THE SCOTCH WHISKY EXPERIENCE centre stands in the environs of Edinburgh Castle, which, by the most conservative estimate, dates back to the 12th century. As part of the centre’s whisky tour, in a barrel through ghostly tunnels, a computer-generated whisky guide tells you how the amber liquid, which gets its name from the Gaelic word uisge, for water, is made. Tour done, I chat with a manager at the building, which houses the world’s biggest collection of old whisky, and my reward is two stories. One, Alex Salmond, the firebrand leader of the Scottish Nationalist Party that narrowly lost the vote to get Scotland independence from Great Britain, speaks at best a wee smattering of Gaelic, the language of the Scots. And two, in 2009, the centre, one of Britain’s top tourist attractions, added a couple of new languages to its commentary: Hindi and Mandarin.

All Grey: Many fear the glory days of Scotch are over. Seen here is the shuttered Caperdonich Distillery
All Grey: Many fear the glory days of Scotch are over. Seen here is the shuttered Caperdonich Distillery

That last bit of trivia encapsulates the radical changes that the Scottish whisky industry—contributing $7.7 billion (Rs 48,641 crore) and 50,000 direct and indirect jobs to the British economy—finds itself in. Hit hard by a historic fall in sales, a changing global exports map, and younger consumers demanding newer tastes, it is facing a crisis that threatens the traditional core central to the pride and glory of Scotch. But the story of fickle markets and the rise of the Asian consumer has been told before. This is a different tale. It is about how the Scots, torn between the currents of globalisation and nationalism, are preparing to fight back.

Of course, it is tough to get someone in the small and fiercely close-knit Scottish whisky industry to even admit to the crisis. Ask them about Japanese whisky, which now regularly tops global lists as the finest in the world, and the Scots will point to age. Japan, they say, has been producing whisky for barely 140 years, while Scotland has been at it for at least 500 years. Scottish whisky exports are 10 times that of Japan. But numbers also tell another story—that last year, global sales of Scottish whisky fell by 7% in dollar terms and 3% in volume terms. That in the U.S., its biggest market, sales fell by 9%, and even at home, by 5%. Sales in Russia declined by 95%, and the country dropped out of the Scotch Whisky Association’s list of 20 top global markets.

Overall, Scotch exports fell last year at their fastest rate in 16 years, following a decade of breakneck growth when sales of single malts grew by 157%. And these numbers are not just for entry-level cheaper whiskies which account for the bulk of volumes; they are true of the expensive blends and single malts as well.

What caused this debacle? Shaky economic conditions the world over, for one. Russia is mired in political troubles and crippling economic sanctions triggered by the war in Ukraine. In China, Communist Party bosses have clamped down hard on excessive spending by apparatchiks. Even South Africa, another promising emerging market, seems stuck in an economic rut.

But a bigger reason for the reversal is the unprecedented surge of nimbler rivals. In the U.S., craft beer is eating into its turf and even spreading to Britain. Another formidable rival is cheaper and increasingly better quality bourbon. Last year, bourbon sales rose by 7.7%, says the Distilled Spirits Council of the U.S. Then there are the upstarts springing up in corners least expected: At this year’s World Whiskies Awards, Taiwan’s Kavalan Solist Vinho Barrique was crowned the world’s best single malt.

And finally, there’s the Japanese assault. In his 2015 Whisky Bible, British whisky guru Jim Murray named Japan’s Yamakazi Sherry Cask 2013—which he described as “near indescribable genius” with a “nose of exquisite boldness”—as the world’s best whisky. This was the first time in the Bible’s 12-year history that a Japanese whisky landed the top spot. The bigger shocker: No whisky from Scotland made it to the top five.

Mumbai lawyer Shishir Mehta, a partner at the law firm Khaitan & Co, is a whisky connoisseur. “As a regular consumer, I am always searching for better and more unique tastes,” he says. “Right now, often the better tastes are coming from Japan,” he adds, explaining why he’s moved from his old Scottish favourites to Hakushu made by the Japanese distillery Suntory, which bought over America’s biggest bourbon company Beam Inc., the makers of Jim Beam. The new company, Beam Suntory, also owns marquee Scotch brands like Laphroaig, Teacher’s, and Bowmore.

Insiders suspect Scotch makers were blinded by years of unchallenged domination. David Frost, chief executive of the Scotch Whisky Association (SWA), admitted as much right after the grim numbers were announced last year, saying that “the success of Scotch whisky cannot be taken for granted”. Adding more evidence that the decline hit where it hurt most—jobs—the British government agreed to cut duties on whisky by 2%, a move Martin Bell, SWA’s deputy director for Asia Pacific, says was a “major lobbying victory”. “It set out clearly once again the importance of the Scottish whisky industry—that it is the second largest contributor to Britain’s balance of trade,” says Bell.

