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RPT-Scottish whisky industry invests to meet booming demand

(Clarifies Glenfiddich and Glenlivet sales figures in thousands of cases in paragraph 19)

* Scotch industry invests 600 mln pounds over three years

* Single malt whiskies outpace overall industry growth

* Chinese market for scotch whisky growing strongly

By David Jones

LONDON, June 25 (Reuters) - The Scottish whisky industry is booming again with investment pouring in to boost capacity as distillers defy the recession and the current sluggish recovery with an eye on the fast growing markets of Asia.

Leading the charge is the single malt whisky market boasting names such as The Glenlivet, Glenmorangie and Macallan which may only account for a fraction of the industry, but is growing faster than the much larger blended scotch market.

Over the last three years, the Scottish whisky industry has invested 600 million pounds ($898 million) in malt and grain distilleries, warehousing and bottling and despite the downturn none of these expansion plans have been cancelled or delayed.

Optimism is fuelled by markets like as China which rose to be worth 80 million pounds in 2009 from a mere 1 million pounds in 2000 in an industry which exports 90 percent of production worth an annual 3.13 billion pounds to the Scottish economy.

Single malts only account for just over 6 percent of 2009’s 94.4 million 12-bottle case scotch market by volume, but the malt industry has grown volumes by 23 percent in the 2005-2009 five-year period compared to 10 percent for the whole industry.

Single malts come from Scotland’s 102 malt distilleries scattered mainly across its highlands and islands, while the much large blended brands such as Johnnie Walker, Dewar’s and Ballantine’s are made up of around one third malt and two thirds industrially produced grain whisky.

Glenmorangie is typical of those pouring in investment despite the difficulty of predicting demand for 10 years plus when these single malt whiskies will be ready for bottling.

Its distillery on the shores of the Dornoch Firth in northeastern Scotland boasts the tallest stills in the industry to create a light fruity malt whisky which is No 1 in Scotland and the fastest growing in the United States, the world’s biggest single malt market.

The world's biggest luxury goods group LVMH LVMH.PA snapped up Glenmorangie along with the Ardbeg distillery on the island of Islay off the southwest coast of Scotland in 2005, and boosted production by 50 percent last year spending 4 million pounds to add four new stills to its original eight and currently produces 6 million litres of alcohol a year.

“We are going to need all the extra whisky in 10 years time. There is a growing demand for the future with single malts outperforming the industry and Glenmorangie outperforming the single malt market,” said the distillery’s whisky creator and master distiller Rachel Barrie.

Plugging into LVMH’s worldwide distribution network has given Glenmorangie greater access to Asian markets such as China where LVMH has a big presence due to Chinese drinkers liking for cognacs such as the group’s Hennessy brand.

SPEYSIDE HEARTLAND

In the whisky making heartland of Speyside in northeast Scotland, the Macallan is also expanding production of its heavy, aromatic single malt made from some of the smallest stills in Scotland, and as the distiller says the smaller the still the sweeter the spirit.

The privately-owned Edrington Group, which produces the blended Famous Grouse and two other single malts Highland Park Glenturret, has spent 4.5 million pounds dusting off and renovating six old stills last used in the early 1990s at Macallan to add to its existing 15 stills.

This will boost capacity by 35 percent to 8.75 million litres of alcohol per year to meet demand for its mainstream 12-year old product aged 100 percent in sherry oak barrels.

“We are seeing growing demand for our whiskies especially in our strongest markets of the U.S. and Taiwan and we are also seeing growth in the Far East, Russia and Spain,” said Macallan’s market innovation manager Annabel Kohler.

Pernod Ricard PERP.PA, the spirits giant behind whisky blends like Chivas Regal, is investing 10 million pounds behind its top selling single malt The Glenlivet to boost sales and close the gap on single malt market leader Glenfiddich.

With 75 percent of output going into single malt production at the oldest licensed distillery in Speyside there was need for expansion for use in both single malts and blending. The investment has pushed up capacity by 75 percent this year adding six new stills to the eight originals to bring annual production up to 10.5 million litres of alcohol.

“Mature markets such as the United States are growing and so are emerging markets like China,” said Pernod’s master distiller Alan Winchester.

Glenlivet sold 612,000 cases in 2009 up 2.1 percent on 2008 according to figures from the IWSR drink industry magazine while market leader Glenfiddich, privately owned by William Grant, fell 3.2 percent to 874,000. These are followed by the Macallan, Campari's CPRI.MI Glen Grant and Glenmorangie.

The world's biggest spirits and whisky maker Diageo DGE.L has spent 40 million pounds building the first new distillery for over 30 years which started up last year with a capacity from its 14 stills to produce 10 million litres of alcohol. This new Roseisle distillery on the edge of Speyside is likely to be used mainly in blends to allow some of the group's key but small distilleries such as Cardhu and Talisker to bottle more as single malts.

Over on the island of Islay, most of the island’s eight distilleries produce peaty whiskies which are in demand for single malt production and for blending, and the best-selling Islay malt Laphroaig has been slowly pushing up production.

Laphroaig, and also Ardmore close to Speyside, were bought by Jim Beam maker Fortune Brands FO.N in 2005 as part of the break up of Allied Domecq and the Islay distiller soon moved to around the clock production over seven days in 2006.

The small distillery on the southeastern shore of Islay now produces 3 million litres of alcohol a year, and with 70 percent going into the single malt bottling there is need for more production of this distinctive malt.

“We have never had enough stock for the last 20 years. The U.S. is our fastest growing market and the UK our biggest, while France, Germany the Nordic countries and Japan are now big markets,” said Laphroaig distillery manager John Campbell. (Reporting by David Jones)

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