Whisky Focus - Diageo Delays Distillery Expansion Plans

Back in 2012 Diageo, the world's largest maker of Scotch whisky unveiled plans to invest over £1billion in Scotch whisky production over the following five years to meet growing global demand in emerging markets for its brands.

They planned to invest over £500million to increase the distillation and warehousing capacity. This increased production capacity also required Diageo to commit £500million in working capital for the maturing spirit which would be laid down over the five years.

Just over two years into this expansion plan there appears to be a global economic slowdown in the world's demand for whisky and Diageo have decided to delay their plans to expand its production capacity in Scotland.

In response to the global slowdown in demand for Scotch whisky around the world plans for a new £50million distillery adjacent to the company’s existing Teaninich distillery near Alness in the Highlands have been put on hold.

The Johnnie Walker and J&B owner has also delayed investment in the expansion of some of its existing malt whisky distilleries, including an £18million expansion project to substantially increase the capacity of the Mortlach distillery at Dufftown, and a £30million project at the Clynelish distillery in Sutherland.

Since announcing the expansion plans in 2012 demand growth has cooled, due to a number of factors including a crackdown on extravagant spending by the Chinese government, recession in Brazil and currency devaluations in several countries.

That has hurt spending overall and led to disappointing quarterly results for most consumer goods makers, from Coca-Cola to Unilever.

"The weaker global economic environment has impacted the growth of Scotch in certain markets and therefore Diageo will continue to review and adjust the timing of the next phase of our investment programme to manage our Scotch whisky inventory and to retain the alignment between growth in production volumes and growth in demand," a Diageo spokesman said.

The spokesman declined to comment on specific projects or give any timeframes.

Scotch made up 28 percent of Diageo's 2014 sales, which were down 1 percent at £10.25billion compared with the year before due to a sharp slowdown in emerging markets.

When measuring the amount of Scotch sold, Johnnie Walker saw volumes fall 6% last year, while J&B fell 7% and Buchanan's, which is big in Latin America and the Caribbean, fell 13%.

Meanwhile Diageo's Bulleit bourbon, which is still a young brand, saw its volume rise 66 percent last year amid a resurgence in the popularity of bourbon whiskey.
 

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