The Macallan Distillers Ltd.

The Macallan Distillery
Craigellachie
Banffshire AB38 9RX
United Kingdom
Telephone: +44 (0) 1340 871471
Fax: +44 (0) 1340 871212
Web site: http://www.themacallan.com

Wholly Owned Subsidiary of Edrington Group
Incorporated: 1824
Sales: £269 million ($363.10 million) (2003 Edrington Group)
NAIC: 312140 Distilleries

The Macallan, made by The Macallan Distillers Ltd., is one of the world's top selling Scotch whiskey brands, typically ranking in the top three in terms of global sales. The Macallan is also considered by many to be the world's finest single-malt whiskey, earning monikers such as "the Rolls Royce of single malts" and "the Dom Perignon of Scotch." Safeguarding the company's reputation for quality is its adherence to traditional distillery techniques, including the use of small, hand-crafted brass stills, high quality "Golden Promise" barley, and Spanish oak sherry casks for aging at its Craigellachie, Scotland base. The Macallan single malt whiskey comes in a variety of ages. The company also releases Cask Strength and "replica" bottles of 1841 and 1861 single malt whiskeys. Macallan pioneered the trend for laying down stock in the 1950s and 1960s, allowing it to create a new vintage class of single malt whiskeys. The company's vintage range includes its Fine & Rare Vintage collection, featuring bottles from each year between 1926 and 1973. The full collection, available at per glass prices ranging from $50 to $3,500, was presented for the first time at the Borgata Hotel Casino & Spa in Atlantic City, New Jersey, in 2004. The company also sells a 60-year Scotch—at prices ranging to more than $22,000 per bottle. The Macallan is one of the five core brands owned by Scotland's Edrington Group, which also owns the brands The Famous Grouse, Cutty Sark, and Highland Park, among others. In 2003, the Edrington Group, a private company, reported total sales of £269 million ($363 million).

Origins of Whiskey Legend in the 19th Century

Although whiskey had been distilled in Scotland for many centuries, it remained under English domination into the early 19th century. Steady increases in tax duties drove most whiskey makers underground—also serving in part as an act of defiance against the British crown. As a result, hundreds of distillers operating thousands of illegal stills sprang up throughout the country. Stills were often cleverly disguised, hidden among the rocks and brush of the wild northern country. Many of these sites were to remain important locations for Scottish distilleries.

In the rush to produce their whiskey before being discovered, the clandestine distillers tended to produce a clear alcohol that bore little relation to later Scotch whiskey fame. Nonetheless, the whiskey produced in the area known as Glenlivet, in the Speyside region, became recognized for its higher quality—and even became the favorite of King George IV.

Pressure began to build to banish the tax duties and introduce a less burdensome licensing system. The Duke of Gordon became the champion of this cause, and in 1823 promulgated the Excise Act. Under that legislation, distillers were provided a license to operate, in exchange for an annual fee of £10, and a smaller per-gallon duty. The first distiller to take advantage of the new license was George Smith, who founded what became known as The Glenlivet distillery. Smith was to win the exclusive right to the "The" in its name, yet it remained common practice for distillers from the Glenlivet area to include "Glenlivet" in their own distillery names into the 1970s.

Another distillery emerged from the underground in 1824, when Alexander Reid obtained the license to operate on a small hill overlooking the River Spey in the village of Craigellachie. Distilling had most likely taken place on the hill since the early 1700s and the introduction of the first punitive whiskey duties. The following year, Reid formed his own company, Alexander Reid & Co., remaining head of the distillery, known as Macallan, until his death in 1847. Reid was succeeded by his son, also named Alexander, who led the company until his own death in 1858.

In the meantime, Reid took on partners, James Davidson and James Shearer Priest, who entered the company starting in 1848. James Davidson, who had made his fortune as a corn merchant, eventually emerged as sole owner of the distillery. Davidson was credited with instituting a policy of purchasing only high-grade barley for use in distilling its whiskey, then known as The Craigellachie. After Davidson's death in 1868, operation of the distillery was taken over by James Stuart under a tenant arrangement. Stuart, who went on to own and operate a number of distilleries in the region, purchased the Macallan distillery outright in 1886. A prolonged recession brought Stuart, further preoccupied with building a new distillery in Glen Rothes, into financial difficulties in the 1870s. Help came from an unexpected source, however. In 1879, French vines were struck by the phylloxera pest, which destroyed most of the country's vineyard. For more than ten years, brandy remained unavailable in the United Kingdom, leading to a surge of interest in Scottish whiskey.

