Cask strength

Cask strength

Leo Scott-Francis and Craig Chidgey created The Whisky Market, an innovative way for investors to buy and trade casks, while also providing the raw material for their Higginbottom brand, as Peter Ranscombe reports.

"I didn’t even like whisky to begin with,” laughs Craig Chidgey. It’s quite an admission for the chief executive of The Whisky Market, a London-based drinks company founded in 2014 to give investors the chance to buy and trade casks. “My earliest experiences were being sick after drinking blends like Bell’s when I was 18. Now I love it and my wife enjoys a tipple most nights.”

“I think that’s true for a lot of people,” agrees fellow director Leo Scott-Francis. “A lot of people’s first experience of whisky is a supermarket blend.

“But when they try single malt Scotch whisky for the first time, they realise that it’s something completely different. And that’s what we’re dealing with here.”

The Whisky Market buys casks from distilleries through specialist brokers and then sells those barrels on to its clients. Most of the casks are stored at a special facility at Newton Stewart in Dumfries & Galloway run by a company called The Whisky Broker, with a small number kept at distilleries dotted around Scotland.

“I do the business side of things, while Leo chooses the casks and actually goes out and sells the whisky,” says Chidgey. “It’s a good combination.”

Scott-Francis is very exacting when it comes to selecting the casks he wants to buy and offer for sale to his clients; he’s primarily looking for first-fill sherry or bourbon barrels, most of which contain liquid that’s more than five years old. Current highlights in the warehouse include: barrels of Laphroaig, a peated whisky from the island of Islay being aged in Port wine casks; Bruichladdich, also from Islay, in 20 barrels that previously held first-growth Bordeaux wines from chateaux Haut-Brion, Latour and Margaux; and a 1991 single grain whisky in a sherry cask from Cambus distillery in Alloa, which closed two years later.

image“Only about 15% of the whisky ageing in Scotland is over five years old,” Chidgey says. “It means that older whiskies are rare and so the rules of supply and demand push up their value over time.

“The minimum time for which we recommend clients hold their casks is three years, but we can be very flexible. Figures compiled by Whisky Invest Direct suggest that investors are making a return of about 7% per annum across the wider whisky market and our clients are getting a return of up to around 9%.

“Whisky is treated like wine by Her Majesty’s Revenue & Customs (HMRC) because it’s a ‘wasting asset’ or ‘chattel’ and so it’s exempt from capital gains tax if its predictable life is less than 50 years and the investors earn less than about £6,000 per transaction. We’re not regulated by the Financial Conduct Authority (FCA) because we’re not selling financial products, but we are regulated by the strictest regulator on the planet – the taxman.

“The key factor is that we offer our clients a guaranteed exit. We will buy the cask back from them after an agreed period.”

Once Scott-Francis and Chidgey have bought back those barrels, their bottling business – HAH Whisky – will bottle or blend them to create its brands. The first, “The Higginbottom”, went on sale last autumn and is a 27-year-old single malt Scotch whisky from the Bunnahabhain distillery on Islay.

The brand is named after Scott-Francis’s grandfather, David Higginbottom, who – under the penname Nicholas Fisk – wrote science fiction books for children, including “Trillions”, “Grinny”, and “A Rag, a Bone and a Hank of Hair”. He died in 2016 and the packaging for the whisky features many tributes to him, including images of his trademark pipe.

The brand’s heritage stretches back even further. Higginbottom’s grandfather owned a large brewery and a chain of pubs in Newcastle and bottled whisky for the army during the First World War. “It’s nice to have this genuine heritage,” nods Scott-Francis. “It’s not something that we’ve had to make up.

“But I didn’t know about the family connection with whisky when I started the business. It wasn’t until two years later that my grandfather showed me his own grandfather’s silver 1920s business card case, which had his ‘AHH’ initials on it and that prompted him to tell me the story.”

The company’s next bottling, a blend called Club 8, follows this spring. Scott-Francis is clearly excited by its mixture of whiskies from Highland Park, Glenrothes and The Macallan, which have been married together in a Pedro Ximenez rich, sweet sherry cask.

Other whiskies in the initial “Fine & Rare” range include a 27-year-old grain whisky from Strathclyde distillery and a bourbon from Heaven Hills in the United States, which is the firm’s first foray into overseas spirits. The next steps include plans to buy casks from Ireland and Japan, as well as brandy, gin and mezcal, the broader category to which tequila belongs.

Clients have another option too. Instead of selling the casks back to The Whisky Market to be turned into HAH Whisky brands, the customers can choose to have their whiskies bottled themselves. “If we hold a whisky for three years then in effect we’re buying a five year old and bottling it as an eight year old,” Scott-Francis explains. “So, following that through, we could buy a 25 year old and bottle it as a 28 year old or hold it for longer and bottle it as a 30 year old – in that range between 25 and 30 years old, whisky really increases in value dramatically.”

imageChidgey adds: “We’re aiming to sell most of our whiskies priced at between £100 and £200 a bottle. We want people to feel they can drink these whiskies and not just collect them. Club 8 will retail for around £45 a bottle and we’ll bottle about 10% of them at cask strength of around 60% alcohol by volume.

“Some of our other casks will sell for more like £400 or £500 a bottle. These are really special barrels.”

Scott-Francis and Chidgey met through their involvement in the wine trade. Chidgey had previously worked for estate agency Foxtons, but got into the drinks business when a company that had sold wine as an investment to his father ceased trading.

“My Dad had a list of creditors who all owned wine through this company,” he explains. “A lot of them wanted help to sell their wine and so I contacted Leo, who I’d met before.

“After we helped the investors to sell their wines, they asked if there were similar ways of investing in drinks. That’s where the idea came from for The Whisky Market.”

Their wine business morphed into One Vine Day, which now mostly sells investors’ wines to Bordeaux Index. One Vine Day’s revenues peaked at around £1.5m three years ago, but have since slid to £500,000 as the market has become more crowded, with its profit margin reduced from around 15% at peak to around 8% now.

In contrast, The Whisky Market has surged ahead. Revenues stand at around £1.4m and profits at about £87,000. The company’s clients hold around 800 casks, with the stock value at around £3.5m. The ultimate aim is to build the brand to the stage where it will become attractive to one of the larger players in the drinks industry.

It’s come a long way from the first batch of barrels that Scott-Francis bought. That initial purchase consisted of 50 casks from Tullibardine distillery in Perthshire, which had previously held 2010 Chateau Talbot, a fourth-growth red wine from Bordeaux in France.

“Back in the 1990s, consumers used to be able to buy casks directly from distilleries,” Scott Francis says. “But distilleries are working sites and it was time-consuming if investors wanted to come along and try individual barrels, so the practice died out.

“Then I found a broker that could get us casks from distilleries. When I went and visited the broker for the day and saw the casks, that’s when I knew that we could make this business work.”

Whisky montageScott-Francis had been introduced to fine wine collecting by his grandfather and brought One Vine Day to consumers at just the right time, when the market was flooded with sellers. His track record in selling wine has led many of those investors to follow him into whisky.

“Leo has this knack of getting predictions right,” smiles Chidgey. “He predicted the growth of drones and now he’s been right about how whisky has become much more mainstream.”

“The growth areas are among women and younger consumers around 35 years old,” Francis-Scott adds. “Whisky is no longer seen as an old man’s drink.

“Just go into the whisky clubs in London and they’re full of women and younger drinkers. Although Haig Club might not be the best-tasting whisky, it just goes to show what can be done if you launch a brand targeted at people who aren’t traditional whisky drinkers.”