Saturday, February 9, 2013
Why Is Maker's Mark Watering Its Whiskey Instead of Expanding?
The news began to leak yesterday and became official this morning. Effective immediately, Maker's Mark is lowering the alcohol concentration of its standard expression from 45% alcohol-by-volume (ABV) to 42%. (90° proof to 84° proof, if that's how you roll.)
After aging, Maker's comes out of the barrel at about 60% ABV and water is added to bring it down to bottling proof. Maker's will now add a little more water and a little less whiskey to every bottle.
Why? To get more bottles from each barrel. This is necessary, they say, because "demand for our bourbon is exceeding our ability to make it." That's nothing new. Maker's has been on allocation for something like 30 years. 'On allocation' means that when customers tell Maker's how much they want, Maker's tells them how much they can have.
So what has changed? "We never imagined that the entire bourbon category would explode as it has over the past few years, nor that demand for Maker’s Mark would grow even faster." The proof cut "will enable us to maintain the same taste profile and increase our limited supply so there is enough Maker’s Mark to go around, while we continue to expand the distillery and increase our production capacity."
The bottom line, for them, is that lowering the proof doesn't change the taste, and nothing else about the unique way Maker's Mark is made has changed. "In other words, we’ve made sure we didn’t screw up your whisky," said the letter co-signed by Rob and Bill Samuels.
They've taste-tested it, they say, and no one can tell the difference.
That may be, but there is no denying the simple fact that they have cheapened the product without lowering the price, so consumers will get a little less of what they paid for and Maker's (i.e., Beam Inc.) will make more money.
They're not talking about that, of course, but there's an even bigger story they're not talking about either. They claim they are expanding the distillery and increasing capacity, but are they?
In 2005, Beam (then called Fortune) teamed up with Pernod Ricard to buy and dismantle Allied-Domeq, which owned Maker's Mark. Maker's was the prize Beam wanted most.
Just months before the Allied sale was announced, Maker's announced a plan to expand the distillery's capacity by about 50%. In 1996, Maker's had doubled its capacity by creating an exact duplicate of the original distillery, right next to the original. The plan was to build a third identical plant there too.
Maker's announced the plan and Allied was ready to pull the trigger when it was acquired instead. It took several months for the transfer of Maker's to Beam to occur. Maker's said they assumed it would take Beam some time to evaluate everything, but since the expansion plan was ready to go and the brand was growing steadily, it seemed like a no-brainer. Once it had all of its ducks in a row, Beam surely would go forward with the planned expansion.
In 2008, Kevin Smith, who was then Master Distiller at Maker's, talked to me at length about the expansion plan for an article that ran in issue 72 of WHISKY Magazine. "My job is to guard the brand and make it the same way it's been made since 1954," said Smith. He explained that infrastructure improvements had been completed, such as raising the dam on the distillery's spring-fed lake to provide additional water.
As Smith explained it, Maker's Mark was the fastest-growing bourbon in the United States, with 2007 sales of 800,000 cases. The current distillery could support up to 1.5 million cases, the expansion would bring that to 2.2 million. The concern then was that, at the then-current rate of growth, they would hit 2.2 million in about 2016, and water source limitations would prevent them from growing further.
Yet here we are in 2013, and construction of the third distillery has not occurred. Asked this morning when construction on it would begin, Rob Samuels said he didn't know, but thought it would be soon.
So how did Beam let themselves get so far behind the curve on this? Since 2008, they have expanded visitor capacity, but not production capacity.
Did they really get blind-sided? Bourbons in the same price class as Maker's have seen strong growth for the last decade or so (hence Allied's expansion plan), but it has shifted into another gear in the last two or three years. One reason has been triple-digit growth in many non-U.S. markets. Rob Samuels says that wasn't a factor and Maker's export business is small and "strategic," but here's an interesting fact.
In Australia, Maker's Mark is 40% ABV (80° proof).