USA Whiskey Today

USA Whiskey Today

Liza gives a rundown on the state of the industry today

Production | 17 Jul 2015 | Issue 129 | By Liza Weisstuch

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If you like breaking news, intrigue and plots that turn on a dime, you might want to skip this article. This article, be warned, is a predictable one. And that's a good thing. Herein we look at the American whiskey industry over the past year and, happily, tell the same story similar articles have offered in years past. That story, of course, is that American whiskey's rise continues on its meteoric trajectory. Not only are there no signs of growth decelerating, but distilleries continue to expand or open at a rapid clip and fans are ponying up larger sums of money to get their hands on rare bottles, which, thanks to diminishing stocks, are getting even rarer.

Shrinking whiskey supplies translate into allocation, which has set off lots of hullabaloo in the media and in the twittersphere . "Is the US Poised To Run Out of Bourbon," blared an April headline on the popular culinary website, for instance. But really, it boils down to who you ask and when you're asking. And the source's level of diplomacy.

Regardless of whether or not you're calling the current situation a "shortage," one thing is clear: the world is clamoring for more American whiskey and companies are investing heavily to accommodate. According to the Distilled Spirits Council of the United States, from 2009 to 2014, growth of American whiskey grew 29% to nearly 19 million 9-liter cases, bringing in $2.7 billion in revenue for distillers.

Appetite for construction

Anyone looking for a construction job would do well in Kentucky. The growth since 2012 alone has been staggering. The state went from 10 distilleries to 31. Today, says Eric Gregory, president of the Kentucky Distiller's Association, they're on the cusp of 50.

"Distilleries are popping up that we had no inkling were even coming," says Gregory. "We did an economic impact study release last October based on research from University of Louisville from January through August. We projected the industry would invest $630 million in the next five years. Now we've blown past that. We had 20 members at the time, now there's 27. We have to account for their investments, plus the non-member distilleries. I think it'll be $800 million in the next five years, if not more."

Heaven Hill added two more warehouses last fall and will be announcing another distillery expansion by summer's end. In June, Four Roses broke ground on a $34 million distillery expansion that includes two buildings and new equipment, doubling the distillery's size and annual production. That will require an additional $21 million investment in four new warehouses. Also in June, Brown-Forman announced the company plans about $200 million in capital expenditures over the coming year. That sum includes their new Slain Castle distillery project in Ireland, but it also accounts for a $45 million for the rejuvenation of the Old Forester distillery in Louisville, a new stave mill in Indiana, which will process white oak for the company's cooperages in Louisville and Alabama, and a bottling expansion project for the monolithic Jack Daniel's Tennessee Whiskey. That comes on the tail of that distillery's 2012 announcement of a $100 million expansion project at Woodford.

Buffalo Trace, which has been investing heavily in various forward-thinking projects, including a high-tech experimental warehouse, recently purchased 250-plus acres on which to build 50 warehouses in the next 21 years.

A lot of the construction is the result of a shakeup in a longtime practice in the American whiskey: contract distilling. Four Roses in Lawrenceburg, for one, had long produced whiskies for Diageo, which owns Bulleit, under a contract that ended in December 2013. It isn't farfetched to guess that Diageo invested in the Bulleit Distillery, which is currently under construction, because of that contract termination. One wonders how long it will be until its Four Roses stocks run out and we see a change in the "Lawrenceburg, Kentucky" claim on the label. (Diageo did not respond to interview requests.)

Four Roses, after all, is running so low on stock that they didn't release their annual Limited Edition Single Barrel in 2015. Similar scenarios have been a driving factor in other major projects, like the 5.6-acre Michter's Distillery in Shiveley, Kentucky, which was licensed in 2012 and had been operating with two small stills until July, when the brand new still, was fired up for the first time.

Contract distilling gets a lot of negative attention these days, as more craft operations buy in bulk and bottle the product under their own labels without noting the source. It's a scenario that's led to class action lawsuits, like the one against Iowa's Templeton Rye, which claims it's made in Iowa when it's actually sourced from MGP, a giant facility in Indiana, and Angel's Envy, another MGP product that came under fire for calling itself 'small batch.'

