Behind the complex trappings of brand management, social media marketing, sports sponsorships, and digital advertising, the alcohol industry remains relatively simplistic at its core. This observation isn’t meant to be reductive or to divorce the commercial ecosystem of content and industry partnerships from what we call the “alcohol industry.” Rather, it highlights the inherent simplicity of a commodity-linked product. On a large scale, price fluctuations in this industry are driven by observable factors like production costs and supply-and-demand dynamics. Before delving into a historically grounded argument, it’s important to acknowledge that these complexities—sponsorships, brand reputation, and the collectible nature of spirits—play a significant role when zooming in from the broader economic perspective. While scarcity often holds significant weight, this paper aims to explore why the alcohol industry–particularly the whiskey market–is as prone to boom-and-bust cycles as traditional financial markets. Upon examination, two primary catalysts emerge: shifting consumer preferences and the conflation of these preferences with production inefficiencies. The normative upshot is clear; until these externalities are thoroughly quantified and addressed through technological innovation and improved demand planning, periods of market misalignment will persist. However, these cycles are not purely detrimental, and play a crucial role in driving the industry’s evolution, often spurring lasting and beneficial changes both culturally and technologically.

A Brief History of Whiskey Cycles

In the 2011 film Margin Call, there’s a famous scene where Jeremy Irons’ character, an Investment Bank Executive, recounts the history of market crashes, beginning with the Dutch Tulip Mania Bubble of 1637 and ending with the Great Financial Crisis, or as he dismissively puts it, “whatever you want to call this.” His point is clear: market crashes are cyclical and inevitable because they are foregone conclusions of human behavioral patterns and monetary systems. Whiskey shares a remarkably similar history, starting with the collapse of Pattison’s of Leith in the late 1800s, which brought the Victorian Scotch boom to an abrupt end.

Pattison’s Limited began as a dairy wholesaler in Edinburgh but shifted to whiskey production during a period of crop blight that devastated French vineyards and severely depleted the region’s brandy reserves. This shortage allowed Scotch whisky producers like Pattison’s to capture greater market share. However, overproduction and mismanagement ultimately led to the company’s collapse, triggering widespread bankruptcies across the Scotch whisky industry. Nine major companies and countless smaller suppliers went under, while Pattison’s larger competitor, Distillers Company Ltd., weathered the storm and acquired Pattison’s warehouses for a fraction of their original value. Today, we know Distillers Company Ltd. as Diageo, one of the largest spirits producers in the world.

These incidents are not isolated. Throughout history, the alcohol industry has repeatedly experienced cycles of boom and bust. The Whisky Loch of the 1970s seemed like an existential crisis for Scotch whisky, Irish whiskey was nearly extinct, and Japanese whisky struggled to expand beyond its regional sphere of influence. Later, Japan faced its own wave of distillery closures in the mid-1980s. Similarly, the Glut Era of American whiskey in the late 1980s left producers sitting on aging inventories with little consumer appeal. Premium whiskey expressions were often repurposed into everyday products, and numerous distilleries were forced to close.

Our Position:

Turning a macroeconomic critical lens towards these production cycles reveals two key foundational insights. First, consumer preferences for alcoholic beverages are particularly sensitive to cultural and industry trends. For example, the Bourbon Glut wasn’t caused by a large-scale regulatory event like Prohibition, but by waning demand for dark spirits within the broader cultural cache of the alcohol industry. As consumers pivoted towards clear spirits, the bourbon industry was forced to consolidate in terms of production capacity and product offering. Second, whiskey production is especially prone to over- and under-supply due to the long lead times required for barrel maturation. Distillers face persistent challenges in demand forecasting, particularly for aged expressions that require years or decades to reach the market. This misalignment creates further susceptibility to over production and price volatility as producers attempting to sell into an oversaturated market are forced to sit on surplus stock during periods of declined cultural demand or macro-imposed changes in consumer behavior. The midstream and downstream implications of these lead times are the difference between a brand or distributor’s success and financial ruin.

Current State:

As whiskey enjoys unprecedented global popularity, the industry faces a critical inflection point shaped by inflationary pressures and the aftermath of a decade-long demand surge. Rising CPI costs have eroded the consumer’s discretionary income, which fueled market growth during the Craft Cocktail Boom. While overall growth is slowing, whiskey remains positioned for strategic investment by various players throughout the value stream.

Data underscores the mechanics of this shift: according to Noble and Co.’s latest Whisky Intelligence Report, global auction sales of bottles priced over £1,000 dropped 40% by October 1, 2024, while volumes of high-end bottles fell by over a third. Additionally, the 2024 Knight Frank Index reported a 9% decline in its luxury whiskey index—the steepest fall among luxury goods tracked. However, these figures must be viewed within the broader context of economic normalization. The pandemic-driven distortions of 2020 have subsided, making price corrections inevitable across markets, from housing to collectibles. This recalibration should temper short-term expectations but paves the way for steadier, more sustainable growth.

Price corrections in collectibles often align with broader trends: as global wealth rises, valuations adjust accordingly. Inflation-adjusted prices for whiskey are ultimately dictated by rarity, collector demand, and historical significance. Recent pricing surges reflected speculative fervor and macroeconomic abundance rather than a fair assessment of whiskey’s relative value as an asset class and intrinsic value in the collectible context. Similar patterns have emerged in private credit, equities, and real estate, driven by central banking policies, supply-side shocks, and shifting consumer behavior. Thus, when we tie price action back to our thesis, its intersection with ecosystem level trends holds a great deal of explanatory power. Zooming in, American whiskey’s explosion over the better part of the last two decades was spurred on by what we’ll refer to as the “Van Winkle Renaissance”. As consumers hoped to bolster their collections or unlock value within mature expressions, craft distilleries, established producers, and traditional finance, shifted their focus to the market segment as a whole. Despite the influx of new capital, the result has been a race to the bottom of slowing sales, driven by overstocking, price fatigue, marketing saturation, shifting consumer behavior, and a mismatch between maturing inventory and market demand. As investors, speculators, and brand startups seek to exit positions or navigate insolvency, a new generation of enthusiastic collectors, alongside seasoned veterans–including bottlers, brand owners, and long-time collectors–has re-entered this buyer’s market.

Zooming out, whiskey’s cultural prominence and speculative demand appear to have temporarily peaked. While much of the new consumer base remains engaged, the long-term value of whiskey as a collectible remains anchored in its core collector market. The era of million-dollar Macallan bottles may be on hold, but this shift presents new opportunities: as speculation recedes, intrinsic value emerges as the primary driver for strategic investments and collector purchases across all levels of the hobby.

Conclusion

Collectors can benefit from moderating auction and retail prices, contract producers can source liquid from a position of discretion rather than urgency, and industry giants will continue to sit on surpluses of mature whiskey. This signals a shift towards quality over quantity. As prices correct, the best products will still rise to prominence fueled by the collectors.

Despite the influx of retail investors and new producers during the late 2010s and early 2020s, the whiskey market remains robust and shaped by historical precedent, supported by a broader base of interest than ever before. Looking ahead, we can anticipate a more technologically driven future capable of refining price discovery and market transparency. As speculative purchases from the past decade are gradually consumed, the market is likely to experience renewed emphasis on quality, further underscoring whiskey’s resilience as a disinflationary asset class, and maybe the next million-dollar Macallan will be sold on BAXUS.

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