THE path to export success is never smooth.

While the overall direction of Scotch whisky exports has been broadly upwards over the last two decades, there have been significant bumps along the road.

There was the pandemic, of course, which hit sales in travel retail stores and hospitality outlets (though many brands did extremely well through online and take-home channels), and before that import tariffs during the Donald Trump presidency had a major detrimental effect on single malt Scotch exports to the US.

Now, as underlined by the most recent results from Diageo, we are seeing the impact of global economic uncertainty on sales.

The Scotch whisky giant, which makes the famous Johnnie Walker blended Scotch and a host of well-regarded single malts, cited a sharp fall in sales in Latin America and the Caribbean as it reported a steep decline in profits in the half year ended December 31. It attributed the downturn to tough comparisons with the year before, when sales surged as economies reopened following Covid restrictions, as well as “lower consumption and consumer downtrading due to macroeconomic pressures”.

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Chief executive Debra Crew, who succeeded the late Ivan Menezes last year, said Diageo has responded by reviewing stock levels and monitoring performance, telling the City that it has “further plans to reduce inventory to more appropriate levels for the current consumer environment by the end of fiscal 24”. Ms Crew added: “This is a key priority.”

Ms Crew, who previously ran Diageo’s North America business, expressed confidence that the company would see an “improvement in organic net sales and organic operating profit growth at the group level, compared to the first half”. But she conceded that the “macro environment will continue to present challenges”.

In one way, it was not surprising to hear Diageo had run into difficulties in certain markets. The industry as a whole was always going to experience some impact when the initial Covid comeback began to fade, especially in western countries where macroeconomic conditions have become more challenging because of rising inflation and interest rates.

Indeed Pernod Ricard, owner of the Chivas Brothers Scotch whisky business, reported a “soft start to the year” when it reported a 2% fall in organic sales in its first-quarter results in November. The tough comparisons with the year before were especially felt in the US and China, where sales had “declined in a challenging macroeconomic environment”, though Pernod noted that the latter had been “partly offset by a very dynamic performance in the rest of Asia, modest growth in India, resilience in Europe, and stability in travel retail”.

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There seems little doubt that, because of macroeconomic conditions, the export situation is challenging for the Scotch whisky industry in certain key markets at present, and it is perhaps unrealistic to expect things to improve markedly soon.

In Europe, for example, only modest economic growth is forecast for Germany and the UK this year, according to the International Monetary Fund, with France expected to fare only slightly better. Economic growth in China is expected to slow to 4.6% this year and decline further to 4.5% in 2025, a poll by Reuters found last month.

Yet, it is hard to conclude that the Scotch whisky industry will see the current headwinds as anything other than challenges for the near term. As the Scotch Whisky Association recently noted when it published its latest economic impact report in January, the industry has continued to invest over recent years despite the many challenges it has faced on the domestic and international fronts.

And there is plenty of evidence to suggest this will continue. As an example, take the current investment in a £20 million “cathedral of whisky” in Inverclyde. Work is now under way on the construction of the Ardgowan Distillery near Inverkip and it is certainly no minor project.

Bosses anticipate distilling an initial one million litres of spirit per year at the site after it is up and running towards the end of 2024, before later ramping annual production up to two million litres. They also hope to turn Ardgowan into a leading tourist destination when its visitor facilities open, with the expectation that the distillery will ultimately employ nearly 50 people across its various operations.

A team of industry heavyweights has also been assembled at Ardgowan, the latest addition being chairman Paul Currie, who co-founded Isle of Arran Distillers in the 1990s and more recently jointly launched The Lakes Distillery in Cumbria.

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Mr Currie said: “A new wave of distilleries are now opening both in Scotland and in the rest of the world and Ardgowan Distillery is set to be at the forefront of these, with a terrific location, innovative ideas, and an outstanding team.”

If that does not sound like optimism, I don’t know what does. And it is optimism that is shared by R&B Distillers, the Scotch whisky firm established by Bill Dobbie and Alasdair Day in 2014.

The firm, which announced this week that Mr Dobbie had moved into the chairman role and been succeeded as managing director by son William, has ambitions to increase turnover to £25m from the current £5m over the next decade. Its plans include the opening of new distilleries in Machrihanish, near Campbeltown, over the next 12 to 18 months, and in Coldstream in the Scottish Borders in the longer term. These would supplement the company’s Isle of Raasay Distillery, which opened in 2017 and now employs 35 people on the Hebridean island.

William Dobbie said: “The whole team deserves so much credit for our success to date, and our 10-year vision is centred on taking the business to the next level, increasing our international presence in lucrative markets like North America and Asia. While the high end of the whisky market has come under pressure over the last year, we have managed to significantly increase sales, [and] grow a loyal customer base and brand in the face of industry headwinds.”

Distillers such as Ardgowan and R&B are rolling out their expansion plans against the backdrop of what many in the industry see as a hugely challenging spirits duty regime in the UK, which the SWA notes is the most punitive in the G7 group of nations.

With the UK Government's March Budget, the last before a general election, on the horizon, SWA chief executive Mark Kent declared that it is “vital that the industry is supported by government so that businesses can continue to invest in the UK economy”.

Are you listening, Jeremy Hunt?