In the long and colourful history of Scotch whisky, there have been stratospheric highs and dispiriting lows. But the events of the past four and half years have surely been as tumultuous as any since legal distilling in Scotland began around 200 years ago.

Brexit, Covid, supply-chain disruption, geopolitical tension and war have presented new challenges to distillers who had become accustomed to continuous growth around the world over the previous two decades.

The uncertainty continues, as elections take place in major economies and conflict rages in Ukraine and Gaza, adding complexity to the business of making Scotch and shipping it to markets around the world.

Despite the upheaval, the industry appears to remain confident about its prospects for the future; so much so investment continues to be made to build new distilleries, expand existing operations and develop facilities for visitors in whisky-making sites around Scotland. This year alone we have seen the reopening of the famed Port Ellen Distillery on Islay, the reawakening of Rosebank in Falkirk and the first single malt to be released by Douglas Laing & Co from its Strathearn Distillery in Perthshire.

READ MORE: Business guru restored hope and renewal to Scottish town

New distilleries on the way include the community-owned Cabrach Distillery in Speyside, which is due to open this summer, while production is set to begin at the new Ardgowan Distillery in Inverclyde later this year.

In early June, it emerged £25 million will be invested to build a distillery near Inverary Castle.

Projects such as these speak to an enduring confidence in the future of Scotch, although distillers are facing many challenges in the near term.

The Herald spoke to a range of whisky producers and found a widespread consensus the global slowdown that affected the industry in 2023, following a boom in 2022 after Covid restrictions were eased and global travel reopened, has spilled over into this year. Conditions remain tricky in export markets post-Brexit and amid complications caused by global tensions.

However, there seems little expectation of the hangover lasting too long in the future.

Glen Gribbon, chief executive of Bladnoch Distillery in Dumfries and Galloway, told The Herald Business HQ the industry is “still in good shape”, declaring the consumer dynamics that have driven the growth of single malt in the past five-plus years remain intact.

“I honestly do not think these consumer dynamics, which take years to change, have gone away,” said the industry veteran, whose career has included senior roles with Whyte & Mackay and The Macallan.

“The reality is, if you look at IWSR (International Wine & Spirits Record) and SWA (Scotch Whisky Association) numbers, 2023 exports were significantly back, I think 19% in value, which is not insignificant. However, it was still 14% up on 2019, which was the pre-pandemic year. Sometimes you need to remind yourself that, despite a year that was back on 2022, there has still been really good progress.

“And I think 2022 for all companies was an exceptionally good year, probably too good, and that has got some short-term consequences that we are all having to deal with.”

A similar sentiment was shared by Jen Baernreuther, recently appointed managing director of The Glenturret Distillery in Crieff. Ms Baernreuther, who joined The Glenturret from Pernod Ricard-owned Speciality Drinks Group, declared the industry was displaying “resilience”, despite a challenging 2023 and the persistent backdrop of “geopolitical turmoil”.

(Image: The Glenturret)

Jen Baernreuther, The Glenturret

She told The Herald Business HQ: “With exports consistently demonstrating an ever increasing demand and international appreciation for Scotch, a shared feeling of confidence within the industry has encouraged a significant level of investment in the home market since 2018.

“There are, at present, 151 operating distilleries in Scotland helping to support 66,000 jobs in the UK and the growth and investment is set to continue in the years ahead. Regardless of the many challenges that face Scotch, there has never been a more exciting time to be a part of such an iconic and inclusive industry.”

However, Ms Baernreuther was quick to point out there are challenges in the near term, especially when it comes to exporting.

“Efficiently exporting products remains a continual challenge,” she acknowledged. “Restricting tariffs, shipment constraints and difficulties in finding suitable resource to navigate successful routes to market continue to pose significant risk to the industry.

“Businesses with the means to do so are establishing in-market operations to secure their supply chain and even smaller businesses are prioritising logistics to secure the future of their brand. Geopolitical tensions have impacted certain areas of trade however the ability to adapt and proactively reallocate stock accordingly has helped to ease negative effects.

“One of the other major impacts of global unrest has been the unprecedented rise in production costs both on the raw materials and energy required to produce Scotch whisky. As an energy-intensive industry, in some cases distillers have had to consider shut down periods to avoid monumental energy bills.”

READ MORE: Troon hotel set for bumper summer as The Open comes to town

Overcoming red tape and getting whisky to markets overseas is one thing; the economic conditions which prevail in those territories is, however, another.

Scotch whisky exporters are well accustomed to the vagaries of international trade, and in recent months have felt the effects of turmoil in two of their biggest markets, the US and China, which has been highlighted in recent months by major distillers such as players Diageo and Pernod Ricard.

The slowdown in China has come as economic growth in the world’s second-biggest economy has failed to match the more explosive expansion we have become used to in recent years, while the outlook in the US is uncertain ahead of the November election. The prospect of the US re-introducing damaging import tariffs on single malt should Donald Trump return to the White House is also a concern.

