How a Whiskey Shortage Works

After the recent announcement from Buffalo Trace about a general tightening of bourbon supplies -- a 'shortage,' if you will -- many people chose to comment (here and elsewhere) by pointing out that the stores they shop are still well-supplied with the brands in question.

While this at first blush simply seems funny -- how blinkered is your world view that you don't think something is happening unless it's happening to you? -- it suggests that many people don't understand how a whiskey shortage works.

First, it's important to remember the three-tier system. By law, producers sell to distributors and distributors sell to retailers. In many states, merchandise can't flow in the other direction. Even chain retailers can't move stock from store to store to equalize availability. This can lead to one store in a market being out of a certain product, while others in the same market have plenty.

To a whiskey producer such as Buffalo Trace, there is a shortage whenever they receive orders they can't fill. Sometimes this is a very short term problem. For example, there are no more finished goods in the finished goods warehouse ('finished' means bottled, cased, and ready to ship) and there is a gap in time before that particular product is scheduled for another bottling run, but there is sufficient whiskey available, so that a normal bottling can be done at the next opportunity. That's not really a shortage, although it can result in a few very limited out-of-stock situations at retail.

Another situation might be that the producer's finished goods warehouse is bare and there's nothing suitable that's available to bottle -- so there's a shortage as far as the producer is concerned -- but the distributors have sufficient stock that the shortage never reaches retail. A point is reached where everything is on the shelf somewhere -- the producer and distributor stocks are depleted -- but they are able to be replenished before bare shelves appear at retail.

For the consumer, a real shortage occurs when the finished goods warehouse is bare and there is no suitable whiskey available to bottle until the next batch reaches maturity. For several months, distributors and retailers are unable to replenish their stocks of that particular item, leading to multiple retail out-of-stock situations market-wide. That's the kind of shortage consumers notice, because they may have to visit several stores to find the item in question.

When this happens to a particular product with regularity, because demand has out-stripped supply for several cycles, more consumers are likely to perceive a shortage. Instead of having to visit several stores to find what they want, they can't find it no matter how many stores they visit.

An even more severe situation can occur when there is a gap in the pipeline for some reason. A good example of this is George Dickel. Because the distillery was closed for several years during the 1990s, the pipeline for George Dickel No. 8 simply ran out and there was none to be had anywhere for more than a year. A shortage that severe is very rare.

What's happening now is that general demand has been outstripping supply year after year, even though producers have been increasing supply at the production end of the pipeline. When this happens, producers make such adjustments as they can to ensure that their most profitable products remain available. (Throughout the Dickel 8 shortage, Dickel 12 and Dickel Single Barrel remained generally available.) In this situation, the pipeline may dry up for a particular product, meaning some but never all retailers will experience out-of-stocks, but they're temporary because there's product in the pipeline that simply isn't mature yet.

So if you buy a bottle of brand XYZ approximately every three months, there may be an active shortage but you'll never notice it, because your buying cycle missed the two-month window when out-of-stocks were occurring.

Just because you personally haven't perceived a shortage, that doesn't mean it's not real.

Some producers in the past have hyped shortages. Beam did this a few years ago with Knob Creek. The shortage was real but retail out-of-stocks weren't widespread enough for long enough for most consumers to perceive the shortage personally. Many, therefore, called it a hoax, and that has led them to assume that all announced shortages are also hoaxes, leading to the "we've got plenty here in Little Rock" phenomenon.

Another situation is the deliberate shortage, e.g., Van Winkle. For Van Winkle, Buffalo Trace and the Van Winkle family deliberately keep supply behind demand. At the moment it may be further behind demand than they'd like, but Van Winkle will never be in surplus if the producer can help it. Van Winkle also has legitimate supply issues because the products are so highly aged, meaning they can't make much of a change in supply if they want to, but that doesn't alter the fact that they don't want to.

Consumers, of course, can contribute to a shortage. While some people poo-poo the shortage, others go out and stock up. Some do both.

What bourbon and rye drinkers are likely to experience going forward is occasional, temporary shortages of certain products. If stocking up is advisable at all, you probably won't need more than one or two extra bottles to ride through a brief out-of-stock. Panic buying is certainly not necessary. The best advice is probably to use an out-of-stock when one does occur as an opportunity to try something new.