Should you add a dram of whisky to your investment portfolio?

It’s been called Disneyland for whisky lovers. At the end of Princes Street, Edinburgh’s central thoroughfare, is the new home of Johnnie Walker, the world’s most famous brand of Scotch whisky. Inside an eight-storey building – formerly home to a House of Fraser department store – visitors are taken on a “full-sensory adventure” through the history of the 200-year-old company now owned by drinks giant Diageo (DGE).

Complete with a cocktail bar and cask cellar, and opening as part of Diageo’s £185m investment in “Scotch tourism”, the attraction is a towering sign that the FTSE 100 company thinks there is a highly profitable opportunity in whisky.

“Around the world, there is a higher degree of interest in the more premium [whiskies],” says Cristina Diezhandino, Diageo’s chief marketing officer. “We believe that the future is bright for Scotch.”

Diageo, where net sales of Scotch grew 8 per cent in the year to June, is not alone: from Scotland to Japan, a number of alcohol businesses worldwide are betting big on whisky. Even individual investors are now buying bottles and casks in the hope that growing demand for the spirit will produce giddy returns. 

For retail investors keen to add a wee dram to their portfolio, the market is overflowing with opportunities. But is the future really bright for whisky or have some people simply had too much to drink?

Not just for Mad Men

Whisky is an acquired taste. The smoky spirit is generally associated with a hardy, male demographic: think Don Draper artfully raising a tumbler in Mad Men, or detective Philip Marlowe perpetually swigging a bourbon in the novels of Raymond Chandler.

But whisky is now more than just an old man’s drink, says Diezhandino, who adds that she likes to mix it in an old-fashioned cocktail. Diageo, she says, wants to encourage different ways of drinking Johnnie Walker. At its new attraction in Edinburgh, which opened in September, visitors are offered whisky in more than 800 different flavour combinations.

If whisky catches on as a more popular choice, it could help Diageo squeeze more cash out of the recent trend for drinks mixing. Following a disappointing start to 2020 for the company, prompted by the closure of pubs during lockdown, the company says a rebound in sales has been driven by a craze for homemade cocktails, as well as young people choosing spirits such as whisky over wine and beer.

The profile of people who drink whisky neat is also becoming more diverse: outside of Scotland, the spirit’s traditional home, more and more drinkers are getting a taste for premium Scotch. According to a survey by the Scotch Whisky Association, Scottish distilleries opened their doors to a record 2.6m tourists in 2019, the year before the pandemic. The distilleries were mostly visited by foreign travellers, particularly from the US.

Besides Diageo, a number of other businesses are capitalising on the opportunity. Aim-traded Artisanal Spirits Company (ART) sells bottles ranging from £48.40 to £1,450 through its global retailer, The Scotch Malt Whisky Society: before listing this summer, it reported that annual sales had risen almost a quarter to £15m over the past two years. In September, French alcohol giant Pernod Ricard (FR:RI) announced it was acquiring a different retail site, The Whisky Exchange, for an undisclosed sum. Investors immediately welcomed the news, sending its shares up 3 per cent in a day.

Whether neat, on the rocks or in a cocktail, more people around the world are drinking whisky. The companies behind the biggest brands in the business could become increasingly attractive investments.

A store of wealth?

In their will, many parents leave their children money or a house. Andy Simpson says his son will probably inherit his whisky collection.

Simpson is the founder of Rare Whisky 101, a site that tracks the market value of premium bottles of whisky. While investors can get exposure to the booming whisky market through companies such as Diageo and ASC, a growing number like him are investing directly in the spirit. Simpson, who says he started collecting bottles when he was a teenager, believes the drink itself can be “a store of wealth”.

According to Rare Whisky 101’s index of 100 “iconic collectors' bottles”, the value of these items in auction sales has increased 319 per cent since the start of 2013. As demand for whisky rises across the world, the price of certain bottles has increased so much that some owners view them more as investment assets than drinks.

Hoping to capitalise on the growing interest, a flurry of websites have popped up across the internet offering whisky fans the chance to buy rare bottles or even whole casks of Scotch. But investors should proceed cautiously.

While the market value of some whiskies has soared in recent years, these gains bely a number of risks. Scam sellers are common online, while the auction price of bottles can also wane: Rare Whisky 101’s Vintage 50 index, which compiles some of the oldest bottles of single malt Scotch, has fallen about 3 per cent over the past two years. Even those who manage to sell at a profit can see their money eaten up in auction fees and sales taxes.

But for the right investor, this emerging asset class could offer a unique opportunity to diversify a small part of their portfolio. As connoisseurs know, a fine bottle of scotch is made to last. Simpson, who declines to say exactly how much he has spent on whisky, expects his collection will still be very valuable once his young son comes of age. 

“He will be able to go out in a blaze of glory and drink some very fine whisky, or make himself a very wealthy man,” he says.