BELL'S COMMENT STRIKES at the heart of why a lot more than bragging rights among the whisky elite is riding on the future of Scotch. The largest contributor to Britain’s exports is the mechanical machinery industry, raking in some $64 billion. But it also imports inputs worth nearly $56 billion. Contrast that with the $6.6 billion from whisky exports, at an import bill of barely $300 million. “We use almost all local products—yeast, water, barley. Only some of the barley is imported in a few cases,” says Bell. “This is unlike any other industry.” It helps that a whisky can be called Scotch by law only if it has been matured at least three years in Scotland. (The industry is fighting some 70 lawsuits against alleged trademark infringement in 30 countries.)

Industry Grade: Scotch uses only three ingredients - barley, yeast, and water - most of it sourced locally. This makes it one of Britain's most valuable exports.
Industry Grade: Scotch uses only three ingredients - barley, yeast, and water - most of it sourced locally. This makes it one of Britain's most valuable exports.

Government can only do so much. To spur the fight back, the industry is uncorking a barrage of innovations, many of them utterly philistine to purists. Take Ballantine’s Brasil, the first time in 188 years that the world’s second most popular Scotch whisky label has used anything other than yeast, barley, and water: It has lime. Which means giving up the Scotch identity for the plebeian “spirit drink” tag.

Peter Moore, global brand director for Ballantine’s, which is owned by the French liquor giant Pernod Ricard, is not lamenting the loss of the label. He says Ballantine’s Brasil “can truly inspire those who have not yet found their perfect way to enjoy a Scotch whisky drink”.

Says Anthony Schofield, director of public affairs at Chivas Brothers (also owned by Pernod Ricard): “There is a younger customer who wants something new. But how do we get new when the whole Scotch experience is about ‘the older, the better’? Ballantine’s Brasil is one of the ways we can do this without losing our core identity.”

While you may think Ballantine’s is doing the unthinkable, it is merely following the trend: Flavoured whisky is currently all the rage in the U.S., where its sales were up 40% last year. That’s not the only change. Consider Barrel Hound. Pernod Ricard launched this matured-in-American-casks whisky to bridge the gap between Scotch and bourbon. It is sweeter than a typical Scotch—its tasting notes mention a “sweet bourbon-like finish”—and it comes in fat-stomached, bourbon-like bottles with a sepia-tinted Wild West-style label. There’s also Chivas Regal, a “no age statement” whisky that is lighter than the usual Scotch and targets women.

THE "NO AGE statement” gambit is the most telling indication of how far Scotch is willing to go to win back market share. At once it is the future and the ultimate blasphemy, destroying the foundation on which whisky pricing has stood for hundreds of years.

To better understand the desperation, I travel to The Cube, the Glenmorangie headquarters in Edinburgh, to meet Bill Lumsden, 55. He’s the head of whisky creation and distilling at The Glenmorangie Company (owned by LVMH Moët Hennessy-Louis Vuitton), and is regarded by most in the industry as one of its contemporary geniuses. In keeping with his image as the mad scientist, he has wayward hair, and an office that looks exactly like a chemistry lab, complete with mortar and pestles, beakers, flasks, evaporating dishes, and funnels.

When I meet him, he’s busy writing a white paper on a space experiment, where vials of Ardbeg, the very peaty, much awarded whisky from the island of Islay, were sent off to the International Space Station in 2011 to orbit Earth for a while. The idea was to see how oak and whisky mature together in space. Though the findings are not out yet, Suntory is now planning to send its own vials to space.

“This whole age thing is a bit of a rod our industry has put in its own back,” Lumsden tells me. “This is my personal opinion, but it is a very strong opinion.” He should know. He made one of the most successful whiskies never to have an age statement on it, the Ardbeg Uigeadail, which entered the market in 2001. Fifteen years later, what was an eccentric aberration has become a norm in the Scotch whisky market. There is hardly a brand that hasn’t introduced no-age-statement whiskies in the past one year.

“Our competition [like bourbon and Asian whiskies] is often not held to the rigorous standards of age that we have imposed on ourselves,” says Lumsden. “If we continue with such controls, then we do not have enough supply. We will not in the future have products for younger customers,” he adds.

To get a sense of just how irreverent the competition is, consider Defiant, an American single malt, the “Best New Whisky of 2013” at last year’s Drammie Awards. Defiant claims a “proprietary ageing process far more efficient than barrels”. In one magazine article, the brand triumphantly claims that what tasted like a 10-year-old whisky had only been matured for 60 days. The brashness worries Lumsden. “You can do anything with chemistry,” he says. “You can claim that a few days’ old spirit is whisky. That cannot be the future. However, we must not stagnate.”

