The government freeze on alcohol duties until August 2023 is certainly a relief for the whisky industry. However, this reprieve could be short lived. Without stating when or by how much taxation may rise after this date, it may signal another blow for a sector which, if given the necessary support, could grow exponentially.
Myriad factors have curtailed the growth of the Scottish whisky sector for nearly a decade. exports to the EU have not and may never recover from Brexit. The 25% tariff slapped on single malt exports to the US has led to billions in lost sales. The industry has struggled to recover losses from pub and restaurant closures during the pandemic, as supply chain and shipping issues have prevented distilleries from fully converting renewed demand.
For an industry that has to plan for the long term, maintaining stability and ensuring short-term cashflow has become increasingly difficult. What will demand look like in three years’ time? Should businesses invest in more casks? Produce more? And if so, how do they fund their future plans in the interim?
Storage costs are also increasing, and traditional finance options used to alleviate these costs typically vastly devalue inventory until it is sold. While receivables financing offers better rates, this is only available in the period when a buyer has been found, not the years preceding. Every stock-heavy industry has felt this pressure, but this is more acute in a sector where storage is long term and planning for sales in the 2030s began years ago.
Alleviating the cost of storage would go some way to helping the whisky industry return to pre-Covid levels of profitability. By freeing up the capital locked in warehouse costs, Scotland’s 138 distilleries can then invest these funds in staff, expansion and growth. For too long the cost of inventory, until it is sold, has been ignored by mainstream financial institutions. Highly valuable casks are still a cost until the whisky is bottled and sold.
The whisky industry has proven its resilience time and again and optimism is returning. Plans for new storage facilities in Edinburgh and Glenrothes are highly encouraging. Yet whisky’s recovery faces significant headwinds. Alleviating the cost of storage and freeing up the capital held in unsold inventory can provide the stimulus for the sector to realise global demand and mitigate the macro issues that have held it back.
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