Thursday, March 21, 2019

What We Know About IJW Whiskey

The new IJW barrelhouse on Lebanon Road (KY-34) southwest of Danville.
Yesterday, the Detroit Free Press broke a story that traces a new Kentucky whiskey concern, IJW Whiskey, to an investment by the University of Michigan. It appeared under the headline, "Mystery surrounds University of Michigan's possible whiskey investment."

The company has kept a low profile since it bought and began to develop its property outside of Danville more than a year ago, but its business plan, while unusual, is not as mysterious as its ownership.

The 142-acre tract, acquired from the Boyle County Industrial Foundation, is adjacent to the Wilderness Trail Distillery. The long-term plan presented to the county will involve 17 whiskey aging warehouses plus a 'presentation center' and an access driveway from Lebanon Road. The short-term plan calls for three warehouses that are only accessible via the Wilderness Trail property. Sources tell us Wilderness Trail is making the whiskey going into those warehouses now, on a contract distilling basis.

Sources further tell us that IJW has no plans to build its own distillery on the site. That's the unique part. Typically, a non-distiller producer (NDP) either buys aged whiskey that is ready to sell, or buys new-make and pays the distiller a fee to store it until it matures. IJW is an NDP, in that their whiskey is contract distilled, but they are taking delivery and maturing it in warehouses they own and operate.

That's new.

This project is interesting for several reasons, possible ownership by a major out-of-state university notwithstanding. First, the contract distilling market, which was extremely tight just a few years ago, apparently has added enough capacity for this business model to make sense, both now and going forward. Wilderness Trail is supplying them now, but they can buy new make from several other new distilleries nearby too.

Second, the company's owners clearly believe aged whiskey will be a valuable commodity in the coming years, even though the company owns no brands. They are betting that the market for Kentucky bourbon and other American whiskeys will continue to grow.

Third, although we don't know this, the business model may also be to provide maturation services for distillers and other NDPs. Whiskey warehousing has never been a free-standing business but there is no reason it can't be.That's another innovation.

The U.S. distilled spirits industry became vertically integrated after Prohibition, in part to please regulators. This may represent its decoupling.

What they will do with their whiskey when it does mature in a few years is unknown, to us and perhaps also to them.

Jody Lassiter, president of the Danville-Boyle County Economic Development Partnership, characterizes the business as having “low job intensity” but “high capital intensity,” with thousands of barrels of bourbon generating “a huge amount of property taxes,” especially for the Boyle County School District.

More recently, IJW has purchased a building on West Main Street in Louisville. The site, near the YUM Center and the Second Street Bridge, suggests something more public-facing than mere offices. Main Street is Louisville's historic 'Whiskey Row' and is becoming so again, hosting brand 'home places' for Evan Williams, Michter's, Old Forester, and Angel's Envy.

Wednesday, March 13, 2019

College Admissions Bribery Scandal Has Bourbon Connection

Marci Palatella, owner of Bardstown's Preservation Distillery.
Yesterday, the U.S. Attorney’s Office in Massachusetts released a list of 50 individuals charged in a nationwide college admissions bribery scheme. One of them has a tie to Kentucky’s bourbon industry. She is Marci Palatella, founder and owner of Preservation Distillery in Bardstown, Kentucky. She is charged with felony conspiracy to commit mail fraud and honest services mail fraud. 

According to the indictment, Palatella paid approximately $500,000 to secure her son’s admission to USC.

Marci Palatella is married to Lou Palatella, who played guard for the San Francisco 49ers (1955-1958). After football, he became a liquor distributor in Northern California. They also own CampeĆ³n Tequila. Their liquor company, which is run by Marci Palatella, is called Allied Lomar Inc. 

Allied Lomar is better known in the industry for suing other liquor companies than they are for any of their own products. They got into it with Diageo over use of the Stitzel-Weller name, and with Garrison Brothers about the name Cowboy Bourbon. 

In 2015, the Palatellas bought the Bluegrass Expo and Convention Center, adjacent to the US-31E exit of the Bluegrass Parkway, and installed a small distillery. They joined the Kentucky Distillers' Association and started to give public tours last year.

4/16/19: Palatella has pleaded not guilty to charges of money laundering conspiracy and conspiracy to commit mail and wire fraud, and honest services mail and wire fraud.

Tuesday, March 5, 2019

Nary a Glimpse of Bourbon in "Glimpses of Kentucky"

Back in the days when movie theaters showed something other than coming attractions before the feature, one common short was "Traveltalks," whose presenter was James Fitzpatrick. In 1940, he presented "Glimpses of Kentucky." It's a nice, little ditty you can sometimes catch on TCM.

