Many whisky lovers complain that the prices for their favourite tipple are often too high, and I myself have joined this choir on various occasions. But to know if a price is too high we must first know what price is fair.
I do not intend to turn this into a paper suitable for a business studies seminar by caclulating whisky prices from scratch (I did something along those lines for El-Cheapo bottom shelf whisky a while ago). Instead I want to take a phenomenological approach by looking at prices how they are and drawing conclusions from that. But of course it helps to know the main factors that determine the price of a whisky:
- Production costs – Malted barley, water, casks, energy, labour, bottling.
- Secondary costs – Administration, marketing, investments etc. all have to be paid for, so the bottle price has to reflect this.
- Profit margin
- Value of age
The value of age is probably the hardest to grasp, but it is obvious that old whisky has to have a higher intrinsic value than young whisky. In twenty years you can sell two batches of 10 yo but only one batch of 20 yo, so if you don’t want to lose money, you have to sell the 20 yo more expensive than the 10 yo. Inflation factors in as well as does the loss by evaporation.
A Look At Whisky Prices
I have compiled a table with the UK retail prices of a selection of Scotch single malt brands that offer a decent sized age statement range. International pricing will always include distortions caused by taxes, duties or regional allocation, so a look at the inland market should give a more objective look at things. Prices (in GBP) are the mean value of Master of Malt and The Whisky Exchange with special offers ignored.
Important note: All prices are adjusted to 40% ABV. Obviously it would be unfair to compare the retail price of a 48% whisky to a 40% bottling. As you can get less bottles from a cask at higher strength you need to sell that whisky for a higher price in order to earn the same amount of money. So I corrected all prices with a factor of 40%/ABV resulting in prices for ‘virtual 40%’ bottles
|10 yo||12 yo
Prices pretty much clog together at the younger ages and begin to rise exponentially over 18 years. The first diagram is cut off at £1000 to allow a better view at the lower prices. This exponential growth is not really a suprise because it is largely due to inflation, but the rate of growth is quite different between the various brands.
Fair Pricing vs. Supply/Demand Pricing
We have to assume here that all whisky prices are profitable for the distilleries. Glenfiddich and Glenlivet offer very reasonably priced bottles from 12 to 18 years, obviously due to scale effects as the two biggest distilleries. Smaller brands like Springbank, Glenfarclas or Glendronach have to demand a bit more at the lower end of the age range. But things turn around at higher ages. Glenfarclas and Tomatin have very affordable old bottlings while other distilleries charge significantly more. The Glenfiddich 40 yo costs almost eight times as much as the Glenfarclas 40 yo.
Looking at the table, now what is a fair price? My definition of a fair whisky price is a price derived from proper calculation, one that covers your cost and adds a reasonable margin of profit on top.
The 10 and 12 year olds are the work horses of the single malt brands, they get people interested in the distillery and they are selling the most bottles. The fact that the prices don’t differ too much shows that fair pricing can be assumed here. Anything below or around £30 for a 12 yo is certainly not a rip-off.
For a 15 yo £35 seems fair and £40 to £45 for a 18 yo, at higher ABVs a few quid more can be paid, of course.
The reason why prices drift apart at higher ages is the change from cost covering prices to supply vs. demand prices. In other words, brands try to figure out the maximum they can charge for a bottle while still selling all of their stock. Of course this is a valid move, after all they distill whisky to earn money. Looking a bit closer, these huge differences in prices suddenly become less enigmatic.
For example take Glenfiddich and Tomatin. Glenfiddich is the leading global single malt brand with bottles in virtually any supermarket in the world, their customer base consists of millions of people. While not exactly being a small distillery either, Tomatin is a far smaller brand with a significantly smaller customer base.
If Glenfiddich did their homework in market research properly, they may have found out that the number of potential customers actually willing to shell out £2000 for a bottle of their 40 yo more or less matches their stock, so the price tag is not too surprising. Why charge £400 for something you could also sell five times more expensive?
If Tomatin put such a price tag on their 40 yo, most bottles would sit on the shelves like lead, simply because there are not enough Tomatin fans with such deep pockets. The fact that they are able to offer it for £400 clearly shows that they still make profit with it anyway. Just not quite as much as Glenfiddich. And Glenfarclas sell their 40 yo even cheaper, and they still will make a profit. Is this the fair price for a 40 yo? Honestly, I don’t know. But it probably is not too far away.
As long as there are distilleries that offer fairly priced whisky (like those I listed last week), I don’t feel too bad about some brands trying to push the limits. But apart from the standard range, many brands offer fancy premiumized bottlings at sometimes ridiculous prices (Octomore 5 yo for £100 comes to mind…). And the more of those beasts are succesful on the market, the higher the risk those fair distilleries may jump on the glitzy bandwagon too.
The significance of independent bottlers cannot be undrestimated in this respect, especially for older whiskies. Often their bottlings are the only affordable option for many to try some oldies that would be way too expensive as original bottlings.
As a final note I should add that pricing considerations for startup distilleries obey different rules and so I did not take them into account here.