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Aultmore XO – A Main Problem Of NAS Exposed

by Oliver Klimek on August 3, 2014

There is a new bottling in the Douglas Laing Old Particular range, apparently exclusive to Tel Aviv Airport Duty Free. It is called “Aultmore XO” and sells for $113. When this was mentioned yesterday in the Malt Maniacs & Friends Facebook group by Israeli Blogger Michael Bendavid it sparked quite a discussion, and I think it is worthwhile to give it a closer look.

Obviously this is a NAS bottling because it does not have a classic age statement. But for anyone mildly familiar with cognac, the term XO rings a bell. In cognac, XO stands for Extra Old. This means a minumum age of 6 years according to the official regulations. Because cognac is usually blended from many vintages, there may be significantly older spirits in the botte as well.

Now how old might the Aultmore XO possibly be? And why has Douglas Laing decided not to use a proper age statement?

If the whisky was old, there would be no reason whatsoever to hide its age. Douglas Laing have been using age statements for the other bottles in the Old Particular range as well. I think it is fair to assume the Aultmore to be on the young side. Coincidentially, there have been a number of very young and rather good Aultmores around, recently. For example there was a 5 yo from Master of Malt that managed to win a bronze medal at the 2012 Malt Manaics Awards, and there also was a 5 yo from Douglas Laing in their Provenance range.

The Scotch Whisky Regulations forbid misleading age statements, so I would be very surprised if the Aultmore XO was not 6 years old. But even if it was older, it is evident that Douglas Laing figured naming it XO could improve the sales of this whisky. XO certainly would be a very nice way of making a young whisky look more exclusive, especially in a duty free shop sitting next to the expensive cognac bottles. But for someone who is only used to cognac, the XO might really be misleading, because of the fact mentioned above that XO cognac usually also contains older spirits.

NAS whisky has usually been defended with the argument that indeed older does not automatically mean better. Which is perfectly true. But one thing which for me is a key issue in NAS whisky has been neglected a bit so far: the pricing. The Aultmore XO highlights this particular problem of NAS whisky because it is not affected by blending issues like cask selection or pressure on stock because of high global demand.

In a recent Spirits Business article, whisky industry insiders are discussing the NAS phenomenon and the problems of convincing the buyers that the decades-old “older is better” mantra was actually wrong.

Older whisky may not be automatically better than young whisky. But higher age has always reflected in a higher price. This is only logical because for example you can sell twice as much 10 year old whisky in 20 years time than you can sell a 20 year old. Obviously the 20 year old whisky must be more expensive than the 10 year old whisky.

But of course this logic also works in the other direction. You can sell twice as much 5 year old whisky in 10 years than you can sell a 10 year old. So it would be only logical that younger whisky is significantly cheaper. Now the Aultmore XO sells for $113 which equals £67. This indeed would be quite a lot for a 6 year old single malt.

All in all the current marketing of NAS whisky appears to be less about true consumer education than about trying to hide the correlation of the price of a whisky with its age, about finding arguments why young whisky should be as expensive as it is. It’s about convincing the buyers that a whisky is worth its money more than about increasing their whisky knowledge. Plenty of fancy stories are being told which usually boil down to “we think it is worth it because it is very good and rare”. If properly educated consumers knew the actual age, higher prices would without a doubt be questioned much more.

{ 30 comments… read them below or add one }

Gal Granov August 3, 2014 at 12:21 pm

On the money Oliver.
Can not agree more.

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WhiskyBrother August 3, 2014 at 12:27 pm

I think this is very poor form from Douglas Laing- who I would like to add I am a major fan of. IBs are the ones that offer us interesting ages (whether young or old) and the ability to know more about the whisky in our glass (exact distillery and bottling date often among those details), if they remove those benefits then I’d definitely be less inclined to purchase them.

I keep hearing that IBs are having trouble securing whisky these days as there is so much demand that distilleries can capitilise on with OBs. This XO nonsense makes it feel like DL have so much whisky they are just trying to jump on the sales volume wagon and not worry about the consumer they have always catered to.

