The Misleading Rarity Argument In Whisky Pricing

by Oliver Klimek on April 3, 2014

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.

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{ 7 comments… read them below or add one }

Pandemonium01 April 3, 2014 at 11:06 am

Diageo is home to some of the world’s best distilleries, like Mortlach. They are a large corporation that needs to make money, but their PR department is a mess.
Why do they always make it so hard for us to love them? Why take a hidden gem away and replace it with an inferior (according to some reviews) NAS in a fancy expensive bottle and call it a good thing?

The launch of a new range should be something that malt lovers worldwide can rejoice, more expressions from a product that we already know and love. Instead most of us are horrified by the way they handled it, before we even tried it. I think a lot of single malt drinkers will not try it due to the bad press or even a grudge against Diageo.

The difference between Diageo and Bruichladdich in the way they deal with “rarity” of their products, is not only reflected by their price (remember the Octomore is rare and expensive too), but in the way they communicate about it.
The people at Bruichladdich get directly involved with their customers, through various media and thoroughly explain their problems and their solutions with the public. That is why we love Bruichladdich, they are able to portray themselves as an honest company, trying to make the best out of a bad situation without alienating their audience.

PS: The ten year old is currently not even available on the Bruichladdich website, which is a pitty.

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kallaskander April 3, 2014 at 11:42 am

Hi there,

I beg to differ. It is not Bruichladdich anymore.
The new policy is set by Remy Cointreau the new owner and even if RC is not as big as Diageo it is not a small rebelious artisan Hebridean distiller anymore who is turning its face to the world.
Not much is left of the spirit that made Bruichladich what it was between 2001 and the sale to the giant.

There is a shortage of aged malts at Bruichladdich that is true but the reason for that with the exception of the latest Black Art they are not offering anything with an age anymore is the translation from Victorian distribution channels to the high tech distribution network of the global player RC.
For that demand there is not enough whisky. Aged or not.

Greetings
kallaskander

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Jordan April 3, 2014 at 7:06 pm

It’s very clever that they’ve been able to turn around the usual equation by using perceived scarcity to gin up demand, thus justifying the prices. I do wonder how long it will last before the market becomes saturated and fatigue sets in, especially as quality declines.

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Dunno April 5, 2014 at 9:02 am

If you have 100 casks and vat them together, you’ll get cheap standard single malt.

If you bottle the same casks separately, number them and sell to different markets, countries, independent merchants etc. you’ll get 100 rare and unique bottlings that sell premium.

Whisky enthusiats and bloggers will lust after the “rare” bottlings and a new market has been just created. Maybe we all need to look into the mirror sometimes..

The warehouses are full of casks – it is just matter of marketing stragegy how to divide them between blends, single malts and premium malts. I don’t buy the idea that single malt is just afterthought and blends are what is driving the companies. Blends are maybe 99% of the volume, but I would not be surprised if single malts are 50% of profits.

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Jeff April 5, 2014 at 12:13 pm

Good point. The argument that “single malts aren’t very important” is usually trotted out to combat industry criticism: a critic may have a point, but we’re told that, somehow, it all just doesn’t matter very much, because blends rule the world. Yet demarcation and specification ARE the keys to upscale marketing in single malts – “it’s this, not that” – and single malts certainly seem to be “important enough” to be subjected to that kind of scrutiny on a regular, and increasing, basis. Is most of this stuff even any good, much less collectible, because it has very specific labeling is a real question; there are probably a lot of amateur collections being put together just on speculation that are only just treading water in terms of value and would see their value disappear if the whisky whirlwind, driven mostly by the speculation of other amateur collectors, stopped churning. There is a lot of whisky in a lot of hands being held for “someday”, but the majority probably isn’t really worth very much.

I think the Bruichladdich move had far more to do with not shorting orders to retailers going forward than it did with making a stand for the ethical treatment of consumers regarding pricing.
“They’ve always been on allocation, right up until now, and we are moving into a slightly different world, where with global allocations and global markets, it’s going to be difficult to sustain it everywhere…you wind up giving everyone a few hundred cases, and it’s not enough for them to get their teeth into.” – Simon Coughlin.

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Steffen Bräuner April 6, 2014 at 12:51 pm

End of the day prices a decided by the consumer (buyer). If it sells, the price was right, if it sells too fast, maybe the price was too low

As consumers, whiskyfans are one of the least critical, brainless roup of people you can imagine. This is probably due to the fact we talk fans and not consumers. Note that this is a very general view of the whiskyconsumergroup as a whole, and there are plenty of exceptions, notable anyone reading this :-)

In general whiskydrinkers are more interested in packaging than content. Vikings, Frank Sinatra, Wooden boxes, clay bottles, Lost distilleries, Whisky in space. It’s probably a lot easier to sell stories than good whisky

So much whisky is marketed as rare and unique (I hate those words)

Mortlach is never gonna be rare unless Diageo wants it to be. Stitzel-Weller, Brora and Karuizawa on the other hand might label themselves with some accolades

Steffen

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Jeff April 8, 2014 at 12:49 pm

It’s true; while they are laid out by the producer, prices are decided on by the consumer – but the consumer is also a changing breed. There’s currently a glut of new people in whisky who are buying the lines that the industry is selling right now, and buying up everything that the industry and its people, both declared and undeclared, say is “good” or “collectible”, but they won’t be new to whisky forever. Once they get their seventh or eighth disappointing over-hyped new miracle whisky from the latest new and fantastic distillery in Upper Slobovia, and branch out from the well-worn marketing path of the super-heated award-winning circuit, these folks are going to figure out that they’ve been sold a bill of goods – but no one is going to be any more interested in buying their collections of middle-of-the-road formerly “hot” items than they are in buying those collections from other people. And current spiraling trends in pricing are discouraging, rather than encouraging, more suckers to get into whisky to keep the Ponzi scheme going. Even real fanatics are looking at getting into other spirits as a diversion from, if not a replacement for, whisky.

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