The Mechanism Of NAS, Travel Retail And Whisky Price Inflation

by Oliver Klimek on February 22, 2014

Let’s try to put together some puzzle pieces that have emerged in the recent blog carnival about NAS whisky.

The very interesting albeit anonymous guest post by a whisky industry insider on Whisky Israel justifies the ongoing releases of NAS bottlings in Travel Retail with “shocking demands” by the TR companies. A few days ago I compiled a chronological list of NAS Travel Retail Exclusives which shows that this trend really took off only around 2012.

It is an interesting fact that the UK market leader in Travel Retail, World Duty Free, was formed in its current incarnation in 2011 when Autogrill, the Italian owners, regrouped their TR empire under the global WDF brand. Now could it be that at this moment with their increased market power WDF decided to tighten the screw on whisky producers, if they wanted to have shelf space in their shops? Entirely possible, if you ask me.

The article exlpains very well how these demands cut into the profit margin and how the producers reacted by “using younger, thus cheaper, NAS whiskies, which are less of a cost burden to them” in order not to lose too much profit. And as we see from experience, the TR end prices for those whiskies are usually no bargains in order to compensate for this as well. But there is another interesting point which is mentioned on Caskstrength:

“A distiller once told us that unless they came up with a new product to put on the shelves as an exclusive, the shelf space available to them would effectively cease to exist or rapidly evaporate. This resulted in a fairly hastily assembled NAS whisky, which whilst youthful, was still filled with personality.”

So we see that coming up with new Travel Retail exclusive bottlings on a regular basis appars to be essential for decent shelf space in Travel Retail.

But as we know, not all of the replaced exclusive bottlings are discontinued. Instead they will now be sold on the general whisky market. Now remember that the Travel Retail price goes along with only a small profit margin for the producer, partly compensated by a fairly high price. But when those whiskies hit the High Street, do they become cheaper, now that the pressure on the profit margin has eased? Not that I would have noticed.

Now is the time when the producers can really compensate for the loss they experienced because of the bad profit margin in Travel Retail. “Younger, thus cheaper, NAS whiskies” are sold for a higher price than the older regular entry level bottlings with an age statement that, according to the industry insider, have higher production costs. Result is a profit margin that is expanded both on the cost and on the revenue side when compared to the regular expressions. Or have I got my maths wrong?

This was my last article about NAS whisky for the time being. I’ve had it now with this.

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{ 4 comments… read them below or add one }

MargareteMarie February 23, 2014 at 9:27 am

Hallo Oliver, vielen Dank für diesen interessanten Beitrag. Dieser Zusammenhang war mir bisher entgangen. LG

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Horst Lüning February 25, 2014 at 5:30 pm

Hallo,

das sehe ich ein Stück weit anders. Im TR werden unglaublich große Margen geschoben. Vor allem auf der Seite der Hersteller. Wir haben es hier mit der kürzesten, möglichen Auslieferungskette zu tun. Hersteller TR-Unternehmen-Kunde. Die Vergangenheit hat gezeigt, dass auch die Hersteller den TR in die Zange nehmen können. So hat z.B. Glenfiddich Preiserhöhungen im TR durchgesetzt, die der TR nicht wollte. Sie hatten sogar für eine Zeit Glenfiddich ausgelistet. Das haben die aber mit ihrer Stärke (Global die Nr. 1 im Single Malt) ausgesessen. Wenn dann der Reisende Markenstammkunde seinen Glenfiddich nicht gefunden hat, dann ging der Umsatz verloren.

Auf keinen Fall sehe ich aus diesem Grund das Alter von den Etiketten verschwinden. Es ist eher so, dass die allgemein hohe Nachfrage die Läger überproportional beansprucht hat. Die Zahlen der SWA über die Lagerbewegungen geben das her. Und da die Kunden im TR nicht die wählerischsten sind, beginnt man dort zuerst mit der Altersreduktion.

Am Ende ist das Resultat das Gleiche. Ich sehe jedoch einen anderen Grund.

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Oliver Klimek February 26, 2014 at 9:37 am

To translate the bottom line: Producers are not entirely powerless against TR. Glenfiddich once managed to force a price increase. [I suspect this works only if you have a really big name. OK]. Main reason for NAS is lack of aged stock.