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Oliver Klimek August 3, 2014 at 12:30 pm

I feel much the same. I attended the Douglas Laing tasting at the Speyside Festival in May which was very good. In paticular they had a 9 year old Glenrothes from their Provenance range that was fantastic. In this connection the XO stunt feels bitter.

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Michael Bendavid August 3, 2014 at 12:56 pm

Yup, right on. It’s time for consumers to be treated as equal and valued partners in the whisky business. This means full disclosure.

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Oliver Klimek August 3, 2014 at 1:22 pm

I should add that I do not think the price of the Aultmore XO is outrageously obscene. I probably would not buy it, but I have bought a 7 yo for £60 not long ago. So I do agree that good young whisky needn’t be sold under value. It really is all about givng the buyer all the informations they need to make their decision well founded.

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Wm Gemmell August 3, 2014 at 4:47 pm

From a business/marketing standpoint I can understand the creative use of “XO” (was this a creative move because it was aged in ex-Cognac casks?), but the fairly high price tag is deterring. Mostly because, and like you mentioned, Oliver, they just aren’t giving the buyer all the information they need, and most importantly deserve.

If there is old(er) juice in the bottle, I can see them wanting to omit the age statement because who wants to “dumb down” older vintages by putting “6 Years Old” on the bottle. However, they should be much more transparent about the contents. Glenmorangie comes to mind here. Signet is a rather expensive NAS malt, but they are of course quite upfront about its contents, and I suppose mostly because they’re not hiding very young whisky inside. Glenmorangie PLC seems to be upfront with most of their NAS bottlings, though. Many Ardbegs come to mind here.

With those thoughts out, this is quite interesting to see, especially in terms of an independent bottler. With current demand the way it is, it doesn’t surprise me that [almost] everyone is out trying to get the most dollar for the least amount of time/work. It is just extremely unfortunate. They’re taking consumers to the bank – just not this one.

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Oliver Klimek August 3, 2014 at 4:55 pm

This is certainly not a vatting of several vintages. Not in an exclusive for a comparatively small airport duty free.

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William Gemmell August 4, 2014 at 12:36 am

Sometimes I write too quickly, and I agree. I’m sure this one is just a single cask bottling. I was more trying to throw appreciation to the distilleries who are a bit more transparent with their higher priced NAS offerings, instead of leaving it to marketing and a consumer guessing game. I’ve thrown down $100+ on NAS expressions because age information had at least been published by the distiller – what I was trying to touch on with Ardbeg.

To that end, it seems as though the ‘XO’ on this one was a creative abbreviation for “XtraOutstanding,” so who knows. My guess would still be that it is around the 6yo marker, but it may be slightly older. Doesn’t change anything, though. Like you, I still wouldn’t buy it.

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Jeff August 3, 2014 at 7:29 pm

Yet many people who agree with all the above criticism of NAS do not support a boycott of it – or only support other people boycotting it, yet can’t name one benefit to consumers of concealing a product’s age. I’m not sure how consumers who’d value more product information are going to get it by complaining, yet continuing to buy/reward bottles which don’t offer that information but, as plans go, it should certainly have the advantage of the element of surprise; if I was in the industry, it would be the last thing I’d expect.

If consumers want to see a change, they’re going to have to boycott NAS.

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John August 3, 2014 at 10:49 pm

“Yet many people who agree with all the above criticism of NAS do not support a boycott of it”

Do you have a source for this statement or is it just an assumption? My personal experience of fellow long time Whisky drinkers in my area agree with the criticism and are boycotting.

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Jeff August 4, 2014 at 1:54 am

“My personal experience of fellow long time Whisky drinkers in my area agree with the criticism and are boycotting.” – I’m very glad to know this, if it’s the case, as it is the only solution to this situation. My comment was in reference to many bloggers and commentators on the Web who are critical of NAS, yet don’t call for a boycott of these products, remaining “neutral” on the issue in that regard. I, of course, favour a boycott, but I really can’t count the support of anyone, no matter how critical of NAS in other ways, unless they are explicit in that support – but it IS true that, if NAS is taken down, it will almost certainly be through the actions of a large, but mostly silent, majority. Cheers!