Be our guest

Like the James Joyce junkies who make pilgrimages to Dublin to walk the path of Leopold Bloom, whiskey fanatics from more than 50 countries are making pilgrimages to Kentucky for hands-on heritage lessons. And to drink. The Kentucky Bourbon Trail, which helps tourists find their way to major distilleries and is overseen by the KDA, has grown its distillery participants and seen its visitor numbers soar.

"Looking at growth as a category, tourism growth rates match hand for hand what we're seeing in terms of case volume sales," said Rob Walker, vice president of bourbon for Beam-Suntory.

That's why the company invested in the Beam Urban Stillhouse on Fourth Street, a bustling entertainment district in Louisville where whiskey wayfarers will be able to fill their own bottles.

"The master distiller provides the brand with a personality, the visitor center provides a sense of place," said Larry Kass, director of trade relations for Heaven Hill. In late 2013 they opened the Evan Williams Experience, a slick, interactive destination on a main thoroughfare in Louisville that's been christened "Whiskey Row." Michter's is also constructing a showpiece distillery in an historic building on the street.

Buffalo Trace, having seen 134% increase in tourist visits in five years, is expanding its visitor center. And last fall, Wild Turkey unveiled its "Cathedral of Bourbon," a modern, immersive construction on a bluff overlooking the Kentucky River. Barely a half-year later they built a second carpark to accommodate the crowds.

The American variety show

Andrew Floor, vice president of marketing Dark Spirits for Campari America, Wild Turkey's parent company...., says the brand has transformed from "red neck rocket fuel" to something 69% of millennial males consider "high quality" and would be "proud to order in a bar." Heritage is one thing, but in the round-the-clock, social-media-driven world, sophisticated bar-goers and millennials alike are competitive drinkers, always seeking what's new and different. Wild Turkey plays to both those appetites: its tribute to master distiller Jimmy Russel, who just celebrated 60 years in the industry and works side by side with his son Eddie, is deeply entrenched in its branding. Meantime, they offer new labels, like Forgiven, a blend of bourbon and rye. The result of a mistake, it was released in March 2014 as a limited edition.

And companies are heeding the call. In fact, some younger companies are defining themselves by it, like Corsair, an elder statesmen of craft distilleries that has a facility in Kentucky, one in Tennessee and hundreds of experiments

ageing. Or consider Trey Zoeller, who started Jefferson's Bourbon in 1997 with his father, a noted bourbon historian. It's grown 50 per cent over each year for the past three years. By the end of the year he'll have released 11 different expressions, including Jefferson's Ocean: Aged at Sea, famously aged on a boat, and the forthcoming Jefferson's Groth Cask Finish, an experiment involving a cabernet barrels he put in hot boxes to sweat out the wine. Trey has been buying older bourbons and odd lots from big producers since 1997 and continues to do so, but he recently bought into Kentucky Artisan Distillery, a small operation where he'll conducting most experiments.

Beam-Suntory's response to consumers' call for innovation has been broad yet methodical, with particular attention paid to the ongoing premiumization trend. The premium Jim Beam Harvest Bourbon Selection, part of the Signature Craft series that debuted two years ago, is a collection of six expressions, each focused on a unique grain. The Signature series also includes a 12 year old and a quarter barrel release. But the crowning jewel is the Jim Beam Distiller's Masterpiece, finished in PX sherry barrels and fetching $300.

Parker's Heritage, Heaven Hill's limited edition annual releases, continues as the distillery's signature experimental series. They're also building on the rye craze they knows so well from the popularity of their Rittenhouse, which is fresh off allocation. This summer they announced the release of a six-year-old Pikesville Rye release. Jim Beam re-launched its rye, largely driven by the unflagging popularity of the spirit among bartenders.

Woodford has also jumped into the rye arena with Woodford Reserve Rye Whiskey. The distillery has also amped up its experimental game, which started with its Master's Selection, a series of bourbons with various finishes. In June, as part of what it's calling the Whiskey Row Collection, they launched a bottled and bond Old Forester, which is lightly filtered.

"Experimentation going on across the board. We didn't see it coming to extent it was, happy to have it," says John Hayes, Chief Marketing Officer of Brown-Forman, the brand's parent company. "Consumers want innovation and flavor—a sensory experience similar to craft beer. Bourbon's success owes a lot to what happened with craft beer."