TO ATTAIN THAT balance, Lumsden, who has earlier experimented with chocolate-flavoured whisky, is throwing his might behind dramatic new concoctions. He is designing a whisky with the taste of “old confectionery, think even M&Ms”. And to showcase that whisky, which might be released next year, there will be packaging which the Scotch business has never seen, and which Lumsden mirthfully says his marketing team “hates”.

He won’t say more, but I take a shot anyway and guess red and pink. “You are very close,” he says, smiling. “It will attract a whole new audience. Scotch whisky is no longer an older man’s drink and we have to reflect that.” Colourful and accessible doesn’t mean cheaper though. All such special flavours sell at double (or more) the average price of the classic Glenmorangie—about $40 for a 750 ml bottle.

While red and pink might be extreme, colour seems to have irreversibly seeped into Scotch. British company Diageo, the biggest spirits company in the world, has come up with Haig Club, a light whisky that aims to compete with the best vodkas or gins in the world as a cocktail base. It comes in a rich blue square bottle, without a label or an age, with a steel cap—similar to that of Hendricks gin—and is promoted by star footballer David Beckham who contributed to its creation. Nick Morgan, head of whisky outreach at Diageo, says sales “exceeded expectations in the first year”.

Sandeep Arora is India’s best-known whisky marketer. He says all the experimentation is particularly crucial for blended products. In the world of Scotch, blended whisky like Chivas Regal or Black Label or Johnny Walker is entry-level fare, while single malts are at the premium and top end. It is also where Scotch is losing out more pronouncedly to American counterparts. Last year, blended American whisky sales grew 41% while blended Scotch fell by 3%. In contrast, single malts grew 6.4%. “In single malts demand is far greater than supply, but what is starting to pinch is the [fall] at the entry level which brings the maximum volume,” says Arora.

To lure back customers, there’s innovation in whisky real estate too. Far from the solemn climes of the Edinburgh Castle, Johnnie Walker last year opened two new fronts of the Johnnie Walker House, an “embassy of whisky experience”, at Mumbai airport’s T2 terminal and Terminal 2 of the Taoyuan International Airport, Taipei. Following houses in Shanghai, Beijing, and Seoul, these will serve as spaces to educate consumers on the brand’s history. They also contain mentoring spaces where “brand ambassadors will invite consumers on a sensorial journey to touch, taste, and smell the rare elements that make up Johnnie Walker”.

Lyricism apart, the new locations are expected to be vital marketing and sales pillars: The Mumbai and Taipei airports together handle 63 million passengers every year, says Doug Bagley, managing director, Diageo Global Travel and Middle East.

eanwHile, there’s politics. It is inescapable in a country where politicians fighting for independence regularly use appearances at distilleries to boost support, as leaders of the Scottish Nationalist Party (SNP) did before the referendum last year. But the SWA’s stand was clear: Its entire top management supported the continuation of Scotland’s union with England. “When 99% of our product is exported, even though most of it is entirely made in Scotland, we have to accept that we are a truly globalised product,” says Lumsden. “The continuation of the union reflects that.”

Pernod Ricard’s Schofield offers more practical logic. “The British embassies are great ambassadors for the promotion of Scottish whisky. If that is suddenly taken away, how long will it take for Scotland alone to replicate that network? It just does not make sense.”

A top manager at SWA tells me that the SNP is consistently using false propaganda to urge people towards independence. This criticism is based on what is today seen by many in Scotland as false hope, especially since estimates of North Sea oil, on which the SNP’s independence move was based, turned out to be inflated by more than $60 billion in the run-up to the referendum. “If the money is not going to come from oil, where will it come from?” a high-profile Scotch whisky CEO asks me, and then answers, “It will come from whisky. They would keep squeezing us for more and more money.”

Two Worlds: While a section of the Scotch industry takes pride in a product that is thoroughly global, many distillery workers loathe the takeover of Scotch firms by foreign companies. 
Two Worlds: While a section of the Scotch industry takes pride in a product that is thoroughly global, many distillery workers loathe the takeover of Scotch firms by foreign companies. 

Talk to some of the workers though, and a different anxiety crops up. James Maccallum, 31, works in one of the biggest distilleries in Scotland (he forbade me from naming it). He says he is worried that one by one, all of Scotland’s bellwether whisky companies are being bought by foreign conglomerates. Even the few remaining Scottish-owned companies, like Edrington, which has brands like Macallan and The Famous Grouse, talk of having 60% of their employees outside Scotland. “If we are independent, we might have more of a say on how to approach globalisation,” says Maccallum. “Independence”, he says, “is not a matter of if but when.”

But for Lumsden, “a historic referendum has happened; a decision has been made”. Britain stays united, and undivided in support of the product that defines Britannia like few others. “We now need to focus on proving that last year was just a blip,” Lumsden says, before disappearing into his laboratory.

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