Distillers also report that local distributors are continuing to work through stock shipped previously to market when demand was stronger, a situation playing out across a host of international markets beyond the US and China.

“The Scotch whisky industry has been on a strong run for a number of years, but we are seeing a slowdown across the sector this year due to a combination of over-stocking post-Covid and softening consumer demand due to economic factors,” said Euan Mitchell, managing director of Isle of Arran Distillers. “It is expected to be a relatively short-term bump on the road and that the premiumisation trend will continue from 2025 and beyond.

“China is struggling right now as we face the twin challenges of too much stock in the market and the key on-trade yet to return to anything like pre-Covid levels of demand. China is a market where it is on fire when things are going well but it rapidly grinds to a halt when the outlook is not so positive.

READ MORE: Is Scottish chef right about what hospitality needs?

“Geopolitical tensions are having a direct impact on export sales and are creating a lot of uncertainty which in turn undermines global trade. The war in Ukraine has obviously affected trade to both this market and Russia, but it is the polarising effect it is having of ramping up tensions between east and west which is the most concerning factor for the long-term.”

Mr Gribbon noted distributors in some markets are currently less reluctant to order new or more innovative products while uncertainty persists in certain economies, and said there was now more “price sensitivity” among buyers following some “aggressive” price increases in the immediate post-Covid years.

“Certainly in 2022 and the early part of 2023, everyone was putting through pretty aggressive price increases, and in some cases probably pushed that a little bit too hard,” he said. “There might have to be some price realignment after some exceptional years. 2022, in particular, was probably too good, and people were guilty in some markets of over-shipping. As a result, the last year probably feels more negative or more difficult than it actually was, because if you look at the performance over a three-year period I think it is still a pretty strong performance. Longer term, the category and consumer dynamics are still really positive, especially [for] single malt whisky.”

One of the biggest challenges that has emerged over recent months has been the steady rise in interest rates, which Mr Mitchell observed has pushed up the cost of borrowing to fund major projects.

Billy Walker, owner of the GlenAllachie Distillers Company, said the industry had entered a new era after years of ultra-low interest rates, although he observed that this was less of an issue in markets where people are less pre-occupied about home ownership.

Reflecting on the firm’s results for its most recent financial year, which were due to be published at the time of going to press, Mr Walker told The Herald Business HQ: “This will not be an easy year. This was the year of the end of cheap money. The impact of higher interest rates has affected people [in the] whole chain of supply right across the world, some territories more than others.

“But I’m not down-hearted because Asia, which is very important to us, is still doing okay. It might be a little bit slow at the moment but I’m pretty confident that once things have equilibrated we will be back on track. I’m not really too down on it. I think it was inevitable that there would be an impact from higher interest rates.

“We also had a problem that we had rebranded GlenAllachie, so we had the challenge of importers and retailers having to run down to the old livery to get the new stuff in. But by and large we are not too far off track. We are confident that our expectations for the year will be fulfilled by the time we come to the end of the year.”

READ MORE: Bright future predicted for Scotland's famous whisky island

Asked to elaborate on market conditions in China, Mr Walker said: “Unquestionably, there is a cooling in China in particular. But we are still confident that our expectation will be delivered for the year. We are a small company, we have a lot of brand loyalty and there’s quite a small following for GlenAllachie in China.

“I was in South Korea and Taiwan a few weeks ago and there was no evidence or sign that people were tightening their belt. These societies are different, they are not as fixated by owning property, they do not have the burden like the UK of a high percentage of people owning property.

“There is no doubt there are some headwinds out there, but it is all about being clever enough to go with the waves and identify where the strengths are.”

Mr Gribbon at Bladnoch, which is owned by the Australian entrepreneur David Prior, underlined the importance of China to the long-term potential for Scotch exports.

He said: “China is not a top five market for us, so we are not over-exposed, but if you look at our future growth plans, for a super or ultra-premium single malt, China has to be a big part of your plan. It has to be.

“The growth of China has been remarkable over the last five years. For that not to continue or to go backwards of course is a challenge, even if you are not over-exposed today.”

One great hope for the Scotch whisky industry is India, which has long been held up as market of huge opportunity. India, which boasts one of the world’s fastest-growing economies, has a burgeoning middle class who are increasingly interested in whisky, both imported and locally made. However, imported whiskies, including Scotch, face significant barriers to entering the market in the form of import tariffs.

READ MORE: Troon hotel set for bumper summer as The Open comes to town

There are hopes greater access to the market can be secured if the UK is able to secure a free trade deal with India, but for the time being this seems to be a remote prospect, not least because UK trade policy may change should Labour come to power.

“As one of the largest consumers of whisky globally, India is an exciting future prospect,” said Ms Baernreuther at The Glenturret, which is distributed to 15 global markets including South-east Asia, the US and China. “There is increasing hope for future trade opportunities however with the growing appreciation for Indian whisky, it may be a while before the floodgates open.”

