Monday, December 9, 2013
It Was The Best Of Times, It Was The Worst Of Times
If these are the best of times for the American whiskey industry, the 1980s were the worst. The business of making and selling whiskey in the United States had hit rock bottom. The business had lost half of its sales volume and although sales had more-or-less stabilized (they were, in fact, still declining but at a much slower rate) there seemed to be no revival on the horizon. Because they believed the decline would be temporary, producers kept producing far too long and the industry was drowning in whiskey that fewer and fewer people wanted.
With sales down and inventories too high, profits were under intense pressure and whiskey assets were changing hands faster than a hot potato.
Most of the large producers were no longer independent. Instead they were part of conglomerates. In those days, unlike now, diversified conglomerates were all the rage. Spirits producers shared a corporate household with all kinds of unrelated businesses.
Back then, F. Ross Johnson was the powerful CEO of Nabisco. He was played by James Garner in the movie "Barbarians at the Gate" (1993). Nabisco had a subsidiary called Standard Brands that included Fleischmann's Distilling. Ferdie Falk was the CEO of Fleischmann's and Bob Baranaskas was president.
In 1983, Johnson decided to sell Standard to Whitbred, which was part of Grand Metropolitan. A few years later, Grand Metropolitan merged with Guinness to form Diageo.
Assuming they'd be replaced after the sale, Falk and Baranaskas resigned and decided to start their own company. Falk was previously an executive with Schenley, so he approached Meshulam Riklis, whose conglomerate now owned Schenley, about selling some assets. Riklis always needed money so he agreed to sell Falk and Baranaskas the Ancient Age bourbon brand and the distillery that produced it, then called the Albert B. Blanton Distillery, today's Buffalo Trace.
Falk and Baranaskas called their new company Age International. As the name suggests, they believed bourbon's future was outside the U.S. One of their first moves was the creation of Blanton's Single Barrel Bourbon. Done at the behest of their Japanese customers, they released it in the U.S. as well.
In 1991, Falk and Baranaskas sold a 22.5% interest in Age International to Japan’s Takara Shuzo, with right of first refusal to purchase the remaining shares. In 1992, Falk and Baranaskas sold their shares to Takara for $20 million. Takara immediately sold the distillery to Sazerac, but retained the corporate entity and brand trademarks.
Today, Sazerac still owns Buffalo Trace and Buffalo Trace still produces all of the whiskey for Ancient Age, Blanton's, and the other Age International brands, using a special mash bill. Buffalo Trace distributes the Age International products inside the U.S. Buffalo Trace also makes its own bourbons and other products, using a different mash bill.
Sazerac and Age International have an unusual relationship, but it has worked for both of them for now more than 20 years. It was born at a low point for the American whiskey business. This little story shows how easily things could have been very different.