Is Ireland Set For A Distillery-Building Boom?

By Richard Thomas

Whiskey is booming, and few sectors of the world whiskey market are booming moreso than Irish whiskey, with just the American revenues for Hibernian spirits having grown by 460% in the last decade. Jameson, by far the largest brand name in Irish whiskey, has grown from shipping less than half a million cases in 1988 to more than four million cases in 2012.

Similar long-term growth trends sparked the opening of numerous micro-distilleries in the United States. Even Scotland, a region already teeming with medium-sized distilleries, the spiraling numbers have caused shuttered distilleries to re-open, new ones to break ground, and a class of artisinal negociants to enter the market. Some new players have also entered the Irish whiskey market, raising the question of whether Ireland is heading for not just a whiskey boom, but also a distillery boom as well.

Reversing Decades of Consolidation
Like many industries around the world through the middle and late 20th Centuries, distilling in Ireland was consolidated down into just a few large producers, despite the many brand names. New Midleton Distillery made not only Jameson, but also Paddy, Powers, Tullamore Dew, and many others besides. When Cooley Distillery was converted out of an old potato alcohol plant in 1987, it was the first independent distillery in Ireland in decades.

Now that trend is reversing itself, and the reversal is accompanied by a spurt in distillery construction. The first big step was the 2007 opening of the Kilbeggan Distillery (now owned by Jim Beam), and the second when Grants bought Tullamore Dew from New Midleton in 2010, with a new distillery planned for the namesake town of Tullamore.

After Jim Beam bought the Cooley Distillery as the foundation for their own plans in the Irish whiskey market, Cooley-founder John Teeling and his family went on to other things. In a move reminiscent of his opening of Cooley, John Teeling bought the old Harp Brewery in Dundalk earlier this year, with the plan to convert it into a distillery. Jack Teeling founded the Teeling Whiskey Company, and has plans to build a distillery in Dublin.

Very recently opened Irish distilleries include the Dingle Distillery and Alltech’s Carlow “Brewstillery”, while other projects remain in development. Over in Northern Ireland (and remember Bushmills is still Irish whiskey), there is a plan to build a distillery in Belfast’s old Crumlin Road Gaol prison. As rosy as this seems, however, the picture for new distilleries and brands in Ireland is not without its dark spots.

Sourcing Hurdles

Building a distillery is capital-intensive, and in both the United States and Ireland, some new whiskey brands and acquired brand names have sought to establish themselves prior to having their own distillery by using sourced whiskey. Grants might own Tullamore Dew, but the whiskey still comes from New Midleton, while Teeling whiskey is also sourced for the time being. But the sources for whiskey in Ireland are drying up, putting the pinch on not only newcomers, but also established brands.

When Jim Beam bought Cooley, they began closing the doors to many of the small, independent brands in Ireland. This is understandable, as Beam’s intention for acquiring Cooley was to build their own presence in the Irish whiskey market. In cases such as Slane Castle, that meant not renewing a sourcing contract. In the case of Michael Collins Whiskey, it might have meant breaching one.

Jack Teeling, who was previously marketing director at Cooley’s, said “Beam obviously bought Cooley with a business plan to take advantage of the growth in the category by developing the brands we had and utilize Cooley’s stock and production assets to do this.” Another old Cooley hand who now works in a marketing role for Beam, Willie McArthur, elaborated on Beam’s Cooley plans: “We aim to create another Jameson. We are thinking at that kind of level. We have to make sure we do not run out of whiskey in three years’ time.” Beam currently owns Kilbeggan (which has a separate distillery), Connemara, Tyrconnel, Greenmore, and 2Gingers.

No Easy Task
Some of Cooley’s ex-customers have responded by starting up their own distilleries, as Slane Castle is doing. Others, however, are sure to be left out in the cold by the challenges inherent of starting a distillery. Jack Teeling, who knows more about these hurdles than most, described starting up a distillery as a “very long term project that requires significant money, time, access to technical skills, dealing with regulatory hurdles, and, probably most importantly, patience.”

In credit-strapped Ireland, where the 2008 banking crisis continues to reverberate in substantial ways, raising the money to build a distillery is a substantial obstacle, but only the first one. Even with the start-up capital, building a brand and finding a market can be an even more severe hazard for total newcomers. Says Teeling: “There tends to be a valley of death in year 3 or 4 of a project, as you need to tie up a lot of working capital laying down a lot of stock in the first few years, which are based on expected sales volumes. But the reality is when you start selling, building up branded sales and your route to market structure takes a lot of time which throws up very significant cash flow constraints.”

This is part of the reason why some concerns, in Ireland as in the United States, start by building a brand using sourced whiskey, and worry about having a distillery to call their own later. Others operate “brewstilleries,” making beer as well as whiskey, or reduce the amount of capital initially tied up into stock by selling unaged and small barrel whiskey products. Those latter avenues may be open for new distillers in Ireland, but it looks increasingly like sourced whiskey will not be.

Bright Future?
The one thing new and repositioned entrants into the Irish whiskey market can count on is future sales growth. The trends driving whiskey sales are both long term and international, as drinkers in North America, Scandinavia, Central and Eastern Europe, and Asia move away from “white” and into “brown” spirits. Irish whiskey, hobbled for decades by protectionism and lack of marketing, is now set for a major revival. The only real question is whether Irish distilling will see a major or a minor period of new construction and brand creation.