Mr Gribbon at Bladnoch is equally enthused about the potential of Scotch whisky in India, and highlighted the prospect of the industry’s products reaching an audience of hundreds of millions of consumers.

However, he admitted trade barriers are one of the main ways in which political uncertainty “really starts to manifest itself”. As well as referencing current trade barriers in India, he raised the prospect of Donald Trump introducing an import tariff of 10% on single malt Scotch whisky if he is re-elected as president of the US following the election in November. Tariffs imposed by the first Trump administration had a hugely detrimental effect on exports of single malt Scotch whisky to the US.

Mr Gribbon also noted duty in the UK is the highest in the G7 group of nations, having been increased by the Conservative Government contrary to a manifesto pledge.

“The uncertainty of that makes is quite difficult for the industry to plan,” Mr Gribbon said. “The counter to that of course is that there has been a huge amount of optimism over tariff reductions in India, which would open up probably the most exciting Scotch market in the world, or begin a process of opening it up. The SWA remain optimistic about that, but who knows what is going to happen in a period of political change.”

At the same time Scotch whisky is trying to establish itself in key markets overseas, it is also facing growing competition from whiskey made in other parts of the world, be it US, Irish, Japanese, Indian and Chinese. Scotch whisky distillers appear to be relaxed about developments, however, with one saying it can help lift Scotland’s national drinks to even greater heights.

“Whisky distilleries are found all over the world now, with most being modelled on the traditional Scotch whisky distilling methods,” said Robbie Millar, president of global whisky and prestige at Suntory Global Spirits, formerly Beam Suntory, a subsidiary of Japan’s Suntory Holdings and owner of brands such as Bowmore, Laphroaig ad Yamazaki.

READ MORE: Gin born after chance meeting at parent and toddler group

“I think this is a testament to the enduring reputation for quality and craftsmanship of Scotch whiskies, and something we should all be proud of. Scotland has been inspiring whisky-makers around the world for generations – we can see this in the history of our own business, as Shinjiro Torii was first inspired by Scotland’s whisky traditions when he founded the Yamazaki Distillery 100 years ago – so this is nothing new.

“We shouldn’t ignore the rise of whiskies from other regions in the world – it can be a source of innovation and inspiration for us, and it could even help to drive interest in Scotch with a new generation of global consumers.

“Within this more colourful global whisky industry, the Scotch industry just needs to ensure that we are always known for making the best whiskies available. So our focus needs to be on quality, finding new ways to invite consumers in, and enhancing the reputation of our whiskies globally.

“Currently this is left to individual companies and brands but perhaps in time, we will see the need for collective promotion of the category as one industry, just like some wine regions do.”

Mr Mitchell at Isle of Arran Distillers added: “We firmly feel there is room for all whiskies as far as consumers are concerned, and bringing differing taste profiles into the category is not a bad thing and not something that Scotch whisky producers should be worried about.”

Meanwhile, distillers in Scotland are continuing to invest in their visitor facilities to make the most of the growing global interest in whisky tourism. The most up to date figures show two million people visited Scotch whisky distilleries in 2022 and the industry expects a comparable figure to have been recorded in 2023, despite the ongoing cost of living crisis.

Mr Mitchell noted whisky was a “very important” part of the tourism offer on Arran, which he declared was as popular as ever to visitors despite well documented challenges facing the ferry service.

“We have always enjoyed very, very strong visitors numbers to our Lochranza Distillery Visitor Experience, and we are seeing the same now with Lagg at the south of the island,” he said.

“We offer some of the very best tour and tasting experiences in the industry and our connection to a global audience through our worldwide distribution network encourages people to make the pilgrimage to enjoy their favourite whisky in the place it is made.”

A similar message was conveyed by Ms Baernreuther at The Glenturret, which in early 2022 became the first Scotch whisky distillery to earn a Michelin star for its Lalique restaurant, less than seven months after it opened.

The restaurant was developed by Lalique Group of France as part of its investment to revitalise the distillery after its acquisition from Edrington in March 2019. The Glenturret dates from 1763 and is understood to be Scotland’s oldest working distillery.

Ms Baernreuther said: “Whisky captivates audiences from across the globe and the influx of visitors to whisky experiences and visitor centres each year bring a welcome boost to the economy and other local businesses can also benefit from the increased footfall.

“At Glenturret we strive to offer visitors an immersive and unique experience that will create a lasting positive memory of both Scotch and Scotland itself. We embrace our beautiful natural surroundings and offer green tour options such as our Earn Your Dram e-bike experience for our ever increasing environmentally conscious guests. Becoming the first in the world to offer Michelin dining in a distillery has also attracted food tourism to the area and we have helped to redefine the culinary landscape when it comes to merging the concept of whisky and food.”