Tuesday, November 13, 2018

Diageo's Loss Is Sazerac's Gain

Diageo CEO Ivan Menezes
Many years ago, when I was working at a marketing services company, one of our executives issued an edict that our company would, in the future, not accept any clients that billed less than $100,000 a year. It was one of his many pronouncements that seemed, to me, to make little sense. Although I was young, I knew enough about business to know the size of an account doesn’t determine how much money you can make from it. I was pretty sure that a small but profitable piece of business was preferable to a large but unprofitable one.

This memory came to me yesterday when Diageo announced that it had ‘disposed’ of 19 brands by selling them to Sazerac. The portfolio includes several Seagrams-branded Canadian whiskies, some rums, some vodkas, and a bunch of liqueurs. Some are names you may know, such as Seagram’s VO, Goldschlager, Scoresby, Booth’s, and Myers’s. All are ‘cats and dogs,’ an industry term for small, low-margin brands with little growth potential.

In the official statement, Ivan Menezes, Chief Executive of Diageo, said: "The disposal of these brands enables us to have even greater focus on the faster growing premium and above brands in the US spirits portfolio."

In other words, the world’s largest drinks company can’t walk and chew gum at the same time. It can’t advance its most profitable segments while also making a healthy profit from the rest.

Is that fair? Sazerac paid about $550 million for the lot. That was not an act of charity. Sazerac believes it will make money where Diageo could not. Sazerac has a massive portfolio of brands, probably the largest in the distilled spirits industry.

Different companies and the managers who run them have different strategies. That doesn’t make one right or the other wrong. Unlike Diageo, Sazerac is privately-owned, so they don’t have to justify in public everything they do. Investors seemed to like Diageo’s move.

Brown-Forman has long had a firm ‘no cats and dogs’ policy. Not long ago it sold Southern Comfort, a household name, because it wasn’t performing up to expectations. Beam Suntory and Pernod also unload brands they consider unpromising. Heaven Hill has always had a lot of cats and dogs, and still does, but it has not been acquiring more of them.

Sazerac is not alone, but it dominates the segment. Most of its competitors are regional; Sazerac is everywhere.

It is a tough business because margins are so tight, but especially when you are as big as Sazerac it tends to be less volatile than high-flying brand marketing, which is more like the movie business in needing blockbuster hits to offset inevitable big budget disasters.

Sazerac doesn't shoot for the moon, although it hits it from time to time anyway, e.g., Fireball.

This week’s news is one more strange coda to the Seagram’s story. Once the world’s largest distilled spirits purveyor, Seagram’s ceased to exist as a company 20 years ago. As a brand name it lives on at several different places. Diageo still has Seagram’s Crown Royal (Canadian whisky) and Seagram’s Seven Crown (American blended whiskey). Pernod has Seagram’s Gin. Sazerac now has Seagram’s VO, Seagram's 83, and Seagram's Five Star (all Canadian whisky). Coca-Cola owns the Seagram’s mixers (ginger ale, tonic water, etc.).

Meanwhile, thousands of new brands are created every year, many by new, tiny companies. Thank you, distilled spirits industry, for keeping it interesting.

Thursday, September 20, 2018

Where Was the Frankfort Distillery?

The Frankfort Distillery, when it was in Frankfort.
It's a trick question.

If you guessed Frankfort, Kentucky, you are only half right. After Prohibition, the Frankfort Distillery relocated to Shively (a suburb of Louisville), but it kept the Frankfort name.

Confusing? Welcome to the world of American whiskey history. The story of the Frankfort Distillery is a perfect metaphor for the complications that arise when you try to understand the origins of America's whiskey industry.

For the whole story, check out the new, September issue (Volume 19, Number 1) of The Bourbon Country Reader, available now.

In this issue, we also look into the distilling history of Kentucky's Henry County, northeast of Louisville, where Angel's Envy has plans to build warehouses and, eventually, a second distillery.

And we review two beautiful books and one beautiful whiskey. (We're all about the beauty.)

The illustration, by the way, is of the pre-Prohibition Frankfort Distillery at Forks of Elkhorn, about three miles east of Frankfort. That site today looks completely different. It hosts a bottling and distribution facility for Beam Suntory.

Current Reader subscribers should receive their copies of the new issue in the next few days. New subscribers can get on the bandwagon by clicking here.

