Food & Beverage Update: The Irish Whiskey Industry and Licensing Distilleries
07 November 2017
Irish whiskey distilleries have experienced tremendous growth in the last five years. By August 2017, the number of operational whiskey distilleries in Ireland had increased to 18 from just 4 in 2013. This demonstrates the scale of Ireland's whiskey growth and increase in demand both nationally and internationally. Plans are in motion for a further 16 distilleries across Ireland. Ireland is now the world’s fourth largest exporter of whiskey and Irish whiskey is the fastest-growing whiskey category in the United States. The successful traction it has gained in the US market coupled with increased tourism in Ireland is providing Irish whiskey and distilleries with enormous potential to expand their operations, both in Ireland and further afield.
New market entrants and existing players will need to bear in mind a number of key issues impacting their industry.
Finance and revenue
Securing capital to purchase land and buildings or to construct a distillery can be problematic, especially when there may be no return on investment for two to three years. Established distilleries, however, have been successful in raising additional revenue by leveraging increased footfall to their visitor centres. These have proven to be a reliable source of income for established distilleries. They can facilitate tours and often contain a café or bar.
It is worth noting that the increase rate of stamp duty from 2% to 6% in Budget 2018 on non-residential property will no doubt influence developers' decisions to develop a distillery or to expand their current operations. Investigation of title will be a key aspect in securing funding and this should be carried out at an advanced stage. Planning consultants should also be engaged as early as possible.
Legal requirements to licence a distillery
At present, a distillery with a visitor centre requires two liquor licenses:
- a manufacturer’s licence, and
- a seven-day publican’s on-licence
The manufacturer’s licence is required to produce the alcohol. The publican’s on-licence allows the visitor centre to operate a bar or to operate as a unique venue for events. A new distillery licence is being introduced which may negate the need for a publican's licence and this is discussed in more detail below.
Manufacturer’s Licence - The manufacturer’s licence is required by brewers, manufacturers and distillers. This licence authorises wholesale dealing at the premises where the liquor is manufactured, providing the liquor being sold is the produce of the manufacturer and is sold from that premises.
An application for a manufacturer’s licence must be submitted to the National Excise Licence Office. This branch of the Revenue Commissioners has a number of requirements when assessing applications and we can assist in preparing the required proofs.
Publican’s licence - At present, in order to operate a bar at a visitors centre, the owner will need to acquire a publican’s licence. This can be done by court application only. The holder of a publican's licence must attend court and agree to extinguish and grant its licence in favour of the distillery premises. Acquiring a publican's licence currently costs between €60,000 to €70,000. We have successfully obtained dozens of these applications in the past and would be happy to advise.
If the visitors centre has yet to be built, the owner of the land can apply to the Circuit Court for a declaratory order before any works are carried out. If granted, this will give comfort that following the completion of its visitors centre that it will be awarded a publican's licence. Specialist legal advice should be sought at an early stage to review and prepare the necessary proofs.
Changes in the law to note
The Public Health (Alcohol) Bill 2015 - This Bill has been the subject of increased media attention of late and could well be passed in the Oireachtas, Ireland’s legislature, in the coming months. There are 29 sections contained in this Bill including five main provisions which distilleries will need to be aware of:
- minimum unit pricing
- health labeling of alcohol products
- the regulation of advertising and sponsorship of alcohol products
- structural separation of alcohol products in mixed trading outlets, and
- the regulation of the sale and supply of alcohol in certain circumstances
The important question will be which of these provisions will be commenced and which will not form law following its enactment.
It has been identified as priority legislation and is likely to be enacted into law in early 2018. The proposed measures have raised concerns in the industry domestically. The Bill will impact on companies large and small with the imposition of additional costs through labelling requirements. Advertising restrictions will mean that the amount of advertising space available for alcohol brands will decrease significantly. This will impact considerably on the ability of less established Irish whiskey brands to differentiate themselves meaningfully.
Intoxicating Liquor (Breweries and Distilleries) Bill 2016 - This Bill is currently progressing through the Dáil, the lower house of the Oireachtas. If this Bill is enacted into law, it will allow distilleries and breweries to sell alcohol to visitors taking part in guided tours under a new distillery licence. Under existing law, unless a publican’s licence is acquired, an owner cannot sell alcohol products which are produced on the premises to tourists or visitors attending the premises. The proposed distillery licence is expected to be an annual licence and will permit alcohol sales between the hours of 10am and 6pm.
The distillery sector is expected to grow significantly during the coming decade or so, with investment in Irish whiskey expected to exceed €1.1 billion. Visitor centres will capitalise on Ireland's burgeoning tourism industry during the same period, which will provide additional revenue to Irish distillery businesses.
Specialist legal advice should be sought when seeking finance to develop distillery premises or to expand existing operations, including acquiring the necessary licences. For more information, please contact a member of our Food, Agri & Beverage team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.