Thursday, April 10, 2014

Why Kentucky Should Support Its Bourbon Industry

What maple syrup is to Vermont, wine is to California, orange juice is to Florida, and cheese is to Wisconsin, bourbon whiskey is to Kentucky. That makes 'Kentucky Straight Bourbon Whiskey' a valuable brand. Last week, Kentucky lawmakers wisely invested $13 million in that brand. The details aren't important, but you can find some of them here.

A few days ago, Fruit of the Loom announced that it is closing its last factory in Kentucky. Fruit of the Loom, which makes underwear, was once one of Kentucky's largest employers. Using that news as a bridge to talk about why the whiskey business is different may have been ill-considered. It's devastating for families and communities when any employer closes.

The comparison was in no sense meant to suggest that whiskey jobs are in any way more valuable than any other jobs. You can't make a jobs-to-jobs comparison between textiles or any conventional manufacturing and whiskey. Fruit of the Loom at its apogee employed more people than the entire whiskey industry. That was never the point.

This is.

Kentucky has no unique claim to its textiles plants, its auto plants, its appliance plants, nor to most of its other manufacturers. Those industries can and do locate anywhere. Kentucky is glad Toyota is in Kentucky but Toyota could just as easily be in Ohio or Tennessee. Once Kentucky has made its case (taxes, cost-of-living, quality-of-life, location, resources, quality of its workforce, etc.), it becomes a bidding war with other potential locations.

The whiskey business is different. Why? Because 'Kentucky Straight Bourbon Whiskey' is a powerful brand to millions of consumers around the world. Is it well established? Yes. Is it valuable? Absolutely. Can its value be enhanced? Of course.

Louisville Slugger is the world's best known baseball bat brand. Not many years ago, the Louisville Slugger factory was across the river in Indiana. Today it is on Main Street in downtown Louisville. It is open to the public and attracts thousands of visitors a year. You can make baseball bats anywhere. Louisville Slugger proved you can even make Louisville Slugger baseball bats anywhere, but having the Louisville Slugger factory and museum in downtown Louisville has been good for Louisville, good for Kentucky, and good for Louisville Slugger.

Once upon a time, whiskey was made in many states. In some years, Illinois was the biggest producer, not Kentucky. Pennsylvania made a lot of whiskey, so did Ohio and Indiana. Tennessee, of course, still does.

When the American whiskey industry contracted sharply about 40 years ago, it essentially collapsed into Kentucky and Tennessee. The reasons for this are many, and it took Kentucky about 30 years to figure out how to take advantage of it. Now American whiskey is booming and American whiskey tourism is booming too.

Because American whiskey has become so geographically focused on those two states, it makes sense for diversified distilled spirits companies that have a major American whiskey business to locate other facilities there as well, such as bottling plants and distribution centers, research and development, and even headquarters. Recent examples include Jim Beam and Wild Turkey.

It also makes sense for related businesses to locate there, such as cooperages, bottle makers, label printers, etc. Kentucky corn farmers have a robust local customer for their grain and Kentucky dairy farmers have a cheap source of feed for their cows. A robust bourbon tourism industry means jobs in hotels, restaurants, bars, liquor stores, transportation companies, etc.

Whiskey is the gift that keeps on giving.

Micro-distilleries are the latest thing. They tend to be local in nature, but if a new whiskey producer has ambitions to be a national or international contender, isn't it smart to locate where you can make Kentucky bourbon or Tennessee whiskey? And where thousands of people are already coming to visit distilleries?

New producers aren't necessarily micro either. Angel's Envy and Michter's are both building distilleries with capacity of more than one million proof gallons per year. That's maybe one-quarter of what the smallest big guys produce, but it's still a lot of new production. They've both located in Kentucky.

What are the forecasts? That's the most exciting part. If Kentucky and Tennessee can keep this thing going, they can make major inroads into international markets, especially emerging markets in Asia and Africa. The $13 million, like any economic development spending, makes more money available for the producers to invest in new and expanded facilities in Kentucky. No one can say how big Kentucky bourbon can become, but it looks like the potential is huge. Arguably, Kentucky has an even better head start than Tennessee, but they're both way ahead of any other venue.

That advantage isn't a reason to lay back. It's a reason to double down.

Are investments in the whiskey industry a sure thing? Of course not. Are there threats? Of course. That's why industry leaders and state and local lawmakers need to be smart and realistic but also ambitious.

If they are, it's right there for them.

1 comment:

h4rr4r said...

I don't see why the taxpayer should be footing the bill for this. My industry does not get free money to exist or expand. There is no need for the taxpayer to take the risk and get nothing back. If the state wishes to buy stock or bonds of a company that might make some sense, but this is once again socializing the losses and privatizing the profit. At that point you might as well have the state cut checks to the owners of these companies, at least that would be honest.