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Björn Scholz August 3, 2014 at 10:23 pm

DOUGLAS LAING & CO. could be slapped on the fingers by SWA!
If SWA follow their own guide lines for members…….
“10.3 The use of other numbers, which do not relate to the age of the Scotch Whisky, should be treated with caution. If there is a likelihood that consumers believe that the number relates to the age of the product, when that is not the case, that will be an offence.”

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Rod Graham August 4, 2014 at 2:24 am

Airports are where spirits companies go to flog off dodgy stock their regular customers won’t buy, or else to repackage regular stock and charge more for the change of name. Caveat emptor.

Most brandy drinkers (or at least amongst my customers) have no idea what VS / VSOP / XO means.

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Jeff August 4, 2014 at 2:49 am

An interesting point, though, is that “XO” has no designated, or legal, meaning within the realm of scotch – and so, like “single cask” and, formerly, “Pure Malt”, as a term without a definition, its meaning might only be in the eye of the beholder.

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Karsten August 6, 2014 at 12:26 am

“This is only logical because for example you can sell twice as much 10 year old whisky in 20 years time than you can sell a 20 year old.”

Well, actually not. If you produce, say, 1 million litres of whisky each year, then – leaving aside the angels’ share – you will have the same amount of whisky to sell, regardless of how long you choose to mature it.
So the higher price on the 20 year old whisky is not down to having only half as much to sell, but rather to higher storage costs per unit, the rate of interest and stuff like that.
Indeed, bottling the whisky young may not yield the biggest discounted cash flow, but with eager shareholders pushing you, the chance of gaining a short run surplus premium by means of marketing hype vis a vis long run market uncertainty is apparently tempting.

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Oliver Klimek August 6, 2014 at 6:01 am

This is only true if your warehouse capacity is unlimited. If your warehouse is full, you can only put in what you take out. Take a tiny “warehouse” with 10 casks onnly as an example. When you age all of them for 10 years you can fill one cask per year because every year you can take out one 10 year old cask. If you decide to age your whisky only 5 years, you can fill two casks per year because you can take out two casks of 5 year old whisky. So to sell the same amount of older whisky you need more warehouse capacity. Real life warehousing is of course more complicated because not every cask is aged for the same time, but the fundemental logic does not change.

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Karsten August 6, 2014 at 9:27 am

Which is what I was trying to say with “Higher storage costs per unit”.

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Oliver Klimek August 6, 2014 at 9:38 am

I originally wrote that you can sell twice as much 10 yo as 20 yo (or twice as much 5 yo as 10 yo). You said “actually not”. But – to stay with my example – you can sell two casks of 5 yo per year but only one cask of 10 yo. This is twice as much. This allows you to distill twice as much for the 5 yo because the turnaround time in your warehouse is only half of what you need for a 10.

In your example this would mean that you can distill 2 million litres instead of only 1 million, if you cut your maturation time by 50%. (provided the rest of your distillery is capable of doing this). Only if you keep on distilling 1 million litres you will sell the same no matter the age. But your warehouse would only be half full.

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Ol' Jas August 6, 2014 at 8:44 pm

Is anyone really saying that maxed-out warehouses are driving NAS (or really, I should say “young”) bottlings, because they just need to bottle casks to make space? Unless that’s really the case, it feels like we’ve strayed into the territory of contrived story problems like you’d see in an algebra class.

I’m giving this just a moment’s thought here, but it seems like Karsten’s points have force: Over the long run, a distillery’s annually sales will equal its annual production, ignoring the angels’ share and assuming that warehouse stocks are neither increasing nor decreasing. Selling at “half age” wouldn’t let you double volume sales. And again, we’re just talking about what you CAN sell—no comment on the demand for this stuff!

I welcome corrections on both the theory here and the actual state of affairs. Both are interesting.

* * *
Really, we might be thinking about this the wrong way. What if you look at a single cask of new make. When’s the most profitable time to bottle it? As soon as it’s decent in a NAS bottling? Or after X years of storage, angels’ share losses, and waiting for your money? I imagine that’s the way suppliers consider the problem. And I can only imagine that it’s super-complicated when you’re trying to manage thousands of barrels to produce a range of profitable bottlings. Yikes.

