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13 Mar, 2019

The Growing Irish Whiskey Industry

The Irish whiskey industry continues to develop and new Irish brands are becoming more prominent behind bars and on supermarket shelves around the world. This growth has been driven by factors such as premiumisation, no longer being seen as an older person’s drink and the increase in the number of middle-class consumers globally. in response to this, ifac Food and AgriBusiness take a deeper look into the industry, how markets are performing, what are the challenges facing the sector as well as the opportunities and supports available for the sector to develop into the future.

The Irish whiskey industry continues to develop and new Irish brands are becoming more prominent behind bars and on supermarket shelves around the world. This growth has been driven by factors such as premiumisation, no longer being seen as an older person’s drink and the increase in the number of middle-class consumers globally. in response to this, ifac Food and AgriBusiness take a deeper look into the industry, how markets are performing, what are the challenges facing the sector as well as the opportunities and supports available for the sector to develop into the future.

Export and Local Markets

The value of Ireland’s beverage exports hit €1.5 Billion in 2018, with Irish whiskey leading the way, contributing 42% of these exports. 2018 saw demand increasing for premium Irish Brands with a record year of export growth with value increasing by €45 million to €623 million with 60% of this heading to the North American market. Last year also saw a 10% increase in the North American Market with €620 million worth of Irish whiskey crossing the Atlantic. The United States is followed by the UK, Canada, Germany and France as our most important export markets.

Emerging markets are also contributing to the growth in Irish whiskey, with Australia and the South Pacific markets reflecting value growth of 35% and Central and South America showing value growth of more than 42%, both from small but significant bases. Africa also performed exceptionally well as an emerging market, with growth of 15% in the value of Irish whiskey exports. Irish whiskey’s growth in EU markets sustained double digits, at 16%.

Irish whiskey can now be found in over 135 countries worldwide. These growth figures have been mainly due to the continued international success of the Jameson and Bushmills brands. For more, see Bord Bia Export and Performance 2018-2019

Domestically we see that Irish whiskey sales increased by 14% in 2017 and premium whiskey sales increased by 40% with an increasing number of smaller distilleries making an impact both nationally and internationally. In 2013 there were only four distilleries in Ireland in operation producing and selling Irish whiskey,

· Cooley Distillery

· Kilbeggan Distillery

· New Midleton Distillery

· Old Bushmills Distillery

There are currently 18 operating distilleries in Ireland with 16 more in different stages of the planning process.

The increase in demand for locally produced product with a unique taste has played a major role in encouraging the growth in this area, with smaller distilleries really taking advantage of this opportunity to create a brand that will stand out and differentiate themselves from other brands, none more so than the Slane Castle Irish Whiskey brand who use barley from the castle estate as well as the river Boyne, ingredients unique to the area and therefore the brand.

The fact that the majority of materials can be sourced in Ireland is also a bonus when it comes to the storytelling and provenance. Bottles, labels, crates, boxes and designers can all be sourced within the country with the only exception being the bottle corks, with no factory in Ireland currently producing corks.

Challenges

However, we may soon reach saturation point in the market for Irish whiskey due to the sheer volume of distilleries that have begun producing and selling product. Distilling is a long and arduous process with large investments of time, expertise and above all, capital. The owner of Blackwater distillery echoed this statement when he stated in an article on their website “The main barrier (to getting started) is capital, it’s not cheap, you’re talking a six-figure sum”. From hiring the right people with the required knowledge and expertise, to equipment, licencing, raw materials, bottles, corks, labelling, trademarking and patenting, warehousing/storage to sales and marketing, it all comes at a cost. And this all comes in an industry where there is a minimum of a 3-year ageing period, no product means no sales and no sales means no revenue. This issue can be dealt with by purchasing product from other breweries and adding your own unique maturation touches, however many avoid this practice in order to create their own, unique product.

In reaction to this significant cash flow problem, many distilleries have now opened their doors for tours, set up cafes, shops, tastings as well as having licenced bars onsite in order to allow for a more continuous cash flow and turnover aside from the actual product. This can be seen in a 13% increase in tourist numbers attending whiskey distilleries with 931,000 people visiting whiskey visitor centres in 2017 with drinks companies hoping this number will rise to about €1.9 million by 2025.

Another option to improve cash flow is the production of Gin and Poitin, something that distillers such as the Glendalough Distillery, and our own client Ballykeefe Distillery have done to great success. The market for gin is another which has seen a turnaround in recent years, in 2017 domestic gin sales rose by 47% according to the Irish distillers association. Exports of Irish gin are now valued around the €5 million mark which has led to Irish Gins winning international awards, with Dingle Gin beating 400 other brands to win top prize at the World Gin Awards in London in February of this year.

Other issues such as the increase of VAT for the hospitality sector from 9% to 13.5% as well as new health campaigns and advertising restrictions means it is not all plain sailing for the Irish Whiskey industry.

