The whisky market correction continues unabated. This week I was offered a bottle of The Macallan 50-Year-Old Anniversary Malt for the princely sum of 42,000 GBP. Yes, this is a lot of money as you can buy a nice car or put a deposit down on a house, however, compared to its peak it seems a relative bargain. Distilled in 1928 and only five hundred bottles were made, making this a very collectable and desirable bottle. A quick check through auction results shows that it is over 50% down against auction highs from February 2020, and back to pricing from a decade ago.
Why is the market in freefall? One reason is sales inertia born out of an economical and psychological phenomenon called the endowment effect. In any trade or negotiation, the owner of the item tends to value it more highly than the potential buyer. The gap between the values where small allows a deal to be completed. There is a concession on both sides, with a price reduction by the seller and an increased offer by the buyer.
In the whisky market people who can afford to buy 5- and 6-digit value bottles do not necessarily need to sell them, they can hold on and do not want to move across the void towards the buyer's offers. The buyers see opportunity in the market and offer undervalued bids. The gap between the selling price and the buyer's offer has never been bigger. This is why bottles are struggling to sell and auction reserves are not being met.
What is the solution?
1. The onus is on the producers to rebase the pricing of new releases which in time means that the trading void percentages will fall when bottles reach the secondary market. Releasing increasingly old liquids hurts the valuations of the previous oldest bottlings, making some worth less than the original bottle RSP. Whisky is for drinking, but no one wants to buy something that is devalued a year later. This hampers consumer loyalty and damages brands as they must continually find new customers, as existing ones become frustrated and less connected with the distillery.
2. The short-termism of making quick money from recent releases needs to stop. As an example, Ferrari will only let you buy its latest model if you have bought before and kept the previous car(s). Distilleries need to better understand who their customers are and where their bottles are. Stock will become more finite in the market and will force price appreciation over time.
3. Buyers need to be realistic. From now on my first question when I receive a request will be “What’s your last and final price you will be willing to pay.” There may also be a non-refundable deposit to supply photographs that comes off the completed deal.
The long and short of it is everyone needs to be mindful of the gap as we need to find the bottom soon and get things moving. There are already enough headwinds with reduced consumption, a growing non-alcohol movement and governmental-level interference so as a drinks community we need to all work together.
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