Single Malt Boom in the 1970s

Macallan's modern period began with the arrival of Roderick Kemp as the new owner of the Macallan distillery in 1892. After buying the distillery, Kemp renamed the company as R. Kemp Macallan-Glenlivet in order to emphasize its location in the by then world famous Glenlivet area. Kemp then set to work rebuilding the Macallan distillery, adding new warehouse facilities, and improving the company's stills and other buildings. Kemp continued to make improvement through to the end of the century, expanding Macallan's production. Kemp also developed most of the company's quality standards, which included aging its whiskeys only in unbroken Spanish oak sherry casks. Although Kemp died in 1909, the Kemp family remained in control of the distillery into the 1990s.

For the most part, the Scotch whiskey market remained dominated by blended whiskeys. Blenders purchased whiskey stock from distillers, and a typical bottle often blended various types of whiskey. Macallan became a highly sought after commodity by blenders, who used it to provide a top note to their blends. While distillers also produced a limited range of single malts—so-called because the whiskey in a given bottle came from a single cask—these were almost entirely consumed by the domestic population.

This situation was to change in the 1960s and especially in the 1970s, as consumers over the world began discovering the more subtle flavors of single malts. The surge in interest caught most distillers off-guard as the "laying down" of stock for the long periods of time needed to produce properly aged single malt whiskeys had long been a luxury avoided by most distillers. The Macallan distillery, however, had already instituted a policy of keeping back a significant proportion of its whiskey in the 1950s and 1960s, and even earlier—among the company's possessions were casks filled as early as 1926. Nonetheless, the majority of its production, as much as 93 percent, was sold on to blenders.

The rise in interest in single malt whiskey, and a slump in blended whiskey sales, encouraged Macallan-Glenlivet to step up production in the mid-1960s. The company nonetheless maintained its commitment to its traditional distilling methods, including the use of small, hand-crafter brass stills. Instead of converting to larger, industrial-sized stills, the company began adding new stills to its property, doubling the number of stills to 12 in 1965. The company's further expansion plans required financial backing. In 1968, the company went public, a move meant to finance the laying down of stock, as well as to continue its expansion drive. Among the investors in the company over the next decades were fellow Scottish group Highland Distillers, France's Remy Cointreau, and Japan's Suntory. The proceeds of the public offering helped Macallan-Glenlivet add a new still to its No. 1 still house, a move that helped it top more than one million gallons of production for the first time. The company ended 1968 with sales of more than £822 million.

After changing its name to Macallan-Glenlivet in 1970, the company began construction of a new generation of stills, adding another six stills in 1974. The following year, the company added three more to reach a total of 21 stills. By the end of 1975, the company's sales had topped £1 million for the first time. In response to rising demand, Macallan-Glenlivet arranged loans, enabling it to reserve yet more of its stock, even as it stepped up production. By then, the company's whiskey had already begun to attract a global audience, helping to push sales past £2 million by 1977.

The surge in interest in Scottish single malts led the company to restore an old manor house located on its estate as a reception center for visitors and as an office complex for its growing international distribution. That center opened in 1977. By then, the Macallan distillery had already earned international recognition for its whiskey. In order to capitalize on its growing renown, the company decided to launch its first official, branded single malt, called The Macallan.

The launch was an immediate success and The Macallan became one of the single-malt category's major ambassadors around the world. By the mid-1980s, the growth in single malt sales had even inspired a collectors' market. The Macallan promptly became one of the most sought after labels, especially with the release of the first bottles of the group's prized 60-year label.

Company Perspectives:

The Macallan is one of the finest single malts in the world, with an aged range for all occasions, all matured in oak sherry casks from Spain.