Founded in 1994, The Bourbon Country Reader is the oldest publication devoted entirely to American whiskey. It is a charming mix of news, history, analysis, and product reviews. Do you worry that advertising spending influences coverage in other publications? No chance of that here since The Bourbon Country Reader is 100 percent reader-supported. It accepts no advertising.

To experience The Bourbon Country Reader for yourself, you need to subscribe. Honoring tradition, The Bourbon Country Reader still comes to you exclusively on paper, in an envelope, via the USPS.

A subscription to The Bourbon Country Reader is still just $20 per year for addresses in the USA, $25 for everyone else. The Bourbon Country Reader is published six times a year, more-or-less, but your subscription always includes six issues (no matter how long it takes).

Click here to subscribe with PayPal or any major credit card, or for more information. Click here for a free sample issue (in PDF format). Click here to open or download the free PDF document, "The Bourbon Country Reader Issue Contents in Chronological Order." (It's like an index.)

If you want to catch up on what you've missed, bound back issue volumes are available for $20 each, or three for $50. Each volume contains six issues. That's here too. Volume 18 is now available.

If you prefer to pay by check, make it payable to Made and Bottled in Kentucky, and mail it to Made and Bottled in Kentucky, 3712 N. Broadway, PMB 298, Chicago, IL 60613-4198. Checks drawn on U.S. banks only, please.

NOTE: Turns out, the picture above is not the pre-pro Frankfort Distillery. It is the Kenner Taylor Distillery built after Prohibition at the same site. The photo below is of the real pre-pro Frankfort.

Tuesday, September 18, 2018

Denny Potter Leaving Heaven Hill for Maker's Mark

Denny Potter needs a new vest.
Maker's Mark has announced that Denny Potter is departing Heaven Hill to join the Beam Suntory subsidiary as Master Distiller and General Manager. Potter has been Master Distiller at Heaven Hill since joining the company in 2013. He became Vice President of Operations last year.

Before Heaven Hill, Potter worked at Maker's Mark for ten years.

"(We are) happy for Denny," says Heaven Hill spokesperson Josh Hafer. "We will have a transition period before he heads over to Maker’s Mark. But our distilling, warehouse and whiskey innovation teams are exceptional and all remain in place. Many of them with decades of experience. Moving forward, we will look for someone who can maintain the traditions of our previous Master Distillers including a commitment to heritage, quality, authenticity and transparency," said Hafer.

Potter replaces Greg Davis, who has been Master Distiller at Maker's Mark since 2010. Davis has been promoted to Director of Distillation at the Jim Beam Distillery in Clermont, where he will be responsible for that plant as well as the Booker Noe Distillery at Boston, Kentucky.

Also moving to Clermont is Victoria MacRae-Samuels, currently Vice President of Operations and Plant Manager at Maker’s Mark. She is relocating to the Global Innovation Center in Clermont as Senior Director, Global Quality for Beam Suntory.

Jane Bowie has been promoted from Distillery Maturation Specialist at Maker's Mark to Director of the Private Select and Diplomat Program.

Friday, August 24, 2018

"That Next Drink May Kill You" And Other Stories

You had a drink and now you're dead.
Unless you've been living under a rock, you've seen the headlines: "No amount of alcohol is good for your overall health, global study says," "Alcohol was responsible for nearly 3 million deaths in 2016, study says," "Health risks of alcohol outweigh benefits, study says."

The study was published in The Lancet. You've heard of The Lancet, right? Lots of medical stories start out there.

Read down a bit and you discover that the study was funded by the Bill and Melinda Gates Foundation. The mission of the Gates foundation is to "help all people lead healthy, productive lives." There's nothing wrong with that.

When I see stories like this, especially when alcohol is involved, I like to skip the lurid conclusions and jump to things like who paid for the study and, most of all, what was their methodology?

The study used data from the 2016 Global Burden of Disease report, which captured information on premature death and disability from over 300 diseases by sex and age in 195 countries or territories between 1990 and 2016. This study's researchers used that report to analyze the impact of alcohol on 23 health conditions and alcohol-related risks on people between the ages of 15 and approximately 95 for the year 2016.

This is where it starts to get hinky. The study's very design suggests its objective was to see how many ways they could find to blame alcohol for premature death and disability.

