Investors Clinic: Michel Kappen on Whisky Investment
Amsterdam native Michel Kappen's love of fine whisky was ignited after a trip to the famous whisky-producing nation of Scotland. Returning from his trip in 2002, he decided to start his own business in the import and export of single malt whisky. That company, Whisky Investments, has grown from a promoter of single malt in The Netherlands for Dutch importers, to the international brand it is today.
An ex-banker with an eye for investment, Kappen realized that there were big business opportunities to be had. Bigger demand, increasing prices and a stock shortage in luxury whisky all pointed to growing opportunity.
Kappen founded the World Whisky Index (WWI), which was launched at the end of 2007 in a ceremony with former Dutch Chancellor of the Exchequer Gerrit Zalm. The WWI is an international, online whisky exchange for trading rare bottles of whisky.
CNBC this week examined the opportunities in the world of whisky, and Kappen answered readers' questions about whisky investment.
"The market is increasing because other investments are less interesting at the moment. All over the world people are investing in whisky," Kappen said.
"It started five years ago with some fun. But nowadays I think we can look seriously at this market, because it's stable and because you can keep it for 100 years," he said. "The average performance is around 14 percent per annum gain. Some brands like Macallan and Bowmore do much better; they are increasing in price, its unbelievable."
The whisky entrepreneur brought some vintage bottles into the studio—including a £3,000 ($4,670) bottle of Bowmore and what he called the "Rolls Royce of whiskies"—The Macallan.
Kappen answered viewer questions on the possibilities in the world of whisky investment.
Q: What are your top five most collectable distillery bottled brands?
A: First Macallan, then Springbank which is still a family distillery, then Glenfiddich, Bowmore and then maybe the closed distillery of Port Ellen.
Q: Are the investable whiskies only Scottish?
A: It's far and away the biggest market in the world. There are so many different whiskies in Scotland but not in the other countries. Really there is only one market and that is the Scottish single malt whiskies.
Q: How much do you attribute the rapid rise in single malt prices to Hong Kong and China?
A: I think they are leading in increasing the prices, because over there they will pay for exclusive bottles. In Europe we see people look more to quality but in Asia they look only to the price.
Q: How much has the legalization of distilled spirit auctions in New York in 2007 contributed to the rise in prices?
A: Very much so definitely. If more people get involved in a product—and we can see it in the auctions in Hong Kong, in New York, also in Scotland—whisky is running up. It's something the wine market is already familiar with, but for whisky it's running up now too.
Q: What is the end game for a $10,000 bottle of whisky. Does it ever get consumed?
A: Oh yes, definitely. But more the Russians or the Chinese—they want to give it as gifts to family or business relations—they want to taste the whisky. In Holland when you buy a nice luxury whisky, you put it in the back of the cupboard! Its a different way of thinking.
Q: What is the downside risk? How much scope is there for supply to expand?
A: The basic line is to look into the market. If you are investing in an average whisky, that is a problem because you can't make any money in it. You have to look at the rarity of the product. Prices are increasing and increasing. I think in the future there will be a limit but where it is, I don't know.
Q: Can suppliers ramp up production to react to pricing or is that just impossible?
A: If you invest now in whiskies from the sixties, for example, there are not many casks left. So in a couple of years they'll be running out of casks. And closed distilleries can't supply any more obviously. So the industry can't really help it if there is low supply.
Q: How do you pick up a good collectable whisky?
A: You have to have some knowledge about the market, about flavors, about the quality of the whisky. Sometimes, it's a good name like Brora or Port Ellen. Sometimes it increases in price because there is more demand for that product. If you look instead for a Banoch or a GlenLogie—unknown names worldwide—but if you invest in such a product, you get good quality, but the price is still low to make some money in the long run.