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Oliver Klimek August 6, 2014 at 9:27 pm

Don’t put too much emphasis on this. I merely wanted to demonstrate that shorter maturation times would allow distilleries to produce and sell a larger amount of whisky for a given warehouse capacity. This is a mathematcial fact that I tried to prove here, maybe a bit too clumsily. Of course there is also the queston if there really is the demand for more. But according to the whisky industry the demand for whisky has been growing.

Let’s reduce the problem to the absolute minimum with hypothetical numbers. Assume you can only store one cask of whisky. Further assume that the production cost for a cask is £1,000. After 10 years you may sell it for £10,000, leaving you with a profit of £9,000. But you could also sell the cask after 5 years for £6,000, then fill another one and sell it 5 years later for £6,000 as well. After 10 years your profit would be £10,000. You would have earned a bit more even though you have sold your whisky significantly cheaper. This is the fundamental logic why young whisky can be sold cheaper, even neglecting angel’s share and other minor influences. Or is my math wrong here?

We are not talking about a long term equilibrum of production and sales here, as you are arguing. Shortening the average maturation time will free warehouse space more quickly which in turn would allow the distillery to produce and eventually sell more, if the demand is there. This would lead to another equilibrum with higher production.

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Ol' Jas August 6, 2014 at 9:50 pm

Yeah, but is warehouse capacity really the prime contraint that the industry is trying overcome? I haven’t heard that, but I have heard the “you can sell twice as much 10 year old whisky in 20 years time than you can sell a 20 year old” idea quite a few times in various places.

If warehouse capacity ISN’T the prime contraint, why look at it that way?

(For what it’s worth: My mind’s just grazing the surface here, but I think your math is right, Oliver. I just question whether your premise is applicable. Your way of presenting the problem suggests that distillers are currently wasting their DISTILLING capacity because they’re maxed out on their WAREHOUSE capacity. I think your most-reduced version of the problem suggests that they wouldn’t distill barrel 2 unless they first sold barrel 1 to make room.)

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Oliver Klimek August 6, 2014 at 10:12 pm

Those constraints I mentioned are more to make the fundamental calculation understandable more easily than anything else. You can of course increase your miniature warehouse to two casks. Then you could sell either two casks in 10 years or four casks in two 5 year periods. But if you need to upgrade your distillery to be able to do that, you will have to factor this into your whisky price. But only until the distillery upgrade has been paid for. So this might be one factor that can dampen this effect.

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Ol' Jas August 6, 2014 at 10:21 pm

I get that, but I still wonder whether warehouse capacity is really the prime contraint that the industry is trying overcome. Does anyone here know this?

If it’s not, then I don’t think this line of thought is applicable to what’s really going on.

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Oliver Klimek August 6, 2014 at 10:37 pm

The main pressure according to the industry is increased demand which supposedly has torn a hole into aged stocks, forcing them to use younger casks for their bottlings. At least this is how Bill Lumsden put it in his recent interview. I don’t see why the mechanism we discussed should not ne applicable here. But we see them selling young whisky essentially for the price of older whisky.

And a price increase to factor in possible distillery expansions should not be that big. Take Glen Ord which costs £25m to increase capacity from 5 to 10 million litres per year. Sell 10 million litres for £1 more expensive, and the expansion will be paid for in 2.5 years. Only if you increased the prices of single malts exclusively in order to subsidise blend prices, you would get a drastic price increase…

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Oliver Klimek August 6, 2014 at 10:46 pm

But of of course all those considerations are not necessarily meaningful for the bottling in question which is a cask from an independent bottler with an unknown history.

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Ol' Jas August 6, 2014 at 11:00 pm

Karsten and I (if I can speak for both of us) are just saying that the “you can sell twice as much 10 year old whisky in 20 years time than you can sell a 20 year old” idea is true only if your production is limited entirely by your warehouse space.

Really, this all seems quite peripheral to the topic of this article, but I think it’s an interesting line of thought to dissect. And as I say, I’ve seen that idea quite a few times in various places and it always seemed like an oversimplification.

Back on the main topic: As you say, “we see them [distillers] selling young whisky essentially for the price of older whisky.” That’s exactly the reason behind NAS bottlings. NAS bottlings can have nearly the same market value as age-statement bottlings, but without the expense of aging. Bingo!

