Why Scotch demand is falling and what distilleries are doing about it

Why Scotch demand is falling and what distilleries are doing about it

After decades of steady growth, Scotland’s whisky industry is facing an uncomfortable reversal. Falling global demand, rising living-cost pressures, and uncertainty created by Donald Trump’s tariffs have left distilleries with a growing surplus of unsold Scotch, prompting production cuts, warehouse expansions and renewed fears for rural jobs, the Financial Times reported.

Industry figures say the situation echoes the “whisky loch” of the 1980s, when overproduction led to widespread closures and layoffs. While today’s industry is more diversified and resilient, the current slowdown is already forcing difficult decisions.

Global whisky sales fell 2.5 per cent in the first half of 2025, marking the third consecutive year of decline after decades of expansion. Distillers are now sitting on large volumes of maturing stock, with some pausing production altogether and others investing heavily in storage rather than new output.

Tariffs and falling demand collide

Scotch whisky has been hit on two fronts. Consumers, especially in the United States, are cutting back on discretionary spending. At the same time, US tariffs have added uncertainty to one of the industry’s most important export markets.

In the first nine months of 2025, Scotch sales in the US fell 6 per cent, an improvement on the previous year but still well below levels seen earlier in the decade. Five years ago, the market was growing. Now it is shrinking.

Single malts, which tend to command higher prices, have been particularly affected as drinkers trade down. Sales of malts fell 7 per cent globally in 2024, while blended whiskies proved more resilient, declining by just 1 per cent.

“It’s not that people are abandoning Scotch,” said Luke Tegner of alcohol data group IWSR. “They’re drinking a bit less of it and spending less on the bottle they buy.”

Rural impact and stalled investment

The slowdown is being felt most acutely in rural Scotland, where distilleries are often major employers. Kate Forbes, Scotland’s deputy first minister, said recent production cuts at distilleries such as Talisker and Dalwhinnie had a “disproportionately large” effect on local economies.

“They have significantly pulled back from production because of the uncertainties largely driven by US tariffs,” she said during recent visits. “Expansion plans are essentially on ice while they wait for clarity.”

Until progress is made on a UK-US trade deal, Scotch remains subject to the 10 per cent baseline tariff imposed by Trump in April. While some agricultural products were exempted later in the year, alcoholic drinks were not.

Industry figures estimate the tariff is costing the sector almost £20 million a month in lost sales and has already put more than 1,000 jobs at risk.

Production pauses and a storage scramble

To manage the glut, producers are slowing output. Diageo has reduced production at several malt distilleries, cutting operating weeks and pausing activity at sites such as Teaninich in the Highlands. Production at Roseisle Maltings has also been halted until at least mid-2026.

At the same time, companies are investing heavily in warehousing to store unsold stock. International Beverage has spent £7 million on new facilities to house 60,000 additional casks. Wemyss Family Spirits and Gordon & MacPhail have made similar investments, expanding capacity by tens of thousands of casks.

While this avoids dumping product on the market, it comes at a cost. Higher inventories tie up cash for years. Analysts estimate that Diageo and Pernod Ricard together lost hundreds of millions of dollars in free cash flow in 2024 due to rising inventory levels.

“All brown-spirits producers increased the rate at which they laid down barrels after Covid,” said Bernstein analyst Trevor Stirling. “That’s now putting pressure on cash flow.”

Lessons from the past, uncertainty ahead

The last major glut in the 1980s was eventually resolved by opening new markets and repositioning Scotch as a premium product. By the 1990s, companies had expanded into countries such as Japan, India and China, driving a long boom.

Industry watchers believe a similar rebalancing will occur, but not quickly. IWSR forecasts Scotch will return to growth around 2030, largely through emerging markets rather than the US.

For now, uncertainty dominates. Scottish officials say the industry feels sidelined in UK-US trade talks, particularly after a recent carve-out for pharmaceuticals. Other exporting countries may also secure better tariff terms, leaving Scotch at a disadvantage.

Despite the gloom, some in the industry urge patience. “When times are tough, businesses take a dip,” said Tegner. “History says hold your nerve. Demand usually comes back.”

Whether the current glut proves a temporary hangover or a longer-lasting headache will depend on trade politics, consumer confidence and how long Scotland’s warehouses can keep filling up.