To arrive at their conclusions, the study's authors use something called the Disability-Adjusted Life Year (DALY), a measure of overall disease burden expressed as the number of years lost due to ill-health, disability or early death. It was developed in the 1990s as a way to compare the overall health and life expectancy of different countries. Whether or not that metric is suitable for generating the headline conclusions of this study is debatable. This is how good science often goes awry.

In the DALY, each disability has a different weight, with 1 meaning 'dead' and 0 meaning 'completely healthy.' Urinary incontinence carries a disability weight of 0.139. Migraines? 0.441. Ebola? That’s merely 0.133. The weights are somewhat arbitrary, which may be fine when used as intended, but here they are being applied for a very different purpose.

The study's headline-grabbing claim is that the deaths of 2.8 million people around the world every year can be attributed to alcohol. Is that a lot? The population of the world is 7.5 billion people.

Now let's drill down on that 2.8-million number. We find it includes people who die in car crashes, through unintentional injuries, and violence wherever there is some evidence alcohol was involved. Were those people really killed by alcohol? Or was alcohol merely the weapon of choice in some cases, and an innocent bystander in others?

As universal as alcohol use is, it should surprise no one that many people who die for many reasons have consumed alcohol along the way. People who never leave the house probably won't die in a car crash. Is that a persuasive argument for never leaving the house?

So what? It's just another study. The headlines will be gone tomorrow. Then we'll get another story about coffee or chocolate or, heaven help us, kale.

The problem is, this study's authors also make recommendations, like advocating higher alcohol taxes and other government policies to suppress or, dare I say it? prohibit alcohol sale and consumption.

The busybodies who want to improve us without our consent will always be with us.

There don't seem to be any neutral observers on this subject. I don't claim to be one. Experts in the employ of the alcohol industry suggested some of the pushback above. The more nonsensical analysis is entirely my own.

If you want to dive into this issue even more deeply, check out this commentary from Christopher Snowdon. He explains why it is probably inevitable that policymakers and advocates will finally settle on the "no safe level of drinking" conclusion. Hint: it's political.

When it is hard to get a straight answer from experts, ask yourself "what makes sense?" Most of human experience tells us that most people who use intoxicants (alcohol and others) consider their lives enhanced by that use, not diminished. Are we wrong? I think not, and this study failed to change my mind.

Tuesday, August 14, 2018

Riverside, the Chicago Portage, and Quincy Street Distillery

Chicago is laid out on a grid, as are most of its suburbs. But look at a map of the western burbs and Riverside stands out, a grid without corners. Instead of straight lines, Riverside’s streets are gently curved, like the Des Plaines River that borders the town on the south and west, and gives it its name.

Riverside was an early example of a planned community, designed in 1869 by Calvert Vaux and Frederick Law Olmsted, who most famously designed New York’s Central Park. It was intended as a suburb, connected by commuter rail to Chicago's downtown. Today most of the town is a National Historic District.

Quincy Street Distillery, 39 East Quincy St., Riverside, Illinois 
One of the very few straight streets in Riverside is Quincy, where you will find Quincy Street Distillery, a small artisan distiller near an art glass studio and the local arts center. Quincy Street gives tours and does tastings, by appointment, four days a week.

Quincy Street makes a large variety of whiskeys, gins, and other spirits.

A visit to a small distillery can be pretty quick, so it’s nice if there are other interesting things to do in the same area. Riverside provides that, in the historic town itself and its neighbor to the south, Lyons, where there is a site very important to Chicago history.

A statue commemorating 17th century explorers Pere Jacques Marquette and Louis Joliet.
Chicago is where it is because of its eponymous river, which originally emptied into Lake Michigan. Early European explorers learned from the natives that a short portage from the Chicago River’s south end could put one into the Mississippi River system, effectively connecting the Great Lakes and Mississippi systems. Eventually that portage trail became a canal, then a much bigger canal. Part of the original trail is still visible in its natural state at the Chicago Portage National Historic Site.

And if that isn't enough for you, Brookfield Zoo is also nearby.

Wednesday, July 25, 2018

MGP Reduces Minimum Order for Custom Mash Bills

An aging warehouse at the MGP distillery in Lawrenceburg, Indiana (formerly owned by Seagrams).
MGP announced today that it has reduced its minimum order for spirits made from proprietary mash bills to 250 barrels from the previous 1,000-barrel requirement, said MGP Vice President of Alcohol Sales and Marketing David Dykstra.

