ‘emerging market’ tag, is India. The probable election of Narendra Modi this month, a pro-business politician from Gujarat, is unlikely to harm the chances of the proposed abolishment of the country’s punitive duty regime. Either way, climbing sales of Scotch in recent years (11% in value to £69m, 4% volume) adds weight to the view that India is a heavyweight Scotch market, with or without the 150% tax levee. 

Diageo strengthened its grip on United Spirits’ distribution last month (it grew its share to 54% of the business) so is in prime position, if not yet the driving seat in India. Pernod Ricard has its hands on that particular wheel, with Blenders Pride, Imperial Blue, Royal Stag and 100 Pipers helping it lead the category. The latter is growing at 22% in the country, thanks to 30 to 40-year-old professional males trading up from local spirits, some of which are probably now owned by Diageo. 

If those are the front seats covered, William Grant is clambering into the back. “Big Scotch brands establishing themselves in India have driven greater interest in the category, which is benefitting all Scotch brands,” says Doyle. “We’re seeing the benefits of the category expanding. More Scotch blends on the market offer the Indian consumer more choice and opportunity to trade up.” 

Probably the category behemoth Johnnie Walker, which now stands at 20.1m cases after adding on another 6% of growth in 2012/2013, is a good weather vane for overall Asian sales. Despite its world domination in Asia Pacific in H1 2013/2014 it declined 10%. 

Latin America

Latin America, is a mix of good and bad news. Mexico – one of the MINTS forecasted to follow the BRICs to economic prosperity – has delivered back-to-back bumper years of Scotch growth: 19.8% to £110m last year and 14% in 2012. 

Like many emerging markets, its growth is currently coming at the ends, if not the middle, of the Scotch category ladder. Diageo reports that in the last six months of 2013, Johnnie Walker’s super premium brands delivered double-digit growth and value brand White & Black trebled in size. These gains offset weakness from Johnnie Walker Red and J&B in the standard sector and Buchanan’s 12 in the premium sector. Pernod Ricard’s latest quarter showed slight sales decline in Mexico “in a market that is less dynamic than in 2012/13”.  

Where we are with Brazil, South America’s number one Scotch market, is anybody’s guess. The country was once a solid BRIC nation, but its GDP was at near recessionary levels in 2012 (0.9%) and only grew to a modest 2.3% in 2013. India and China might well blush at their acronymic association. 

Scotch consumption in Brazil has correlated dramatically to its waning wealth, with a yo-yoing of -16% in 2012 to +18.5 in 2013, reaching £99m. Here, like much of the world which has an expanding middle class, a ladder of brands is offered to take consumers to premium enlightenment. 

Diageo’s White Horse (up in Brazil 46% by value for the second half of 2013) recruits, while Old Par (up 50% in the market) marches consumers all
the way to Johnny Walker, in theory at least. 

Pernod Ricard’s Passport, a standard segment brand of 1.3 million cases, also has a knack for taking consumers on a journey in its key markets of Brazil, Mexico, India and Russia. “We see Passport very much as a key brand that provides a strong entry point to our comprehensive portfolio,” says Nikki Burgess, international brand director for standard blends at Chivas Brothers.

In Venezuela, South America’s second largest Scotch market by volume and value, sales have bungeed from the sublime to the ridiculous over the past few years. 

Diageo’s Buchanan’s and Old Parr and Pernod Ricard’s Something Special must be holding on to their hats – last year was the downward plunge of 34%, following a hoist of 23% in 2012. 

Late president Hugo Chavez’s successor, Nicolás Maduro, a former bus driver and deeply unpopular figure among Venezuela’s business classes, has driven the country into economic turmoil. 

The country’s currency devaluations have collapsed profits of businesses operating in the area. Even Diageo saw fit to note the currency translation of the Bolivar in the preamble to its last quarter’s sales. 

Pernod’s latest word on the market needs some unpicking. It says its sales have “stabilised” on the basis of “voluntary reduction of imports”. Essentially, companies are pulling back from this £21.5m a year Scotch market. 

In Latin America a country’s constitution has an average lifespan of just over 20 years, according to The Economist, so business is always going to be bumpy. 

But there are certainly areas for optimism in Latin America – politics aside, people here like Scotch.

Russia and Eastern Europe 

Russia does not fall into the top 20 of SWA’s volume and value sales list, yet many producers talk of the country as if it is big business. Just as in Singapore to China, Scotch passes through the Baltic states, such as Latvia, to Russia. The SWA says shipments to Russia were up 7% to £25m and volume was up 31%. In Latvia volumes were up 30% to 18m bottles.

