Tuesday, June 9, 2015
In Which I Stick Up for Diageo (a Little)
Diageo, the largest company in the distilled spirits business, has become the latest victim of a false advertising suit, based largely on a Bloomberg article and video in which I appear.
In the Bloomberg video, the reporter goes to the Anderson County Sheriff's office in Lawrenceburg, Kentucky, to ask for directions to the Bulleit Distilling Company. The receptionist, gamely going along with the stunt, informs him that there is no such company with an address in Lawrenceburg. This seemingly contradicts the label reproduced above.
The label is not false.
Beyond a doubt, all or most of the whiskey in the bottle to which that label was affixed was distilled at a distillery in Lawrenceburg that was temporarily operating as the Bulleit Distilling Co., but which normally goes by the name Four Roses. It was a contract distilling job. The spirit was owned by Diageo, which owns Bulleit, the moment it was made. After distillation, it was taken in tankers to the cistern room at Diageo's Stitzel-Weller Distillery in Shively, south of Louisville, where it was barreled and then put away in one of the Stitzel-Weller warehouses. After aging, it was bottled by Diageo at their Plainfield, Illinois facility and distributed from there.
Except for the distilling claim, every other claim in the paragraph above should probably have the words 'most likely' in front of it, because excessively secretive Diageo won't confirm the other facts, but they are widely known and believed to be true. Diageo did, for many years, assert that every drop of Bulleit Bourbon is made at Four Roses. They no longer do.
If you Google 'shingle' you'll mostly find information about a nasty skin condition. But shingles, meaning a sign that names and marks the location of a business, have a long and venerable history in the whiskey trade.
Back in the earliest days of commercial distilling, distilleries didn't make brands. They made whiskey which they sold to rectifiers who created the brands under which the whiskey was marketed. Sometimes, to assure a supply, these companies would contract with the distillery to make a certain amount. In those more literal times, it was standard practice for the distillery to hang up a shingle indicating who the customer was at any given moment. While they were running whiskey for the Old Handlebar Distilling Company, the shingle said 'Old Handlebar Distilling Company.'
Many distilleries had boxes full of these shingles, which they dutifully changed according to what they were producing for whom. Depending on who had capacity or the best price, many different distilleries might do duty as Old Handlebar. This tradition died out with Prohibition. Today, most distilleries make multiple brands. Some only make brands they own, but others also do contract production. All of the non-distiller producer (NDP) products out there have to come from somewhere.
An assumed business name or DBA (for 'doing business as') might be called a legal fiction, but it is legal. While the Kentucky River Distillery is making whiskey under a contract with the Old Handlebar Distilling Company it is doing business as the Old Handlebar Distilling Company.
So the idea that Four Roses was acting as the Bulleit Distilling Company when it was fulfilling its production contract with Diageo is neither unique nor shady. It is a long established practice in many businesses.
But that doesn't entirely let Diageo off the hook. Two things.
Although both Diageo and Kirin (Four Roses) were always very secretive about the details of their contract, it became apparent about ten years ago that Four Roses wasn't producing enough whiskey for Diageo to account for all of the Bulleit Bourbon Diageo was selling. It also became known that Brown-Forman, Barton, and Jim Beam were all producing large quantities of spirit for Diageo, all of which was being aged at Stitzel-Weller.
Diageo had other needs for bourbon distillate, so there is no way to prove that any of that whiskey was being used for Bulleit, but it sure seemed likely that someone other than Four Roses was producing some of what became Bulleit Bourbon.
At about the same time, a source close to Four Roses reported that lab tests performed by Kirin confirmed that Bulleit contained whiskey not produced at Four Roses. This caused Four Roses to withdraw from an event in which it had earlier agreed to participate. While this was all very plausible and a lot of people knew about it, the original source clammed up and it became impossible to get confirmation so I never reported any of this widely and only do so now with all of the caveats above.
Finally, early last year, it became known that the Four Roses contract with Diageo had ended on December 31, 2013, and Four Roses was no longer producing any whiskey for Diageo, for Bulleit or any other brand. That fact obviously doesn't affect the label above, or any Bulleit bourbon that is being sold today, since that whiskey was distilled years ago. At some point a few years hence, none of the whiskey in a Bulleit Bourbon bottle will have been distilled in Lawrenceburg, Kentucky, and the label will have to change. Right now it's true.
Today, most of the big bourbon distilleries are running at capacity. Brown-Forman, long the favorite contract distiller for other big distilleries, announced that as of January 1, 2015, it would only be distilling for itself. No more contracts.
Other distillers still do contract distilling, mostly via long-term agreements, but other than MGP in Indiana, most have no more capacity so while existing contracts will be fulfilled, NDPs are finding it hard to grow because they can't increase their orders. New Riff, a relatively new distillery in Newport, Kentucky, is picking up some of the slack. Michter's has solved the problem by building a new distillery in Shively, which they should be firing up any day now. Willet, in Bardstown, has been distilling for about two years. Diageo, too, is building a distillery in Kentucky but it is more than a year away from completion.
I don't like all the time having to guess what Diageo is really up to. Transparent they are not. In that regard they are out of step with the other majors, as well as the growing legions of small distillers, who are generally very open and eager to answer every question. Even in their statements about the Bulleit lawsuit, Diageo didn't claim the label was true, they claimed it was legal. The Big Galoot, as I sometimes call Diageo, still has a lot to learn about what American whiskey fans want and expect. If it takes a lawsuit to knock a little of the arrogance off of them, that wouldn't be a bad thing, but I'm not holding my breath.