Thursday, January 2, 2020

The Whiskey Secondary Market Doesn't Matter

I have no objection to the bourbon secondary market except for the awkward fact that it is largely an illegal enterprise. What consenting adults do with their adult beverages should be up to them. Some people are way into it, the whole buying and selling thing. They are passionate about it. More power to them. Have fun with it. You'll hear no complaints from me.

I do have one issue, however, one source of irritation. Many of the people involved in that pastime have a very inflated idea of its importance. They believe the secondary market affects the overall bourbon or broader whiskey/whisky marketplace, for better or worse.

They're wrong. It doesn't. The broader industry pays very little attention to the secondary market. The vast majority of whiskey consumers don't even know it exists.

The secondary market matters, but only to itself. It has virtually no impact on the wider whiskey/whisky industry. It doesn't affect pricing or availability except on a very small number of brands that amount to a drop in the bucket of overall industry volume. In many cases, the complaints one hears are nostalgia for a past that never was.

True, as the chart above shows, you can almost never go into a store and find a Van Winkle product on the shelf at the official suggested retail price. Because people have figured out that Weller is the same recipe from the same distillery, the Weller products have been hard to find and are often marked up. But if you actually just like drinking a well-made wheated bourbon, Larceny isn't hard to find nor, for that matter, is Maker's Mark, and they are very similar to the Weller/Van Winkle products.

Of course, the secondary market isn't about finding something good to drink. I don't play so sometimes I'm not quite sure what it's about, but it is its own thing. That's great, it's fine, have fun with it, but it's not important except to itself.

To people who argue solemnly that the secondary market accounts for the higher prices we pay for whiskey today, consider this. A bottle of Rittenhouse Rye BIB cost $11 a decade ago. It's about $25 now, a 130% increase, but Rittenhouse Rye BIB never has been a player in the secondary. It's just a product that is very good, so people bought it, and demand outstripped supply, so the producer thought the market could bear a higher price. At $25, it's still a very good value.

So if you're into the whole secondary market thing, great, have fun. It's now legal in a couple of places, including Kentucky, which should help normalize things, and take away some of the mystery. Maybe I just don't get it. Maybe part of the fun of the secondary market is complaining about the secondary market, in which case the market is thriving.


Richard Turner said...

I'm with ya', Col. Cowdery! I've never bought or sold anything on 'the secondary market', and without guaranteeing anything (I hate absolutes!), I expect never to do so.
I do, however, abhor the idea of "Whisk(e)y Investing" on the face of it. My thought is that whisk(e)y was distilled and aged for people to OPEN, POUR & ENJOY (preferably sharing same).
I realize that more than a few folx are indeed opening, pouring and enjoying bottles acquired on the black (my preferred term) market; but a great many are purchasing said bottles never intending to do anything other than monetize their investment for a higher return at some future time. That practice goes against my particular grain; thus my abhorence, and my expectation of never participating. ...But, to each his/her/their own, I guess.

Unknown said...

The secondary market is an asset for many reasons.
Not all spirits are shipped to all states.
Not all stores receive the bottles you are looking for.
Over time ones taste can change from Scotch to Bourbon or to Rye or back to Scotch or from 80- 100 proof to higher proof etc.
The Secondary market is a necessary entity to be able to buy what you want, trade for what you want or sell what you no longer want.
You also meet some great people along the way.
This is not to say some are not in it just for the money, as anything & everything can be exploited.
However the secondary market serves its purpose and might be the only way some whiskey lovers can obtain "for example only" a 2012 George T. Stagg or a 2014 William Larue Weller or a 1969 Old Crow Chessman...Cheers!!!!

Billy said...

"They believe the secondary market affects the overall bourbon or broader whiskey/whisky marketplace, for better or worse."

"It's now legal in a couple of places, including Kentucky, which should help normalize things...."

So it doesn't have an impact on the market, but regulatory changes that legalize it result in normalization? Riddle me that, Chaz.

darthsmacktard said...

Rittenhouse Rye has definitely been flipped on the the secondary market so that's a terrible example.

Steve said...

