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.

16 comments:

Josh Feldman said...

Thanks so much for explaining this mysterious little corner of the Bourbon business to me. I encountered Takara Shuzo when researching Rock Hill Farms, which is one of the Age International brands. I couldn't understand the relationship. Now, as a prior production arrangement connected with an unbundling of corporate assets, it makes sense.

EllenJ said...

And when one of the future owners of Seagrams/LDI/Angostura/MGP/whatever decides that it would be profitable to release brands of its own, it's going to be VERY interesting to see just how different they can become again.

Tony said...

How important was overseas sales of bourbon and whiskey to the survival of the industry?

Chuck Cowdery said...

Non-U.S. sales were crucial to getting the industry going again.

Chuck Cowdery said...

And they continue to be extremely important.

Eric said...

I'm repeating a bit from Chuck's book on AH Hirsch but the Japanese fell in love with well-aged bourbon (15+ years) and became a big consumer of it. Essentially Japan and other Asian countries became a dumping ground for glut bourbon. Which wasn't a bad thing at all if you lived or live in those countries.

Stacy Thomas said...

Didn't Riklis have a bimbo wife whose showbiz career he promoted at lavish expense? Might have been a factor in his cash flow requirements.

Anonymous said...

Wonderful reporting of an interesting and esoteric bit of whiskey history Chuck.

Pat in OKC said...

reply to Stacy:

That would be Pia Zidora. I was an auditor on the Rapid American audit engagement back in the early to mid-80s, when Schenley moved its headquarters to Dallas from NYC. Got a good exposure to the business. should have stuck with it. ha.

Anonymous said...

So does Age International own the #2 mashbill, or can Buffalo Trace make their own products with it?

Chuck Cowdery said...

"Owns" may not be the right word. However, all of the bourbon brands Age owns are made with that mashbill, and none of the bourbon brands Sazerac owns are. So, presumably, the mashbill and whatever goes with it (e.g., yeast) are for Age's exclusive use.

Anonymous said...

That's really what I was getting at I guess. Does that exclusivity preclude a #2 Mashbill BTAC bottling at some point? I'd dearly love to see a 17+ yo Blanton's.

Chuck Cowdery said...

Anything is possible, but it's up to Age, not Saz.

Brock said...

Chuck, great info! Would I be correct to assume mash bill #2 has remained the same for AI brands before and after Sazerac production? Trying to get to the bottom of some questions about AI AAA10. Thanks in advance.

Chuck Cowdery said...

As far as I know, mashbill #2 is the same as it always was.

Brock said...

Thanks!