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.


Alex said...

Exactly. When the FedEx driver delivers a package to you, that doesn't mean the service wasn't being provided by FedEx--Bob was acting on behalf of FedEx, who was paying his salary.

It's the same with contract distilling. I can form a corporation and when I hire someone to distill for me, they are acting for me and that distillate is being produced by my corporation.

Andy said...

If Kirin's lab tests from about ten years ago are true, than the label is NOT true (i.e., that the spirit was distilled in Lawrenceburg, KY), unless of course Wild Turkey/Campari distilled some of it, which is doubtful. This of course is also assuming that Bulleit is less than ten years old, which it surely is.

sku said...

The problem is that "distilled by" is a legally defined term that means "bottled by or for the distiller thereof." In this case, even if Four Roses used a dba (and by the way, is there a KY Secretary of State filing showing that Four Roses adopted this dba?), this whiskey was bottled by and for Diageo, which is not the distiller. They should have used "produced by" which means "bottled by or for the rectifier thereof." Indeed, Diageo itself apparently recognizes this as they recently submitted a COLA which changes the language to "bottled by" which may be used by both distillers and rectifiers.

Robert said...

You point out that dbas are legal fictions. This makes them sound sketchy. Do you agree that corporations are legal fictions, every bit as much, and are a bedrock of our system? So this suit, like the Blue Moon beer suit, is in some ways attacking the foundations of the system we have had for hundreds of years across all industries. I am not saying that system is perfect, but it's not clear the plaintiffs realize how extreme their position is.

Anonymous said...

Richnimrod said...
Truth; as well as accuracy; aside, this will be a very interesting LEGAL question to see work it's way through the system.... If indeed, it ever actually goes to a court of law for adjudication.

Mark said...

Bulleit doesn't taste like it's entirely Four Roses either. My palate I'm sure is easily fooled, but while I did taste some characteristics that brought Four Roses to mind the last time I had some, I also found some peanut notes that I typically get from either Beam or Brown-Forman bourbons.

Yehoshua Werth said...

Amazing that the production of these massive places is taxed to the hill and can no longer provide the "" contract juob that is and was sucha tradition. Four Roses not longer making for Diagio and yet the Small batch is becoming super rare because of lack of barrels?? WOW!
How about Distilled for "", Barreled and bottled by""! Seems like an easy fix to a massive miss-read or presentation. How do you think this aligns with the Titos issue via the words SMALL Batch or otherwise hand made?

Love to you and your family and thank you for finding the goods!

Erik Fish said...

I think what it all comes back to is that Diageo's whisky business is still fundamentally Scotch-centric; with the many single malts in their portfolio, these issues never arise, and the blends have so many different whiskies in them (product from 30 to 50 single malt distilleries in the premium labels like JW black and blue) that it's simply not a topic they're used to explaining to their customers in detail. And since they do manage to put out good stuff, that works with the majority of the customer base.

I, on the other hand, just finally got a bottle of their new I.W. Harper. Tasty stuff, but I'm still not clear where the liquid was actually distilled. It says "Bottled in Tullahoma TN" on the bottle; I assume that means the Dickel plant, unless I missed another Diageo facility there, but is there Tennessee whiskey in the Harper? Can't really, since it says Kentucky Bourbon on the bottle; or can it? These people really know how to confuse you.

Unknown said...

Does the accuracy of the label hinge at all on the terms of the contract? If, for instance, the contract was simply to purchase a certain amount of distillate to Bulleit's specifications, then the label wouldn't be entirely accurate, would it? I have no idea - you're the lawyer and likely have seen at least the contours of these types of contracts, so you'd have the better skinny. I imagine the specifics of whatever instrument was used would be important.

-Jeff Harner

Chuck Cowdery said...

Because Bulleit is not a BIB the 'distilled by' statement is optional, so TTB won't scrutinize the claim too closely. At worst, some -- even most -- of the whiskey was distilled at Four Roses. Maybe a little bit was not. Personally, I wouldn't want to be behind a lawsuit hanging on such a thin thread.

Joe DeMattei said...

After reading your blog and your awesome book Bourbon, Strange, your anti-Diageo sentiments have really rubbed off on me. I dream about someone else buying out George Dickel- because I love Dickel whiskey but hate giving Diageo any money.

After reading about Diageo's solera process for Blade & Bow, mixing old Stitzel-Weller juice w/ new juice, my first thought was that I'd love to hear your thoughts or read an article of yours on your opinion of this.

To me it seems like a process that's cool when applied to old, traditional products like traditional balsamic vinegar of Modena. However, in the hands of Diageo it strikes me as an exceedingly greedy way to make a couple barrels of S-W be in exceedingly minute amounts in thousands & thousands of bottles of B&B. Anyway, I would love to hear your take on it.

Erik Fish said...

So Chuck, since we're on the topic of Diageo, can you clarify this bottling puzzle?
On occasion of getting to try a sip of Barterhouse tonight, I looked at the Orphan Barrel website and saw that it is also "hand-bottled in Tullahoma".
So if I get this right, Diageo is bottling both the Orphans and Harper, which aren't made there, in Tullahoma, but the Dickels, which are made there, are bottled elsewhere, if I read my bottles right. Right?

Chuck Cowdery said...

What they have in Tennessee is a small, slow hand-bottling line. Their high speed bottling lines are in Plainfield.