I don't buy whisky on the secondary market. I enjoy the hunt, seeking out interesting spirits in my travels, and pay little to no attention to what people are willing to pay for a bottle of PVW 23, Boss Hog, etc outside of retail. To that end, though, the secondary is having a dramatic influence in the non-liquor controlled states/jurisdictions.

Because the individual retailers can set pricing, we're seeing secondary influence price increases on "normal" bottles. IE: Buffalo Trace 750ml selling for north of $40/bottle when the MSRP at a local controlled county store is around $23.

Ordinarily I'm in agreement with most of what you write but I think discounting the influence on the primary market by the secondary is a bit short sighted.

Gino Barasa said...

Bam! He's talking out both sides of his mouth and he's wrong.

Tommy said...

Why and who would flip Rittenhouse Rye?

Unknown said...

You can buy an AK47 without issue but if you want to sell a bottle of Jim Beam you are a criminal. Regardless of Taters vs.Haters this is absurd. Everything is worth what someone will pay for it. I don't pay secondary prices but that's what makes getting a bottle at retail even sweeter. Peace and Bourbon.

Brian (AKA The Dean) said...

Richard Turner, I agree with you completely. Wine and alcohol are to drink, share and enjoy. Never understood those who "collect", but to each his/her own.

Billy and Gino, maybe try some reading comprehension. Legalization of reselling might help stabilize the market: The SECONDARY market, which is currently all over the map, if the prices I see being discussed are any indication. It would still have very little to do with the regular, liquor store market.

And yes, I'm sure even the most mundane products have been resold on occasion. But I'm going out on a limb here, and guessing Chuck is talking about products that are more available on the secondary market than they are at the every day liquor store. I'll also guess most people currently with a bottle of Pappy didn't buy it at the retail price.

Anonymous said...

"the secondary market isn't about finding something good to drink"

Yes. it is.

Sam Komlenic said...

"'the secondary market isn't about finding something good to drink.

'Yes. it is'"

No, it is not, since there are any number of whiskeys on the shelf right now, in your nearest store, that are "good to drink." The secondary market is all about greed.

Also, virtually no one can buy an AK-47, as that is a military weapon that can be set to automatic fire. Just about anyone, though, can buy a civilian version of that gun that does not go beyond semi-automatic, and even that must be purchased, at least originally, from a licensed dealer, much like any liquor store is a licensed dealer.

Dr. Bill said...

Actually, almost anyone can buy a real AK-47 or M-16.
You need to file a Form 4 with the BATFE (alcohol related obtusely), get your local law enforcement permission, and have fingerprints submitted to the FBI. And pay a $200 tax, per weapon.

Look up National Firearms Act for more info.

And I agree - there is plenty of good stuff readily available on the shelf. The only reason to hunt for unicorns is to attempt to impress someone.

Anonymous said...

"Black Markets" exist where natural market forces are artificially restricted. It is a false/artificial construct. Market forces cannot be contained, which is why even in prisons you see trade of tobacco/alcohol/narcotics/weapons - all the things that are banned or limited. Even grass will grow through pavement, can't stop it.

Van Winkle family prefers not to raise the prices exorbitantly, that is commendable and understandable, it's their choice. They don't want to be perceived as gougers and they know the real value. But pricing is the most effective way of effectively distributing scarce resources. Even the "communist" USSR was exposed as using the free market economies to figure out prices. Without market prices economy is impossible. "Gouging" and "greed" are the only alternative to "shortages".

I say this as someone who has tried a couple of "pappies" (and loved them) but I doubt I'd be able to even pay their MSRP. You'd think I should have "sour grapes" syndrome and blame "greed", but I don't. Market forces offer the only known counter-force to greed - RISK. Yes, risk has a monetary factor just like time and other economic inputs. Personally I'd prefer the extra money to go to distillers and private liquor stores, not third party speculators, but I have nothing against them. It is a victimless "crime" if we exclude those who engage in fraud. Many of the people who are into this secondary market game are enthusiasts and they DO enjoy, they do drink and even share their "scores", while they may resell some to recoup some of the money. I know because the pappies I've tried (and other highly sought after whiskies) were shared with me as a friend.

The accusations of "greed" are pointless and baseless and made by people who don't understand economics. Do you not search for better prices at the store (you greedy consumer, you)? Do you not pick a fresher jug of milk? How greedy! /sarc.