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.


Doctor Tarr said...

Does Diageo age whiskey at Stitzel-Weller they buy from other distilleries?

Chuck Cowdery said...

Yes, as do other distillers, but Diageo and the others are not doing it as a stand-alone business. That's the innovation here.

Anonymous said...

I wish them well in this project. It seems like an interesting niche to take new make from various distilleries and age it under some set of conditions to then release it to third-party blenders and bottlers. There are distillers that will provide new-make, distiller-agers, such as MGP, that will provide aged spirit to specification, and, of course, a myriad of NDPs. You are right that this is something new, but I wonder if there is a long-term plan to eventually release the aged spirits under their own label. This would capture more profits as well as strand NDPs that had been relying on their product without having the capacity to lock in a long-term contract.

All of this is moot to me for the time being, since I will not buy or drink Kentucky spirits until the traitor Mitch McConnell is no longer in office.

Richard Turner said...

Oooooh! "...traitor Mitch McConnell"? Politics, much?
My enjoyment of Kentucky's major contribution to the spirit of America (Bourbon!) is too important to me to allow petty politics to interfere.... but that's just my opinion. This sounds like a bit too much like self-flagellation to me.

Chuck Cowdery said...

Can we please not go there with the political stuff? We have enough of that elsewhere.

Unknown said...

So interesting that a university is doing this.
I just wanted to add that warehousing was definitely big business during Prohibition. The companies that owned the handful of concentration warehouses in the US were the companies that came out of Prohibition holding all the cards. They sold almost all their distillery properties and just kept the warehouses and their contents. The bottling happened wherever, but that business model stayed with them long after distilling began again. Wouldn't Stitzel Weller count here, too, as a modern example?