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| Whiskey maturing in Kentucky. |
Ever since the “bourbon boom” began, about 20 years ago, people have speculated about a future whiskey glut. Now, we have data.
Bernstein is a research firm that helps institutional investors manage their portfolios. Research firms like Bernstein release partial findings to the public when they have something newsworthy to report.
In their most recent American whiskey analysis, as reported in Wine & Spirits Daily, Bernstein notes that current inventory levels in the wholesale and retail channels are higher than usual. The amount of whiskey aging in barrels is at historic highs, too. The 2022 inventory of 12.6 million barrels represents about 8.5 years of demand, a 150 percent increase over the previous decade.
Berstein believes a significant excess supply of U.S. whiskey is likely over the next five years. If demand does not increase but remains where it is, supply will outstrip demand by 1.29 million barrels by 2028.
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I didn't include this in the article, but I was struck by the figure of 8.5 years. Probably ten years ago, Mark Brown, president of Sazerac, predicted that the average age of an American straight whiskey, then (and now) 4 to 5 years, would evolve over time to something nearer to 8 years. He planned the expansion at Buffalo Trace with that in mind.
ReplyDeleteThis is not that. Two different things. But it's an interesting coincidence.
ReplyDeleteOkay, I remember when Evan Williams 1783 10 year old cost $9.99 in Pennsylvania around 25 years ago. At the time it was a dollar less than the regular Evan Williams, which was 7 years old at the time. In the meantime, I've been waiting to see if anything like that has the possibility of occurring again anytime soon.
ReplyDeleteDemand is still likely high enough to keep prices from falling for a while, but who knows? Looking forward to your perspective in this issue, Chuck. Hey, an old timer can dream, can't he?
It's hard to drop the price of a product once it's on store shelves, unless it's just a few dollars now and again, so I predict what we're going to see are several things, (1) the cost of full barrels of distilled whiskey has been steadily decreasing as demand has leveled off (info courtesy from interviews with barrel brokers I've listened to), therefore non-distiller producers are going to have to factor this in and lower the cost of their new releases to compete in this changing environment, so I'm already seeing some smart companies enter the market at $39 - $50, as the appetite to pay $80-90 for a bottle of some unknown NDP has dropped off, as demonstrated in those bottles collecting dust on store shelves. Although they are a distiller, they also source, so Bardstown Bourbon Company waited to release their expensive Discovery 11 expression in Illinois because of all of the other BBC products not moving off of store shelves, they wanted to wait until more inventory moved before releasing something new (info courtesy of a frustrated BBC rep I talked to). (2) New "bourbon-boom" distillers are going to have to enter the market at a more competitive price, a great example is Green River which is pricing their new aged product in the $30s and gaining new fans. We are well past the days where customers are willing to pay $70-80 for a 2 or 3 year old craft product just to support a local or small scale distillery. (3) The big distillers can drop their prices, but I think what we're going to see more of is what Jim Beam is doing with their Knob Creek brand. The age statement bourbons and ryes are coming back and getting older. It's an absolute steal to pay $30 for a 9 year old Knob Creek bourbon at 100 proof, yet alone $65 for their terrific 12 yo 100 proof bourbon. Now they have a 10 year old rye at a great price. I've converted a number of Buffalo Trace groupies to Jim Beam products because of availability, age, price and most importantly flavor, because what Buffalo Trace is putting out is absolutely mediocre quality whiskies (Buffalo Trace is the Macallan of the bourbon world, living off of their past reputation but putting out young, poor quality whiskies). So, finally, even if some pricing doesn't actually decrease, we will be getting more value for our money as the age of whiskey increases as supply begins to outpace demand.
DeleteGreat contribution. Thanks, Patrick.
DeleteSounds like Mark Brown knows what he's talking about.
ReplyDeleteIn light of this, how much new whiskey distilling capacity is currently in the planning or construction phases? With lead times for this plus the aging time required for the new output, there would have to be thought about what the market might be from about 2030 and going into the future from there to determine whether or not investment in additional distilling capacity is warranted at the current time. It appears that the risks involved in that decision have gone up.
ReplyDelete