The surge in Irish whiskey sales around the world has really made it the new liquid gold of the drinks sector. The Irish Whiskey Association estimates that Irish whiskey exports from the island of Ireland topped €1bn last year.
ith so many new distilleries appearing in a rising market, it’s also a bit of Klondike job when it comes to investing in the business.
Yet it is the two Johns of Irish whiskey who are really making the big money – John Teeling and John Jameson.
Teeling owns Great Northern Distillery, and Irish Distillers owns Jameson.
After selling Cooley Distillery, Teeling set up the Great Northern Distillery in the old Harp brewery in Dundalk. The business plan was to supply in bulk to anybody who wanted to set up an Irish whiskey brand.
But there isn’t too much that is ‘bulk’ about the operating margins at Great Northern Distillery. Accounts filed just before Christmas show that it made a pre-tax profit of €21.2m in the year to April 2022.
Jameson’s Irish whiskey is by far the world leader
As recently as 2020 it had a turnover of €18m but last year pre-tax profits surpassed that figure in a golden era of rapid growth for Irish whiskey.
The business is making operating margins close to 50pc as it distils for Irish whiskey brands that are sold around the world.
To put it in perspective, Great Northern Distillery has made total pre-tax profits of €60m since 2017. Teeling was the one who saw the potential of providing a bulk supplier instead of starting up a new whiskey brand.
His two sons Stephen and Jack are directors of Great Northern Distillery, but they decided to go down the consumer route by developing the Teeling whiskey brand and the visitor centre.
Their dad decided to stick to distilling – and leave the marketing, branding and selling to the sons.
Teeling Whiskey Company has also thrived during the liquid gold rush. The firm has built up retained profits on the balance sheet of €17m within just a few years of starting the new business.
But the number one giant of the industry remains Irish Distillers’ Jameson brand. In 2021 there were 14m cases of Irish whiskey sold around the world. In the 12 months to June 2022 Jameson sold 10.4m.
I remember interviewing John Teeling a year ago, just as Russia was invading Ukraine.
Russia had become a sizeable market for Irish whiskey and I asked if he was worried about the implications that sanctions on Russia might have on the sector.
He said it could be meaningful, but he didn’t seem overly perturbed. This is because he could see pace of the momentum building behind Irish whiskey sales even without the Russian market.
The big question for the industry is whether the change in consumer tastes in key international markets will last. All of the historical evidence suggests it will.
The industry believes it will as it continues to increase capacity and investment for the long term.
Some countries in Eastern Europe that were traditional white spirits drinkers are switching to brown spirits in general, and Irish whiskey in particular.
Conor McGregor and his whiskey, Proper 12
This is happening among younger drinkers – and Conor McGregor’s Proper No 12 brand has probably done a lot to assist that change.
Other factors could come into play in the future too. Irish whiskey sales are heavily dependent on the US market, which accounts for around 40pc of world sales.
A big shift in the US tastes or fresh trade barriers could impact future growth, though that doesn’t look likely right now.
Perhaps the most striking thing is the pace and scale of growth in the category. Jameson whiskey has been around since the 18th century, so you could definitely describe it as a mature brand.
Yet it experienced 22pc sales growth in the year to June 2022.
Irish whiskey had made huge strides in catching up with the giant of the category – Scotch.
In December 2021, the UK/Australia trade deal removed tariffs on UK spirits imports to Australia. This actually helped Irish whiskey sales where the product is distilled in the Republic of Ireland, but matured and blended in Northern Ireland. These sales qualified for tariff exemption.
Inevitably, the Australia deal should help Scotch more than Irish whiskey. The EU is expected to complete a new trade deal with Australia in the early part of this year, which could improve the performance of Irish whiskey in that market by reducing tariffs.
Meanwhile, the industry has identified 10 emerging markets for future export growth which include China/Hong Kong, Israel, Nigeria, New Zealand, South Korea, Turkey, India and Mexico.
It seems this Klondike may hit another rich vein.
Dairy is still the largest element of Irish food and drink exports
Irish food exports defy Brexit doom and gloom
It is difficult to talk about growth in exports without taking account of the impact that inflation is having on the numbers. Food inflation was probably a big factor in the record value of food and drink exports last year.
According to Bord Bia, the value of Ireland’s agri-food exports (including food, drink and horticulture products) rose 22pc in 2022 to €16.7bn.
Price increases would have masked the impact of some of that growth, but Bord Bia put the inflation factor at about 15pc.
So, despite the dire warnings about the impact Brexit would have on Irish food exports to our biggest market, plus the fact that many economies are slowing down, there was real expansion in exports from the sector.
The Brexit factor has perhaps been the most extraordinary of all. The UK accounted for 37pc of Irish food and drink exports back in 2017, just after the Brexit referendum. Last year it was 35pc of record exports.
There had been multiple warnings about the negative impact Brexit would have.
Modern dairy food processing
Bord Bia itself warned in 2017 that the fall in the value of sterling would have a real impact on living standards in the UK – which would in turn affect British consumer buying power, and Irish exports.
Little did we know that within five years interest rates would go up, the UK would enter recession, and inflation would be running at over 10pc.
Yet, despite those harsh changes in our biggest food export market, the sector has held up remarkably well.
But there are worrying aspects to the wider picture. Meat exports, for example, were up 15pc in value – which is probably entirely due to inflation, which would point to a static position in terms of volume sales.
Exports of Irish horticulture and cereals surpassed €300m, with mushrooms, largely destined for the UK, accounting for the largest proportion of this. Cereal exports were valued at €73m (up 10pc on 2021), which also is unlikely to represent an actual increase in volume sales.
A Covid-related fall in exports to China was offset by higher sales to India, Japan and the Philippines.
Maintaining all of that momentum in the year ahead will be the real challenge for exporting businesses.