The Artisanal Spirits Company, owner of the Scotch Malt Whisky Society, has acknowledged continued headwinds in the Chinese market, but says its broader international strategy is helping to offset challenges. In its half-year trading update for the six months ending 30 June 2024, the Edinburgh-based company highlighted China’s slow economic recovery as a pressure point for Scotch whisky sales, though momentum in other regions and strategic acquisitions are helping to keep the business on track.

China remains a difficult market for Scotch

China’s economy, the second largest globally, has not bounced back as strongly as anticipated following the COVID-19 pandemic. Although overall economic growth hit the government's 5% target for the first half of 2024, recent figures show a slowdown to 4.7% in the last quarter. In an effort to boost economic activity, China’s central bank recently cut key interest rates, focusing especially on the troubled property sector.

This economic uncertainty has affected luxury consumer goods, including Scotch whisky. Despite strong export figures to China reported by the Scotch Whisky Association (SWA)—with 2023 values up 165% compared to 2019—the Artisanal Spirits Company notes that these figures don’t reflect actual sales within the country (referred to as depletions). A company spokesperson clarified this point, noting that while export growth looks promising, on-the-ground trading conditions remain difficult.

Diversification supports resilience

To counterbalance the challenges in China, the Artisanal Spirits Company has been expanding its footprint elsewhere. A major focus has been Taiwan, where a new subsidiary was launched in August 2023. Taiwan has proven to be a strong market, with SWA reporting an 8% increase in Scotch whisky exports to the region in 2023.

The company has also pursued strategic acquisitions to further diversify its offerings. In January 2024, it acquired Single Cask Nation (SCN), enhancing its reach into the U.S. and global independent bottling scene. Additionally, the development of its members' cask sales programme has provided a new revenue stream.

In its trading update, the company stated that this expansion has helped "mitigate the Group’s exposure to any given market, such as China where trading continues to be challenging." With a wider international presence and a more varied product base, China now represents a smaller portion of the group’s overall business.

Stronger profitability and stable cash flow

Despite regional difficulties, the Artisanal Spirits Company has reported a year-on-year EBITDA increase of approximately £1 million in the first half of 2024, continuing the positive trend seen in the second half of 2023. CEO Andrew Dane noted that while certain markets remain difficult, the business is on track to meet its full-year EBITDA forecast of £1 million.

The company’s long-term strategy revolves around investing in maturing whisky stock. According to Dane, this approach has built a valuable inventory with an estimated current cask valuation of just over £100 million. More importantly, once these whiskies are matured and bottled, the potential retail value of the inventory is forecast to reach nearly £500 million.

“With our cask levels now reaching an optimal level, we have reached a turning point in the cash investment requirement in the business,” Dane said. He explained that the company is transitioning from heavy upfront investment in stock to a more balanced replacement purchasing model. This shift is expected to positively impact the group’s cash flow moving forward.

Scotch whisky remains strong in Asia-Pacific

Despite issues in China, the overall picture in the Asia-Pacific region remains positive for Scotch whisky. The SWA reported that the region was once again the largest by value for Scotch exports in 2023. Singapore saw a 19% uplift, and Taiwan continues to perform steadily. These markets, alongside newer initiatives and a diversified portfolio, are helping producers like the Artisanal Spirits Company maintain growth amid global uncertainty.

The Artisanal Spirits Company’s approach—balancing tradition with innovation and mitigating risk through strategic market spread—is proving resilient. While China’s economic woes present short-term difficulties, the company’s investments in global expansion, premium inventory, and direct-to-consumer programmes have positioned it well for long-term success in the dynamic Scotch whisky market.