The Irish Whiskey business model and alternative investment
Global financial markets in recent times exhibit an era of uncertainty and increased volatility. The main topics investors and traders focus on are the geopolitical concerns, the trade war scenarios between the US and China, the Brexit developments and the political uncertainty in the Eurozone with the debate over Italy’s fiscal budget that exceeds by far the limits the European Union has set for its members. Alternative investments in this framework seem an attractive option offering the diversification within a well-balanced portfolio. The US stock market has recently witnessed a decline from its recent highs in 2018 and many analysts and investment banks are worried about a potential slowdown of the US economic growth in 2019. Because of this, at least two or three interest rate hikes are expected by the Fed in 2019, and the main question for generating excess returns in 2019 is whether there is a market uncorrelated with major financial markets, an alternative investment to consider so as to diversify a portfolio and include not just equities, bonds, forex or real estate.
An alternative investment to consider is the Irish Whiskey market.
Two of the most important financial analysis points to focus on for alternative investments are whether a market has potential and future growth.
“Minister Simon Coveney will launch the Irish Whiskey Association’s ‘Vision for Irish Whiskey’ document this evening (12 May), setting out the industry’s ambition for the future and outlining its strategy to ensure continued growth.”, Source: https://www.checkout.ie/vision-for-irish-whiskey-launches-outlining-strategy-for-sector-growth/15981.
Five key pillars to support growth for the Irish Whiskey Market
The five pillars in the infographic include; “establishing adequately resourced infrastructure, including financial support for new entrants to the sector, creating clear guidelines for category integrity and promotion, and ensuring sustainable supply and demand with additional capacity to support market growth”, these show that Ireland is very serious about the vision to support its local whiskey market, which can contribute positively to its economic growth in the next few decades.
Major characteristics of alternative investments
Some of the most important characteristics of alternative investments are:
1. Diversification and non-normal returns
2. Low liquidity
3. Difficult to value
4. There are not always investment benchmarks and some alternative investment classes are not available to everybody
5. Due diligence is both necessary and costly
Invest in Irish whiskey market features
The following features are some of the pros to invest in Irish whiskey:
• The risk of the initial investment in buying whiskey casks can be fully insured against loss, theft, fire or damage. The Whiskey & Wealth Club based in Dublin and London actually have a legal options contract with Irish Whiskey brands that offer a minimum return of 61.5% within a holding period of 5 years, or an average return of 12.3% per year.
• The investment is tax-free during the holding period time horizon, as whiskey is stored in a bonded warehouse and there is only taxed paid upon liquidating the investment based on capital gains, with taxation varying between countries.
• The market is not regulated but each cask is registered with the Irish Revenue Commissioners office, and the investors receive an official certificate of their investment for legal and taxation purposes, so there is full transparency.
• There is plenty of liquidity in the Irish Whiskey market and investors can sell or liquidate their position before the suggested minimum holding period of five years, or hold for longer while there is the ability to monitor the performance of the investment over time
• ESG investing issues, such as the preference of not investing in companies with main business activities based on alcohol make this type of investment not suitable for all types of investors.
According to Scott Sciberras from The Whiskey & Wealth Club “The market is set to really boom. The last 21 years of growth in Irish Whiskey were strong (double-digit strong), but nothing like what is coming. With so many Irish distilleries coming online over the next decade and giants like Jamesons’ owner Pernod Ricard placing billions into global advertising, not to mention Russia and Asia starting to peak their heads into Irish Whiskey as a consumer, it’s set to grow bigger than we all thought. Irish Whiskey is still only 10% of the Scotch market, yet it’s not because of people’s preference. In the 1800s Irish Whiskey was once the most widely sold spirit on earth. Loved the world over, while Scotch wasn’t even on the radar. It outsold Gin and Vodka by large numbers. It was only because of unfortunate circumstances from 1850-1945 that it dropped in numbers. Circumstances such as the potato famine, Ireland’s War for Independence and Anglo-Irish trade war forcing all commonwealth countries to cease trading with Ireland (their largest export market at the time) Then Prohibition in the US, ( their second largest market) and Ireland went from 13 million cases of whiskey (equivalent to 105 million today) down to just 100,000! This opened the door to Ireland’s unknown cousins in Scotland to take over with free reign on the market and they did a great job. Scotland now sells over 100 million cases while Ireland sells 10% of that. However, I firmly feel the Irish Whiskey market will grow to at least 40 million cases by 2030 when you take into account brands like Conor McGregor’s Proper 12, Jamesons growth in the US, The Craft Irish Whiskey Co’s strategy for Asia and so many more Irish Whiskey brands set to boom. The issue is there simply won’t be enough supply for this type of demand. A barrel of mature aged Irish whiskey for sale right now in 2018 is very rare and hard to get hold of, there just isn’t any supply available other than what the big brands have stored for themselves, so in 5 years’ time with a further soar in demand, an aged cask of Irish whiskey will be like gold dust and will likely sell well above its normal value.”
Is this type of alternative investment suitable for all type of investors?
As a conclusion investing in the Irish Whiskey market seems an appealing alternative investment, but the answer to the suitability of this particular investment is neither yes or no. Any investor should always form and document a written investment policy statement (IPS) stating the risk and return objectives and constraints. This specific investment offers a minimum return and its appreciation is based more so on its age rather than the economy which is very appealing compared to the volatility and risks of the equities. It also exceeds by far the return of safe haven asset classes such as US treasury bonds, but due diligence is required on the tax, legislation, unique investment requirements and mainly ESG issues. An investor with a clear investment mandate prohibiting investments on companies whose major activity is based on alcohol will find no interest at all at this specific alternative investment.
Yet the main arguments in favor of this Irish Whiskey market investment are the importance and support of the Irish government to this business sector evidenced by the ‘Vision for Irish Whiskey’ and the growth prospects of the Irish Whiskey market as it resurges back to some of its former glory. Investing in a fast-growing market at early stages is often a well-balanced investment strategy for the risk-adjusted millennial generation, even in the absence of real investment benchmarks.