Licencing

A Manufacturer's Licence is required for all would be distillers. An application form is submitted to the National Excise Office along with a fee of €500 and a proof of tax clearance is required. In some cases, a certificate of incorporation and a certification of registration of the business name is required. This licencing period is 1st October to 30th of September, licences will expire on 30th of September regardless of issue date. This licence will allow for manufacture of the liquor under the given category, it also allows for the wholesale of the manufactured liquor from the premises. It does not allow the manufacturer sell the product directly to the customer.

The Producer's Retail on Licence allows manufacturers sell the alcohol produced on their premises to visitors for consumption on or off the premises.

Visitors who have completed a guided tour can avail of both on and off sales between 10.00 a.m. and 7.00 p.m. each day except Christmas Day.

Visitors who have not completed a guided tour can avail of off sales only between 10.00 am and 7.00 p.m. Monday to Saturday and 12.30pm to 7.00pm on Sundays and St. Patrick’s Day. Sales are not permitted on Christmas Day.

The Producer's Retail off Licence has similar time restrictions and conditions however it does not allow sale for consumption of alcohol on the premises at any time.

Similar to the manufacturers licence, the Producers Retail on Licence and Producer’s Retail off Licence periods are October 1st to September 30th. Licences will expire on September 30th regardless of issue date and both cost €500.

Alcohol Products Tax

There are a few issues in relation to tax for micro distilleries. Alcohol Products Tax must be paid at a rate of €42.57 per litre of alcohol contained in the spirits. Unlike microbreweries, micro distilleries are not eligible for a 50% tax break scheme. These taxes must be paid when leaving the manufacturing facility or warehouse, not when selling to the consumer.

Example:

1 bottle of Irish whiskey: 0.70l @ 40% volume

Litres of Alcohol: 0.7 litres x 40% alcohol volume = 0.28 litres of alcohol

Tax: 0.28l x €42.57/Litre = €11.92 tax/bottle of whiskey

For more on alcoholic products tax, see revenue.ie/Alcohol-Products-Tax

Supports Available

Bord Bia

Bord Bia has been identified by those already in the market as key support throughout their journey from the concept phase right through to getting product on shelves. Bord Bia’s trade events have been described as like “speed-dating” for producers and distributors, by Pat Rigney, owner of the Shed Distillery in Drumshambo when speaking to the Sunday Business Post. This has been echoed by Aidan Mehigan, co-founder of Gortinore Distillery, who stated that Bord Bia even set up a different branding category of whiskey, in order to give Aidan Grant funding and help them along his journey.

For more information on the services Bord Bia provide to Irish food and drink manufacturers, see www.bordbia.ie/manufacturers

Enterprise Ireland High Potential Start Ups (HPSUs)

Funding of up to €300,000 is available to start-up businesses who are deemed to have a high potential for growth. The criteria for new HPSU Start Clients can be summarised as follows:

· Introducing a new or innovative product or service to international markets.

· Involved in manufacturing or internationally traded services

· Capable of creating 10 jobs in Ireland and realising €1 million in sales within 3 years of starting up

· Led by an experienced management team

· Headquartered and controlled in Ireland

· Less than five years old from the date registration

The type of supports available to start-up businesses from Enterprise Ireland depends on:

· The stage of development of the business

· The type of activity that the business is engaged in

The Shed Distillery in Drumshambo was selected as one of Enterprise Irelands High Potential Start Ups in 2014.

For more information, see enterprise-ireland.com/HPSU

EII - Employment and Investment Incentive

EIIS is available to the majority of micro, small and medium-sized trading companies. This scheme allows individuals or groups to invest in a company in exchange for an income tax break. The tax relief is provided to assist companies to raise finance to allow them to expand and create or retain jobs.

Use of EII Money

· The company must use the money raised from the share issue for the purpose of carrying on a qualifying trade or if the company has not yet commenced to trade in incurring expenditure, on research and development.

· In addition, the use of the funds must contribute directly to the maintenance or creation of employment in the company (e.g. the money raised can be used to pay the wages of the qualifying employees of the company.

A company may apply to Revenue for Outline Approval. This gives an indication to the company that it would be considered to be a qualifying company for the purposes of EII. If a company wishes to apply for Outline Approval, the company should submit a Form EII Outline to Revenue

For more information on EIIS, see https://www.enterprise-ireland.com/EIIS

Ifac Food and AgriBusiness

Ifac Food and AgriBusiness provide a range of services for start-up or established Food and AgriBusinesses. Our services include assistance and advice with, Business Planning, Funding, Strategy, Digital Engagement, Feasibility studies, as well as being backed by a full tax, audit and payroll facilities. For more information, contact Head of Food and AgriBusiness David Leydon at davidleydon@ifac.ie or 0879908227

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