An outline of the film would look something like this:
  1. Cumberland River
  2. Bluegrass state
  3. Cumberland Falls
  4. Sheep farming
  5. Fort Harrod
  6. Henry Clay monument
  7. Daniel Boone grave
  8. "My Old Kentucky Home"
  9. "Old Black Joe"
  10. Thoroughbred horses
  11. Mint julep
  12. Other horses
  13. Horse farms
  14. Famous dead horses
With the exception of a brief nod to mint juleps, recommended as a refreshment after horse riding, there is no mention of bourbon whiskey. The bourbon industry was certainly active in Kentucky in 1940, but it followed the repeal of Prohibition by less than a decade. Kentucky made bourbon and its government was happy to collect the industry's taxes, but they didn't brag about it.

Kentucky just didn't tout its bourbon industry in those days. It never did until the recent era, beginning with the administration of Steve Beshear (2007-2015). Matt Bevin, the current governor, has continued that support. He shows up at most major industry events, such as the recent opening of Michter's Fort Nelson facility in downtown Louisville.

One of the most valuable forms of backing is indirect, the commonwealth's support for bourbon tourism. Bill Samuels of Maker's Mark tells the story of the hoops he had to jump through to get the Transportation Department to erect signs to guide people to his distillery. Years later, after the Kentucky Distillers Association established the Kentucky Bourbon Trail, brown 'attractions' signs appeared for all of the distilleries that welcomed visitors.

Although neo-prohibitionist types object, the economic development argument has proven persuasive to Kentucky's government and the governments of most other states that have distilling interests, which is quickly becoming most of them. A new "Traveltalk" for Kentucky would probably still feature a lot of horse stuff, but you can bet bourbon would be front and center too.

Friday, March 1, 2019

The New Michter's Is a Study in Persistence

The Fort Nelson Building on Louisville's Main Street, built in the 1870s, is now the Michter's visitors center 
Fort Nelson is literally where Louisville began. Built in 1781, it was an actual fort for American troops under the command of George Rogers Clark, who were there to secure the Ohio River and protect the tiny settlement of Louisville from Native American and British attacks. It was named after Virginia Governor Thomas Nelson, Jr., as Kentucky was then still part of Virginia.

After the fort came the city and in about 1870, an ornate, new structure arose on part of the old fort site. It even took the old fort's name. This was Louisville's original 'Whiskey Row.' Distilleries were out in the country but Whiskey Row was where the companies had their offices, sales rooms, and warehouses. If, like the Fort Nelson, your building was on the north side of Main, you could simply roll barrels out your back door, down to the river bank where paddlewheel steamers awaited.

The buildings in this district tended to be utilitarian. Occupying a corner lot, Fort Nelson's builders set out to be a bit more grand, with pillars and arches and a mighty turret.

In the late 20th century, most of the neighborhood became run down. Many of the buildings stood empty for years. Fort Nelson was one of them. As the neighborhood began its revival in the 1980s, many uses for the Fort Nelson were proposed. A local coffee roaster wanted to put a coffee museum there, but wound up donating the building to the city instead.

Fast forward to 2011. Michter's comes to town with a big announcement. They are bringing their New York-based bourbon business to Kentucky. With much fanfare they announce that they have purchased the Fort Nelson Building, which they intend to restore as their brand's 'home place.' The facility will include all the accoutrements of a whiskey brand visitors center, including a small distillery. They expected to have it open by spring of 2013, becoming the first distillery to return to downtown.

It was not to be. When they really got into it, they discovered that the building was structurally unsound. The schedule was immediately blown. So was the budget. Michter's moved forward with their production-scale facility in Shively, in the neighborhood that took the name 'Whiskey Row' after Prohibition because most of the companies built their new distilleries there. And they tried to figure out what to do with Fort Nelson.

They intended the renovation to be done to National Registry standards, so they threw out the budget and the timeline and started over. In the meantime, Heaven Hill became the first new downtown distillery, followed by Kentucky Peerless and Angel's Envy. Jim Beam opened their Urban Stillhouse. Even Rabbit Hole got there before Michter's did. So did Brown-Forman's Old Forester. Michter's began distilling in Shively in August of 2015, but they were still plugging away at Fort Nelson.

Michter's Fort Nelson opened to the public last month to much acclaim. I haven't been yet, but by all accounts their persistence paid off. They took their time and did it right; a beautiful job. Lew Bryson writes about it in The Daily Beast here. For more about the site history go here and here. For some of my past posts on the subject, go here, here, and here.