Next time, please comment in English ;)

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Jeff February 26, 2014 at 9:36 am

I wrote this just to get it off my chest on the topic of NAS. It wasn’t written to lecture anyone about “what they don’t know” about the topic, and please excuse the length.

Wherever I see it played out, I usually find the entire “NAS debate”, both pro and con, to, quite frankly, be discussed on entirely the wrong footing: people talk about NAS as if it’s a type of whisky – it’s not; unlike scotch, bourbon, cask strength, single grain, pot still, single malt, single cask, vatted or blended (or even age-statement, in terms of minimum time in cask), there is no actual production process which makes a whisky NAS or not. NAS is simply a type of label which withholds production information from the consumer. Remove the age statement from any bottle of Highland Park 12 and you’ve made it NAS, all without changing the actual bottle contents or their production process at all (how could it be changed?). Restore the term “Aged 12 Years” to the label and the bottle is magically no longer NAS, but an age-statement expression with, again, no change to the whisky.

No whisky, age-statement or NAS-labelled, CAN have its quality affected, much less enhanced, by its label – there are good quality whiskies out there with NAS labels, but NONE of them are made any better by having their ages concealed from the consumer. NAS labelling, in fact, doesn’t help the consumer in any way – it’s an industry invention to serve the industry alone and I think it has two primary goals. The first goal is to try and remove consumer concern about the importance of age maturation to whisky quality. By taking the age statement off the bottle, producers attempt to create the impression that they’ve just invented “timeless whisky”, the age of which is somehow made “irrelevant’ to the consumer by virtue of the fact that producers simply don’t want to discuss it. According to the industry line, the quality of these “timeless whiskies” is found or lost, not in their age, but in their blending (but blending of what – aged whiskies, right?), “wood management” and even (ridiculous as this plainly is) their colour. But is age maturation irrelevant to whisky quality? The top 20 whisky list of many an experienced anorak wouldn’t go very far in substantiating that claim (and in fact, would usually go pretty far in refuting it), but producers try to avoid that debate altogether through NAS labelling – “age just doesn’t matter to the high quality of this whisky”. Yet if the industry’s going to bottle the same whisky anyway, and it’s “high quality”, why can’t I know the age of it? If young whisky IS indeed really so good, how can that be proven without age statements on it? The industry’s circular message, however, is: “if age were important, we’d give it to you, but since we don’t (of our own choice, not yours), it’s pretty obvious it’s NOT important, so you don’t need it”.

Keep in mind that this was the same industry which, only a few years ago, claimed that whisky quality was PRIMARILY based on age maturation to justify charging more for aged expressions, a practice which, in fact, continues to this day. Where age is actually known, you will almost always pay more for a 21 than for an 18 than for a 15 than for a 12 – so just how “irrelevant” is age anyway, and to whom? Age is certainly not irrelevant to the industry; it cares very MUCH about the age of its products (when it feels like discussing that age at all). Those price/age steps, steep and unequal as they are in terms of price/maturation year, particularly at the high end of ageing, are all simply about recovering production costs? Bullshit! The industry knows that age maturation is vital to quality, and still charges accordingly, but it’s running out of aged stock so, while still charging more for aged product, it says age doesn’t matter when it tries to sell you NAS-labelled stuff where age is, not irrelevant TO quality, but simply not a priority IN production. Thus, if the industry pretends to be “torn” about the value to quality of age maturation, it never seems to be confused about the price to be charged for it.

The second goal of NAS labelling is to progressively cut costs and increase prices by establishing producer sub-brands, based primarily around the expressions’ labelling, and occasionally the irrelevant silly story that it’s named after. It’s the label, name and silly story which are presented as being important and which will help the whisky gather a faithful following, which allows other factors, such as product age, content composition and casking to change without notice (and even to change without changing the label in any way). Once these label brands are established (“I think I’ll pick up another bottle of Super Space Whirlpool Deamhsadh Omega Reserve”), does it seem likely that these expressions will get any better, older, or have more production resources devoted to them on an individual basis as time goes on? These expressions, like the logic behind them, are intended for the easily hoodwinked and are intended to slide in quality while their profit margins only increase, and that’s what they’re going to do.

I don’t think any of the above is rocket science, or even new, but I do think it’s entirely true – which is more than the industry can say about what it spouts about NAS.

Cheers!

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