But as to be expected, smaller indie operations have the most flexibility when it comes to experimentation.

"The locus of all innovation in American spirits is found in the craft spirit world," said Dave Pickerell, senior consultant at Oak View Spirits, which works with many boutique producers and rectifiers.

He notes that American malt whiskey in particular has picked up a momentum because no established company is making any. Opportunities to play around with it are vast: there are flavored malt whiskies, ones made from craft beers, peat-smoked, mesquite-wood-smoked.

The flavour factor

Bourbon purists cringe at the mention of it, but flavoured whiskey remains a top growth area and for good reason: companies see it as the way to lure non-whiskey drinkers into the Bourbon category. Wild Turkey pioneered the segment when Russell developed Wild Turkey Honey in 1976, a brand that is suddenly inspired a roster of honey-flavored whiskies. They're preparing to launch Sting, an American Honey extension infused with ghost pepper.

Purchasing power

When Suntory snatched up Beam for $16 billion. Other acquisitions didn't quite make such a splash in the headlines, but the industry and the legions who follow it like a paparazzi buzzed about it plenty. In March, Bacardi acquired Angel's Envy, the brand founded by the late Lincoln Henderson, who helped establish Woodford Reserve. And in June, NY-based Deutsch Family Wine & Spirits bought Redemption Rye, a small brand that bottles five labels and limited edition barrel selections. In other words, everyone wants a piece of the American whiskey pie.

According to Pickerell, every craft distilling conference attracts corporate types who scout for promising brands. The way things are going, the appetite will likely only grow.

Craft distilling

Things have come a long way since Fritz Maytag launched the Anchor Distilling Company in 1993 and started producing a 100% rye whiskey in a modest still at Anchor Steam Brewery, the San Francisco operation he acquired in 1965. Maytag, who won a prestigious James Beard Lifetime Achievement Award in 2008, is recognized as the godfather of craft distilling, inspiring an industry that has reached a size he never could have imagined. (For the record, Maytag is also credited for pioneering the American craft beer movement.) It's estimated that there are over 800 craft distillers in the United States right now. Ten years ago there were about a dozen. Every state has at least one, but some are home to astonishing numbers of them. Throughout all of New York there are over 60.

The dramatic rise of small distilleries has been exciting, to be sure, calling to mind good old-fashioned American dream-chasing, as distillery owners abandoned a variety of professions, declaring they're driven by a passion for an industry with such a rich heritage. It doesn't hurt that this comes at a time when the public is attuned to - if not obsessive about - where their food comes from. Having a local whiskey at a neighborhood restaurant anywhere in the US is an attention-getter.

But the 'local' designation can be questionable. Many so-called craft distilleries source their bourbon, rye and other whiskeys from giant industrial plants like MGP Distillery in Indiana, then don't indicate the fact that they're serving as merchant bottlers, not producers. (Thanks to a loophole in the laws of the Alcohol and Tobacco Tax and Trade Bureau, the government agency that oversees alcohol regulation and labeling, distilleries can say a product is 'produced at' its facility even if it's only manipulated on the premises.)

To exacerbate matters, brands that are sourcing their spirit are using terms like 'small batch,' 'handcrafted' or 'handmade' on their labels. True to Americans' reputation for being litigious, Americans are suing, claiming they're being misled. A few class action law suits are pending, like the one against Angel's Envy for its claims that its rye is 'small batch.' The brand was recently acquired by Bacardi.

This has all spurred much discussion and debate—some of it quite vitriolic, especially in the merciless Twittersphere where citizen muckrakers abound—around what qualifies as "craft" and how to enforce transparency.

But that could be only the start of some merchant bottlers' troubles. Big brands have long been talking about a whiskey shortage. (In 2013, for instance, Maker's Mark attempted to lower the proof, claiming they needed to stretch out the supply. Consumers put the kibosh on that plan.) But with so many boutique operations springing up and many of them rushing to buy barrels from the industrial-caliber producers, the bulk supplies are shrinking, too. Some distilleries that buy bulk say they're doing so while they wait for their own product to come of age. One can't help but wonder if the bottom will fall out while their house spirits sleep.
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