Imagine I distilled “whisky” at home and sold it. In Germany it is legal to distill for anyone, as long as the still capacity does not surpass 0.5 litres. So I would do a few dozen distillation runs with a mash from barley malted in my oven, put it into one if those miniature casks for “maturation” until it is nicely brown, fill a few bottles and advertise it. This concoction would be extremely rare with just few bottles produced, but it would probably be utter crap. How much could I charge for a bottle then? If I’m lucky a few friends might give me a fiver, out of sheer curiosity, I suppose.
Now what does this extreme and constructed example have to do with the whisky business at large? Well, it should be fairly obvious that pricing for any product follows the laws of supply and demand. If demand is very small, a producer will not be able to sell a product for a high price, no matter how little there is of it. If demand is very high, prices can be raised even if the supply is plenty.
For justifying a high price for a bottle, whisky producers often say “the price reflects the rarity of this whisky”. This sounds as if they somehow were being forced to put high price tags on the bottles. But while it may indeed be true that they don’t have much of that whisky, this is only 50 percent of the truth. There is no law that requires producers to raise prices beyond a level providing reasonable profit when supply is low.
To determine the price for a whisky bottle, producers estimate the demand and try to charge as much as possible while trying to avoid that too many bottles remain unsold. Or to put it briefly: They charge as much as they believe customers are willing to pay for it.
Let’s compare two different “rare” whiskies with different approaches to managing the rarity, the new Mortlach range and Bruichladdich Laddie Ten. Diageo made it very clear that with Mortlach not only they have only little of the liquid, but also he new range is all about tapping the luxury market. So the prices do not only reflect the rarity but also the expectations to attract a wealthier clientele than the geeks who had bought the Mortlach 16 yo Flora & Fauna until it had been discontinued. It is plausible that Diageo doesn’t have much of 18 and 25 year old Mortlach in their warehouses now. But if the high price of the range was only due its rarity, we should expect a moderate price drop in a few years once the stock previously intended for use in the 16 yo becomes available for the older expressions, not to mention the distillery expansion which will take much longer to have an effect.
A few weeks ago, the Laddie Ten together with the other core range expressions was retracted from retail and is currently sold at the distillery and the Bruichladdich online shop only. Supply has become just too low to meet global demand. Bruichladdich has decided not to raise the price significantly but wait until the shortage has been overcome. The Laddie Ten has become a rare breed but still sells for £36 at the online shop. And this comparatively low price definitely is not due to a lack of quality. This whisky has recieved many accolades. For example Serge Valentin on Whiskyfun gave it a score of 88 while the three new Mortlachs below the 25 yo received scores of only 82, 84 and 86 – at substantially higher prices.
So we can see that rarity is a complex phenomenon in the whisky market, and it is often used more as an excuse than as a necessity for high prices.