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Soaring Pound Raises Bar for Exporters of Scotch

Markets: Fearing loss of overseas consumers, distillers are forced to hold back on price increases, absorb costs.


EDINBURGH, Scotland — The folks who make Scotch whiskey must be feeling like they could use a good stiff glass of it.

The British pound has soared in recent months, giving whiskey makers a big headache in key export markets.

The distillers have found that they can't easily pass on the higher costs to consumers, who might be tempted to switch to cheaper local liquors. So they end up taking the hit by holding back on price increases in overseas markets and looking at a smaller bottom line after they've converted their earnings into sterling.

"Quite often it will be the producer who has to carry the cost," said Campbell Evans, spokesman for the Scotch Whisky Assn. "It's more a case of squeezing corporate margins rather than changing the price."

The lobbyists are not making predictions about how badly the industry could be harmed by the recent strength of sterling--but the number apparently will come into many millions, however you count it, in pounds or dollars.

At the biggest Scotch maker, drinks giant Guinness PLC, Chairman Tony Greener has warned investors that currency swings could be expected to cost the company some 60-million pounds, about $100 million, this year.

Guinness doesn't break down any specifics. But the Scotch market is where Guinness clearly will take the biggest blow. Scotch accounts for nearly half of the company's business and is the key export product, with brand names including global market leader Johnnie Walker, U.S. market leader Dewar's and British market leader Bell's.

"Of course it hurts," Guinness spokesman Murray Loake said. "It's a problem we face as exporters."

For the first four months of the year, Evans said, whiskey makers found overseas markets "flat across the board."


Global exports held steady in value, at about 670-million pounds ($1.09 billion), while the volume of exports inched up by 1% at roughly 270-million bottles, according to the Scotch association.

Some prices have gone up, but not enough to put people off their booze, said an executive at another big dealer.

"If somebody likes whiskey, they won't switch to vodka," said Gordon MacDonald, Glasgow-based finance manager for JBB (Greater Europe) PLC, which owns such distillers as Invergordon, of Edinburgh. "Maybe they'll drink less or maybe they'll put more water in it."

MacDonald says his wholesale customers have been grumbling about the price, so he's been giving them a break where possible, hurting his own bottom line.

"We're feeling it worse than it was last year," MacDonald said. Like others, he declined to offer specifics.

Not that the rise in sterling has slaughtered everybody in the market.


Small producers of high-quality, high-priced single malt whiskeys say they have been relatively unhurt while the big exporters of blended whiskeys take it on the chin.

"It doesn't really affect my end of the market, because I'm at the top end of the market," said Jamie Walker, who runs Adelphi Distillery Ltd. in Edinburgh. Walker distills single malt whiskeys and sells them at cask strength--with their high natural alcohol content unchanged.

It's a fancy drink, with matching prices. Walker says his whiskeys fetch between 35 pounds ($60) and 70 pounds ($120) a bottle--and connoisseurs willing to pay those prices probably won't worry about currency fluctuations shifting their bar bill a little bit.

The single-malts are one of the industry's few bright spots in the United States, where sales have been in a steady decline, the Scotch association says.

The rise in sterling could be a temporary phenomenon, and it hasn't left only the whiskey makers high and dry. Virtually all British exporters have reported negative effects as they release recent profit statements this summer.

But the troubles come at a time when the whiskey industry has undergone a dramatic shake-up with the big players buying distilleries, closing a few, and cutting back on the work force.

There were 13,350 working in the Scotch industry last year, down by 3% from the previous year and by nearly 50% from the late 1970s.

But the lobbyists say not all is doom and gloom.

Japan, a big, important market, plans tax decreases that should take 2.30 pounds ($3.91) off the price of a bottle beginning Oct. 1, Evans said. That could encourage more Japanese to drink up.

And the distillers hope for the day when the potentially huge markets of China and India open.

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