Opinion: What whisky does for Scotland

With it being World Whisky Day, it’s worth reflecting on the importance of Scotch whisky, our national drink, to the Scottish economy. From large-scale global drinks producers to independent bottlers and Scotch whisky start-ups, the industry contributed £5.3 billion in economic activity during 2023. We look after a number of clients who are associated with this important industry sector, both directly and indirectly, giving us a privileged insight on day-to-day operational and contractual matters as well as strategic projects.

The sector is very much in a boom period, with a number of new distilleries coming on stream – including in our major business centres of Glasgow and Edinburgh, as well as across all parts of rural Scotland – adding to the nearly 150 active whisky distilleries spread across our country.

That is not to say that the industry has not been without its challenges, particularly Covid and trade pressures in the US (tariffs and a trend towards Tequila consumption). However, this has been offset by a huge spike in sales to China, an important and growing export market. Effective global protection of the valuable intellectual property created by the whisky sector – protecting the reputation of Scotch whisky as a whole, as well as the individual distillers – is an ever increasing challenge as new markets develop.

This all makes for an industry where demand for a wide range of legal services is high.

On the employment law side of things, the trade union movement continues to target the whisky sector – both in pay disputes through collective bargaining in response to the cost-of-living crisis and recruiting membership for trade union recognition. Business pressures have also sadly meant some redundancies in production, bottling and even, for some of the newer distilleries, their visitor experience.

However, there is also huge positivity within the sector around the opportunities – equality and diversity, the advent of artificial intelligence, and apprenticeships.

As the drive for environmental sustainability grows, the industry faces increasing pressure to address its environmental footprint. Issues such as energy consumption, water usage, waste and carbon emissions are key areas of focus. In addition, climate change is also now having an impact on “tomorrow’s whisky” (as the common saying about “today’s rain” puts it) in some places, even in this sometimes driech land.

Mergers and acquisitions are relatively uncommon in the Scotch whisky world, with highly prized assets not changing hands all that often. When distilleries and businesses do change hands, they command increasingly impressive values – a function of their rarity as well as their potential for profit. Older, established distilleries may change hands as the big players really focus in on the global brands in their portfolios and channel investment and exertion towards those, divesting non-core brands for others to successfully develop.

However, many in the industry are expecting to see a particular uptick in consolidation activity among the many smaller, start-up distilling operations that have flourished in recent years. Synergies and potential economies of scale are as apparent here as in any industry. Private equity funds, with significant capital to deploy to grow profitable businesses, have been showing an increasing interest in Scotch whisky.

As an investment category, individual casks and bottles of Scotch whisky remain on the ascendancy, and our litigation teams have been involved in a number of disputes over damaged or lost whisky casks purchased by high-net-worth customers. Valuing what could be an expensive asset class is not without its difficulties.

Ultimately, the Scotch whisky industry is a proud jewel in brand Scotland’s crown. One certainly worth raising a toast to – sláinte!

David Morgan is a partner (employment law) and Tom Richard is a senior associate (corporate and M&A) at Burness Paull LLP