In Russia, Scotch is drunk with cola or on ice, so while single malts and luxury blends are becoming significant business, the vast majority of sales are at the value and standard end. “Russia is a big market,” says John Burke of Dewar’s (which has just been repackaged) and William Lawson, a brand which sells 25%-30% of its volume in Russia. “In the value segment there is White Horse, Black & White, Dewar’s and Bell’s. We are all competing for the consumers that first come into the category. They are switching from domestic spirits or from beer to value Scotch.” 

Burke reports that the William Lawson’s strategy is to go after beer markets and it tries to be one of the most active value brands in terms of marketing. 

Over at William Grant, Clan MacGregor is seeing success in Russia, where the brand has grown 58.2% in the past five years. And, according to Diageo’s Morgan, White Horse is “performing with great vigour” in Russia and eastern Europe. 

“In Russia there is big jump from domestic spirits to Scotch,” he says. “But White Horse is at a very good price for trading up. It plays a similar role in Latin American countries. The White Horse symbol resonates with consumers.”

“Premiumness is in the eye of the beholder,” adds Burke. “For the mainstream market in Russia, Scotch is the aspirational brand.” He adds that once an LDA-30 consumer has chosen a brand, “it’s hard to get them to switch”. 

Burke says that William Lawson’s Super Spiced Spirit Drink edition is being trialled in its core markets, including Russia. “I think it has potential. American whiskey has cracked it with flavoured whiskey in the US and has been able to export that success to other markets.” 

Poland is definitely on the up, with Scotch volume rising 39% and value up 38% to £60m. Here Ballantine’s is running at +18%, with Pernod’s Scotch brands collectively in double-digit growth. 

North to the Baltics and Distell/Burn Stewart’s Scottish Leader is cleaning up. It is the number one Scotch in Estonia, number two in Lithuania and number three in Latvia. 

Africa

The brand is growing at 8%-9% globally and currently stands at 550,000 cases per year. African expansion is on the cards too, since Scottish Leader was taken over by Distell, which has local know-how and expertise in the sub-Sahara. “That’s the vision – we’re looking at the likes of Kenya, Nigeria, Angola, Namibia and Nigeria,” says Marco Di Ciacca, Burn Stewart’s senior brand manager. 

Scottish Leader is already number five in South Africa, another emerging market to have hit the brakes of late, with value growth of just 1% last year, but is still slated as a market of the future and a gateway to Africa. 

Di Ciacca talks of unlocking “the black economy” as being key and the emerging “Black Diamonds” demographic, as they are known. “They have a lot of money and want to spend it,” he says. “Our parent company, Distell, is in a very strong position to capitalise on the trend down there.” 

Africa isn’t quite ready for the company’s new-look Black Bottle blend though – which in 2013 was reformulated and repackaged in a sleek black bottle ready for a strategy of targeting the top 20 bars of big cities around the world. “Consumers in developing whisky markets have to go through the mainstream brands first,” says Di Ciacca. “There’s a journey that whisky markets have to go through.” 

No truer words have been said. Markets work in cycles, the trick is to be in the right place at the right time, which takes foresight, luck or incredible agility. Over-exposure to any group of markets, traditional or emerging, can be dangerous. 

At Cutty Sark, a brand that has bombed from 2.5 million cases in its pomp in the 1970s to the 800,000 cases it is at now, the problem was of over-exposure to traditional markets, such as the US, Spain, Greece and Portugal. 

Since joining the Edrington stable from Berry Bros & Rudd in 2010, the brand has been spread across the world to find new growth and mitigate the risk. 

“We do not have infinite funds so we are spread-betting. We trial and invest to see if there’s interest and if we can scale the business. In 2008 we had too many large eggs in large baskets, now 80% of our volumes are in our five top markets, 20% in emerging, of which we now have 20-40. The UK for us is an emerging market, because traditionally Cutty Sark only sold a few cases there.”

When the UK is described as an emerging Scotch market, you know things are complicated. Perhaps one observation can be made in the mist: in nearly all fading and failing markets, consumers don’t seem to be falling out of love with Scotch. 

There are many reasons for see-sawing sales and rarely is it consumers’ dissatisfaction with the product. Producers must judge where the meddling hand of politics is getting in the way of a good dram in the short term and where it is a long-term problem. 

In the end it is probably only time, that prophetic arithmetic, that can tell which emerging markets will continue their march and which will turn back the other way.