In addition to lowering the minimum order, MGP will allow customers to 'pool' orders with other producers to fulfill the 250-barrel requirement.

MGP also offers a customized barrel entry proof, and the option to use either new or used barrels. Aging in an MGP rack house is also available.

“We’re full-service and fully committed to partnerships that benefit our customers of all sizes,” Dykstra said.

This change would seem to indicate that the contract distilling marketplace is becoming more competitive and MGP is no longer the only game in town.

Thursday, July 5, 2018

Some Perspective on the Barton Warehouse Collapse

Two weeks ago, we told you about the partial collapse of Warehouse 30 at the Barton 1792 Distillery in Bardstown, Kentucky. Yesterday, not surprisingly, the rest of it came down. The photographs and videos are certainly dramatic, approximately 18,000 barrels of whiskey, each one holding 53 gallons and weighing 500 pounds, in a massive pile, with pieces of the roof and other debris scattered about.

No one was injured in either collapse.

The story is all over social media and many people are blowing it way out of proportion. Obviously, it is a bad accident, but it doesn't imperil Sazerac, the distillery's owner, nor will it have a significant impact on the industry as a whole. It is a drop in the bucket. There are currently 6,657,063 barrels of whiskey aging in Kentucky. The barrels affected in this incident represent about 1/3 of 1% of that total, and that's just in Kentucky. There are a few million more aging in Tennessee, Indiana, and other states.

Although they are rare, events like this do happen. As a precaution, every warehouse contains a mix of different products at different ages, mitigating the impact of accidents on inventory planning.

Sazerac, America's third largest whiskey producer, won't miss a beat.

The warehouse was about 80 years old. It was a wooden structure, covered with a thin steel skin. While the exact cause has not been determined, it isn't hard to figure out the factors that may have been involved: an old, wooden building; a very wet spring, and a tremendous amount of weight. These things happen from time to time. The most unusual fact about this incident is that there wasn't a fire. There usually is a fire.

As it is, the biggest concern is keeping whiskey from smashed or leaking barrels from getting into the creeks that surround the site, which all empty into the Beech Fork River. If you watch one of the longer videos, you can see there is a massive earthmoving operation going on at the base of the hill, creating a barrier to keep the alcohol out of the stream.

After the initial collapse, the Kentucky Environmental Protection Agency reported that approximately 500 fish were killed. When alcohol gets into a waterway, algae feed on it and deplete the water of oxygen. The fish die of asphyxiation.

After a warehouse at Wild Turkey collapsed and burned in May of 2000, officials of the Kentucky Department of Fish and Wildlife Resources announced that a 28-mile-long 'dead zone' was floating down the Kentucky River with the current, killing everything in its path. It was the worst fish kill in Kentucky history. About 227,000 fish died, including paddlefish, catfish, shiner minnows, spoonbills, carp, gar and saugers. Wild Turkey was assessed and paid a large fine.

As you can see from the pictures, many of the barrels appear to be intact. They are made from white oak, which is pretty stout stuff. There are no estimates yet as to how many can be salvaged, and the effort will take a long time. Barrels will literally have to be removed one by one, probably using some kind of crane to avoid disturbing the pile.

There probably were distilleries on the Barton 1792 site before 1876, but that was the year Tom Moore and Ben Mattingly established the Mattingly & Moore Distillery there, with financial help from John Willett, Mattingly's father-in-law. Moore's mother was a Willett too, so it was all in the family. In 1879. Moore established the Tom Moore Distillery right next door and that is the plant that eventually became Barton. (The year 1792, which is the name of the distillery's flagship product, is the year Kentucky became a U.S. state. It otherwise has no significance to the history of the distillery.)

Barton is pretty ideally situated on the edge of Bardstown. The distillery itself is in the valley, at the spring. Most of the warehouses are on a high plateau above it, to maximize air circulation. Although a small part of one original building was incorporated into the distillery, most of it was built in the 1940s. Sazerac bought it in January of 2009. Sazerac also owns the Buffalo Trace Distillery in Frankfort, and a maturation and bottling operation in Owensboro at the site of the Glenmore Distillery.

Although this accident is surely unfortunate, and the clean-up will be costly and time consuming, everything and everyone is going to be just fine.