Let's Be Clear About This Tennessee Whiskey Thing

On one level, this fight about codifying the standards for Tennessee whiskey is just two big companies butting heads together and trying to gain advantage. Diageo's reply is just another salvo. Except in this case Brown-Forman is right.

Brown-Forman has every reason to be protective of the term 'Tennessee whiskey.' It is a valuable term due almost 100 percent to what Brown-Forman has invested in it over the past half-century. Brown-Forman has invested millions of dollars to make 'Tennessee whiskey' mean something, and what it means is a product that meets the same very high standards as bourbon whiskey.

Recently, many small producers have complained about how 'limiting' the bourbon rules are. They want to be able to produce any damn thing and call it 'bourbon whiskey.'

In other words, they want to steal bourbon's good name. Now there are people in Tennessee, whose strings are being pulled in London, who want to steal Tennessee whiskey's good name.

Since the only Tennessee whiskeys for the past 50 years, Jack Daniel's and George Dickel, voluntarily follow the bourbon standards, a whiskey of that style is what consumers expect from a 'Tennessee whiskey.' They don't expect some felon's fake moonshine, or some watery brew aged in used barrels. And since George Dickel only sells one bottle for every 100 Jack sells, what consumers expect 'Tennessee whiskey' to be is something very much like Jack Daniel's Old No. 7. (Although George Dickel is a very fine product too and also meets the bourbon standards.)

Yes, Brown-Forman was behind last year's successful effort to codify in Tennessee law those well-established standards. They did it because a couple of new producers, including one dedicated to the memory of a convicted felon, want to misappropriate the term 'Tennessee whiskey' by attaching it to a wholly different kind of product. They argue that if it's whiskey (presumably according to U.S. law) and made in Tennessee (without defining 'made' too closely), it's Tennessee whiskey.

The Tennessee lawmaker who introduced the new rule admits it was Diageo's idea. Diageo's motive has nothing to do with switching to used barrels at George Dickel, and surely no one seriously believes Diageo cares about "flexibility, innovation, and entrepreneurship in American whiskey." Diageo's purpose is to undermine consumer confidence in the term 'Tennessee whiskey' by gutting the established standards, after which the marketplace will be swamped with liquid garbage that can legally call itself 'Tennessee whiskey.' Diageo hopes this will slow Jack Daniel's growth enough to prevent it from overtaking Johnnie Walker as the world's #1 whiskey.

Diageo has been very artful in its arguments. Its master distiller paints it as an anti-big government issue, a good tack in conservative Tennessee. "We don’t think there should be a law that says this is how we, or anyone else, have to make whiskey."

Except there already is a law, a federal law, that says how you have to make whiskey, and how you have to make bourbon whiskey, and rye whiskey, and corn whiskey, and several others. Tennessee whiskey isn't mentioned in that law, but there are standards for whiskey, and the law says statements of origin have to be true. That's a standard, but it's a very low standard compared to the standard for bourbon whiskey. The existing law Diageo wants to change is exactly the same as the federal bourbon standard Jack and George have followed voluntarily for more than 50 years, plus the charcoal filtering stuff they have also both followed.

That law, the Standards of Identity for Distilled Spirits, is a consumer protection law that has served consumers well. It has its flaws, and its critics, but is usually not considered a threat to liberty.

But back to the heart of this, the #1 ranking. It's not trivial. It's not just about bragging rights. If Jack Daniel's becomes #1, it could change the dynamic in critical growth markets such as China and India. When newly affluent people gain access to luxury imported goods they immediately want to know what's the best. They'll inevitably start by looking at what's #1. It has never been more important to be #1 and if recent trends continue, Jack Daniel's will pass Johnnie Walker the next time rankings are calculated.

Diageo is desperate.

By the way, Jack Daniel's is big, and it's the biggest thing at Brown-Forman, which is a big company, but Diageo is several times bigger, yet in American whiskey terms Diageo is a pipsqueak. It's trying to turn that weakness into an asset by identifying itself with the micros. Cute.

And, oh the misinformation. New whiskey barrels do not cost $600 each, as one legislator told the Associated Press. More like $175, a lot less if you're buying a lot of them. Used barrels cost about $100.

That's not what this is about.

Most people today, including most people in developing markets, know brands. They don't know types. They don't know Jack Daniel's and Johnnie Walker represent two very different styles of whiskey. The hallmark of the American style is the unique flavor profile you can only get with new, charred oak barrels. If the Chinese try Jack Daniel's and like it, that will naturally align them with the American style.

The tide could turn.

In the world today, scotch outsells bourbon five to one, but China and India don't know that. India knows scotch because of the Raj, China doesn't have an inherent favorite. If American whiskey, not scotch, becomes China's choice, that could change everything.

Everything!

So with everything at stake, Diageo will do anything. If it succeeds in Tennessee (probably a long shot), it will hurt its own Tennessee whiskey, George Dickel. It doesn't care. It will gladly kick George Dickel to the curb to protect Johnnie Walker. Not just Tennessee whiskey, but bourbon and rye too, where The Big Galoot is also a pipsqueak. It likes Bulleit better than Dickel, but not at the expense of Walker. Diageo's big dog in North America is Crown Royal, a Canadian whisky aged in used barrels. The way Diageo sees it, anything that hurts bourbon, rye, and Tennessee, the 'new barrel boys,' helps them.

Ultimately, this fight will be between Big Scotch and Big Bourbon. This is just the opening round.