Core Brand in the New Century

The drinks world meanwhile entered a new era of consolidation, and by the early 1990s the beverage market had become dominated by a handful of major groups. Macallan-Glenlivet stayed out of the consolidation fray for the most part. Nonetheless, the company took advantage of the growing clout of the major players. In 1994, for example, the company signed a distribution agreement with Highland Distillers. Toward the mid-1990s, however, the industry trend toward the building of strong brand portfolios caught up with the company. By then, the Kemp family's interest in the company had dropped to around 20 percent.

Highland Distillers began maneuvering for a larger stake in Macallan-Glenlivet. In January 1996, Highland acquired the 26 percent in Macallan it had turned over to Remy Cointreau during a 1990 cross-shareholding arrangement between the two fast-growing drinks groups. By July 1996, Highland had worked out a second agreement, this time with Japan's Suntory, to place its own 26 percent and Suntory's 25 percent in Macallan into a new joint venture, HS Distillers. Highland maintained a controlling stake in HS Distillers, while Suntory agreed to act as a silent partner and ensure distribution of The Macallan in Japan. The new venture, with 51 percent of Macallan, immediately launched a buyout of the minority 49 percent stake in Macallan. Macallan, already one of the world's top single malts, joined Highland's Famous Grouse, the top-selling blended whiskey brand in the United Kingdom.

Highland Distillers itself appeared to become the object of takeover speculation at the end of the decade. In response, that company agreed to be acquired by the Edrington Group, a privately held Scottish company with operations ranging from distilling to blending to bottling. In particular, Edrington was the source of the grain whiskey stocks needed to blend Highland's Famous Grouse, and the two companies already had substantial cross-shareholding interests.

Although Highland itself disappeared into Edrington, The Macallan emerged as one of the new Edrington's core brands. Under Edrington, The Macallan moved to take full advantage of its prestigious reputation. The company released a number of new labels, including a 15-year-old and a 30-year-old bottle in 1999. That launch was followed in 2000 with the release of a new 50-year label. In the meantime, demand for the group's limited 60-year-old Scotch continued to build, prompting company-held auction prices to top $20,000 per bottle. In 2003, the company debuted two new single malts, the 1841 and 1861 "replicas," said to be copies of two rare bottles of single-malt found in the company's own collection.

In 2003, The Macallan released a new collection of single malts. Dubbed "The Macallan Fine & Rare Vintage Collection," the offering featured bottles spanning a range of vintages from 1926 to 1973, valued at $170,000. In 2004, the newly opened Borgata Hotel Casino & Spa located in Atlantic City, New Jersey, became the first in the world to offer the full collection for sale by the glass—with prices per glass ranging up to $3,500. Under the Edrington Group's guidance, The Macallan seemed certain to retain its place at the top of the world's whiskey hill.

Key Dates:

1824:: Alexander Reid obtains license to open distillery in Craigellachie, Scotland, which later becomes the Macallan distillery.
1847:: Alexander Reid dies and is succeeded by his son.
1848:: James Davidson and James Pierce become partners in distillery.
1868:: James Stuart takes over distillery, first as tenant operator, then as owner.
1892:: Distillery is sold to Roderick Kemp, who rebuilds its warehouse and distillery facilities, renaming company as R. Kemp Macallan-Glenlivet.
1968:: Company goes public in order to finance expansion and laying down of single-malt stock.
1970:: Company changes name to Macallan-Glenlivet.
1980:: The Macallan single-malt brand is introduced.
1986:: Exclusive 60-year-old label debuts.
1996:: Highland Distillers, in partnership with Japan's Suntory, acquires control of Macallan-Glenlivet.
1999:: Edrington Group acquires Highland, and designates The Macallan as one of its five core brands; launch of 15-year and 30-year labels.
2003:: Company launches 1841 and 1861 "replicas," as well as Fine & Rare Vintage Collection.
2004:: Complete Fine & Rare Vintage Collection is offered per glass for the first time.

Principal Competitors

Diageo PLC; Seagram Company Ltd.; Asahi Breweries Ltd.; Asahi Kasei Corp.; Fortune Brands Inc.; Jim Beam Brands Worldwide Inc.; Brown-Forman Corp.; Irish Distillers Group PLC; Remy Cointreau; Allied Distillers Ltd.

The Macallan Distillers Ltd

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