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Karsten August 7, 2014 at 1:11 am

@ Ol’ Jas: Thanks for picking up on my point!
@ Oliver 09:38 am: My “not” was originally meant to refer back to your “logical” (sorry for letting in the doubt about that), the point being that the math depends on one’s assumptions:
I assumed constant output levels with extra storage capacity available at a cost (not unlimited storage capacity). The true constraint here would possibly be acquiring sufficient numbers of quality casks, so how about opting for fancy cask types…
Your math, on the other hand, rests on the assumptions of limited storage capacity but plenty of available production capacity and, furthermore, that sales volumes can be doubled. I don’t know about the former, but selling young whisky at the price of old whisky is hardly the way to achieve the latter, except perhaps in the very short run in an expanding market.
And if one assumes a storage constraint, the NAS trick is still a one-off – even if the market keeps expanding, what would the next step be? At three years old 40% whisky you’ve reached the end of the line, if not long before… And as soon as you dismiss or loosen the assumption of storage constraints, I believe my claim is valid.
Anyway, we’re only scratching the surface here, and I agree with Ol’ Jas that this topic would deserve a separate and more thorough investigation – based on actual figures and including further strategical considerations (e.g. protecting future markets by taking out young whisky), so my apologies for blurring your original topic.
Back to which: If you ran a distillery and believed that we are currently experiencing a bubble, or at least acknowledged the risk that demand and prices may fall significantly within the next twenty years, what would you do? (Don’t get me wrong, I guess I feel the same way as you and many others about the current trends, but you can’t blame the shark for behaving like a shark).

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666ppm August 7, 2014 at 4:26 pm

You discuss about warehouse / storage capacity as the limiting factor in the calculation. But from a financial point of view, the most important limiting factor is capital and capital tie-up (and that is what counts for the industry).

Simple calculation (without considering any interests):

First option: You have 10 EUR in t=0 to invest in whisky production. Let’s assume you can sell the produced whisky in t=5 for 50 EUR (5 year old whisky). Congratulations! You take 10 EUR from the profit and invest it again in t=5 and sell the whisky in t=10 for 50 EUR again. Your total profit in t=10 is 30 EUR from t=5 and 40 EUR from t=10, in total 70 EUR.

Second option: You want to age the whisky 10 years and in an ideal world, you will get the same profit in t=10 (70 EUR). So you have to sell the whisky in t=10 for 80 EUR.

Price comparison: 50 EUR for a 5 year old Whisky and 80 EUR for a 10 year old whisky.

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666ppm August 7, 2014 at 4:37 pm

… and now you can do the math from the perspective of the industry:

You know that you get 80 EUR for your 10 year old whisky. Will consumers pay 50 EUR for my 5 year old whisky? I don’t think so. So skip age statement and make a NAS whisky and now people buy it for 60 or even 70 EUR. Great! So the first option – ageing your whisky only 5 years – gives you a higher profitability compared to 10 year old whisky.

The problem is not NAS, the problem is that consumers a willing to pay too much for it compared to the 10 year old whisky!

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Jeff August 7, 2014 at 9:08 pm

“The problem is not NAS, the problem is that consumers a willing to pay too much for it compared to the 10 year old whisky!” – But NAS is the reason that they’re willing to pay too much, because it’s the reason that they don’t know that the majority of what they’re drinking is young whisk(e)y. In the minds of the industry, and unfortunately many new consumers, NAS labeling makes expressions somehow “ageless”; somehow NAS products aren’t simply “young”, only “different”, even when their youthful characteristics scream in the glass. The industry tells consumers this “ageless” story at every turn, count on it being taken as the truth, and it’s the reason NAS is such a great way to push young product to a degree that would never be possible if it carried age statements – and, as such, NAS does nothing for consumers but inflate prices, and should be boycotted for that reason.

Some people would rather be lied to than believe they are overpaying, and it’s much more attractive to believe that one is living in whisk(e)y’s golden age rather than in its overpriced age of decline, but many people buying NAS products today would NOT be willing to pay the same prices for them IF they knew what was in the bottles and, if that’s the case, then NAS IS just a mechanism to get people to overpay.

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