Monday, March 17, 2014

More About Tennessee Whiskey, From Down Under

Chris Middleton is a former Jack Daniel's executive who lives in Australia, where he writes and teaches about whiskey history. He has an amazing stock of knowledge and continues to teach me a lot. He intended the following as a comment to the recent posts here about Diageo's efforts to gut the Tennessee whiskey standards adopted last year at the behest of Jack Daniel's, but had technical difficulties so he just emailed his observations to me directly. As always, his insights are illuminating.

I was tempted to cite the Early Times case study of what happens to a leading bourbon brand that turns to second-use barrels. The irony is that the demand for ex-bourbon barrels by Scottish and Irish distillers, rum and others will soon start outstripping supply. Over 95 percent of Scotch first fill is now ex-bourbon and with the new distilleries and increased capacity by the existing ones (Diageo alone is investing $2.5 billion over the next 3 years in Scottish plant, you’d think they would be sucking Cascade dry), so bourbon wood is going to get expensive (COGs impact) and distilleries without contracts will find it difficult to guarantee supply, let alone the quality.

Lem Motlow’s first legal run-in with Schenley was 1931 when they attempted to claim usage of the Jack Daniel’s trademark. Although 892 barrels of the Jack Daniel’s whiskey were illegally siphoned off from a bond store in St Louis for George Remus’ illicit trade in 1923, there was considerable remaining stock left to be sold under medical prescription. I believe Schenley Products was contracted by Lem Motlow to sell some of this stock from his closed distilleries in Birmingham, AL (1915) and St Louis, MO (1917). The whiskey was sold under the Jack Daniel’s label during the Prohibition years.

Your recent post noted six of the ten Government licenses were used, Schenley with 25 percent of stored whiskey inventory was the largest business dedicated to supplying whiskey ‘For Medical Purposes Only’ (6 million gallons were prescribed during Prohibition). With Prohibition’s repeal in sight, Schenley attempted to seize the trademark in 1931. The brand must have been well received when they distributed to doctors (16,000) and druggists (57,000) through the 1920s.

Lem Motlow fought back and secured his trademark rights, which he claimed were never surrendered under the bottling agreement and were also kept in a legal coma under his Lynchburg mule business.

After Prohibition, Motlow raised the finance to invest in rebuilding the distillery and forced Moore County to hold a referendum to permit distilling in the Lynchburg Hollow, which restarted October 1938.

During the capital raising period he allegedly wrote to Schenley to enquire whether they would be interested in becoming shareholders in the new distillery. They declined; however in 1936 he negotiated royalty fees from Schenley to sell Jack Daniel’s whiskey under his license, using his remaining whiskey stock, now at least nineteen years old. I do not know if this transpired.

Diageo’s alleged attempt to amend the bill I too find perplexing. Diageo, like B-F is a responsible liquor company so I am yet to understand their motive, given Dickel is their only operating whiskey distillery in the US.


Sylvan said...

My guess is Diageo has a new product from the Dickel distillery in mind that uses used barrels and they'd like to sell it as 'Tennessee Whiskey'. It seems unlikely they'd mess with the current Dickel line.

Alex said...

I agree that they could release a cheaper product, although Cascade Hollow is pretty cheap already. But why is it unlikely that they would mess with the current products? I disagree. If the definition of Tennessee whisky is changed, how would we ever know if they messed with it? They could use 10-20% reused barrels and cut their costs significantly. Some people would complain that the taste has changed, but Diageo would never have to confirm it. Soon, a majority of customers would never know what they missed. Besides, George Dickel isn't that popular or well-known; with proper marketing, its volume can only go up, and the new customers would not know how it used to taste.

If one thing is true, it's that the whiskey isn't produced for the most knowledgeable consumers. Members of the general public far out numbers those of us on this blog, and are willing to buy an inferior product as long as the marketing appeals to them.

If Dickel was more well-known, they could experience a backlash similar to what Maker's Mark had to deal with last year. But Dickel is no Maker's Mark, neither in terms of marketing nor volume.

Chuck Cowdery said...

When the marketplace is suddenly flooded with nail polish removers called Tennessee whiskey, what do you think will happen to the reputation of anything else that's called Tennessee whiskey?

danz said...

"When the marketplace is suddenly flooded with nail polish removers called Tennessee whiskey..."

That is not far removed from my tasting notes for Johnnie Walker Red. That is Diageo's bread and butter.

Josh Feldman said...

Interesting idea that Diageo would sacrifice Dickel to damage the standing of JD - like a suicide bomber wearing an explosive vest. I have little doubt you're right.

David Pickerell said...

Any possibility this is related to the coming new bourbon barrel shortfall? No secret, many existing bourbon barrel customers will not receive their total requirement for 2014. If they get the identity switched to used cooperage, no more problem.

Chuck Cowdery said...

That's one of the claims, but the barrel shortage is a short term problem caused by the huge jump in demand. In real terms, changing the standard for that reason would make no sense.

Dave Pickerelll said...


Based on interviews I had with cooperage owners a couple weeks ago, not so sure it is a short term problem ... and it is HUGE this year. The problem appears to be a lack of qualified loggers, not a lack of trees or capacity at the cooperages or stave mills.

Chuck Cowdery said...

Depends on your definition of 'short term,' but it is definitely temporary, related to a specific human bottleneck, and not due to a tree shortage.

sam k said...

If Jack drinkers gave a damn, Jack would have never been able to pull off their gradual reduction in proof from 90 to 86 to 80 over the course of a decade, but they don't. Jsck drinkers are the blind faithful and would follow it all the way down to whatever proof they could get away with if 80 wasn't the floor. It's about nothing more than a label, both to the distillery and to their fans.

Whatever's happening here is no threat whatever to Jack Daniel's.