Jim Beam Is Up 11%, Single Oak Project Has 6th Release, And The KDA Has New Digs.

Here's a little news round-up from Bourbon Country.

Beam Inc. has reported its second quarter results. Sales are up and bourbon is why. In worldwide sales, Jim Beam itself is up 11 percent for the year, Knob Creek is up 9 percent, and Maker's Mark is up 29 percent. That's pretty incredible, but there is another Beam bourbon that is doing even better: Basil Hayden, up 33 percent.

Almost everything in Beam's portfolio is up. Effen Vodka is one notable exception. When Beam bought Effen Vodka from Sazerac three years ago, I said it was a mistake. Sure enough, Effen sales are down 14 percent, probably because Beam has lost interest in it since Beam now has Pinnacle Vodka, a much bigger brand and one that is not based on a vulgarity.

This month, Sazerac's Buffalo Trace Distillery will releases the sixth round of Single Oak Project bourbons. Twelve of these experimental bourbons are released each quarter. With release six, therefore, the score is 72 released, 120 to go.

Each release has a theme. This time, all twelve bourbons in the set are from Warehouse L, a masonry warehouse with concrete floors that many Tracians consider their best. The other common feature is low barrel entry proof (52.5% ABV). Since most bourbons go into the barrel at close to the legal maximum of 62.5% ABV, low entry proof is of great interest to distillers and aficionados.

The Kentucky Distiller's Association (KDA), of which Sazerac is not a member, is 132 years old but never has had a physical home. It now occupies a portion of Frankfort Barracks, a 141-year-old building that housed federal troops stationed in Frankfort between 1871 and 1876. It is listed on the National Register of Historic Places. The address is 614 Shelby Street, Frankfort, KY 40601.

In addition to offices for KDA's staff, which has ballooned to three people, it will also serve as information center and gift shop for the Kentucky Bourbon Trail tour.

Barton v Beam: Too Close To Call.

If you saw these two bottles next to each other on a shelf, what would you think?

They're both handsome bottles, but what else? Are they the same product in two different bottles? Two different products from the same maker?

You probably would not think that, although both bottles contain bourbon whiskey, they have no other relationship to each other. The typefaces in which the numbers are set, while not identical, are very similar, as are the numbers themselves. Too similar, perhaps?

On the left is a bottle of Ridgemont Reserve 1792, a Sazerac product, made at the Barton 1792 Distillery in Bardstown, Kentucky. It is widely distributed throughout the U.S. It is an 8-year-old straight bourbon, bottled at 46.85% ABV. It costs about $30 a bottle at retail.

The number 1792 refers to the year Kentucky became a state.

On the right is a bottle of Jim Beam. According to the UNCRATE web site, it is an eight-year-old, 47.5% ABV straight bourbon. Limited to 200 bottles, it is available only in the Heinemann Duty Free store in the T1B Schengen lounge in Frankfurt, Germany. The price is €140 ($178).

A different source says it is also being sold in Australia, for about $190.

1795 is the year, according to Beam family tradition, that family patriarch Jacob Beam sold his first barrel of whiskey in Kentucky.

The similarity is all the more interesting considering Ridgemont Reserve's history. It was originally called Ridgewood Reserve 1792, a fact that rubbed Brown-Forman's Woodford Reserve the wrong way. They sued for trademark infringement and won.

In response to inquiries, Sazerac said it does not comment on matters subject to pending litigation.

A Weird But Cool Career Milestone.

Although I generally don't practice, I am a lawyer, so it is both weird and cool for me to be cited in a Federal Appellate Court opinion, the Sixth Circuit's ruling in Maker's Mark v Diageo, a trademarks case.

It begins with Justice Hugo Black's famous statement (written in dissent) that, “I was brought up to believe that Scotch whisky would need a tax preference to survive in competition with Kentucky bourbon.” Justice Black grew up in Alabama.

After that there are several pages of American whiskey history, which is where I come in. It's easy to read, not at all legalistic, and very accurate. The legal point of it is that issues of brand identity and product integrity are of unique importance to whiskey producers due to events in the industry's history, and past Federal involvement going back more than 100 years to the Pure Food and Drug Act and subsequent Taft Decision.

The rest of this decision, where they get into the fine points of trademarks law and some of the specific claims and counterclaims of the case, gets pretty dense. It's hard slogging for a lawyer let alone a layperson. If, however, you are tempted to spout off about how "ridiculous" the decision is, force yourself to actually read and understand the opinion before you do. Trademarks law can be very complicated precisely because the courts go to great lengths to provide appropriate protection to intellectual property owners without overreaching.

The case involved the Maker's Mark red wax drip and a Diageo Jose Cuervo brand tequila that Maker's felt infringed. The trial court found for Maker's and the appellate court affirmed that decision.

For me, this represents a cool but weird milestone in my career. I'm cited five times by name, both to Bourbon Straight and to The Bourbon Country Reader, more than that if you count all the ids, op cits, and supras.

Appellate courts mostly cite to themselves and each other, so it's nice to get a word in edgewise. 

The United States courts of appeals (or circuit courts) are the intermediate appellate courts in the United States federal court system. There are 13 of them. The Sixth Circuit covers Kentucky, Ohio, Michigan, and Tennessee. It is located in Cincinnati.

A Plea To American Whiskey Producers: Don't Give Up On Age Statements.

Recently, W. L. Weller Special Reserve lost its 7-year-old age statement. Before that it was Weller Antique (7 years), Evan Williams 1783 (10 years), Evan Williams black label (7 years) and others. Knob Creek has always been 9-years-old but the new Knob Creek Rye is NAS (No Age Statement). It hasn't happened yet, but Beam has gotten a new NAS label approved for Basil Hayden's, which has been 8-years old since its introduction 20 years ago.

What is an age statement? It is a declaration of the whiskey's minimum age that appears on its label. 'Minimum' means that the stated age has to be that of the youngest whiskey in the bottle. Older whiskey is okay but nothing younger than the stated age is permitted. Age statements are regulated by the Alcohol Tax and Trade Bureau, a branch of the U.S. Treasury.

In American whiskey, age statements are required for any product that is less than 4-years-old, so the absence of an age statement means the product is at least 4-years-old.

Only age statements on labels count. If the producer tells you the age of something, but it's not on the label, well, let's just say that's not the same thing.

For producers, age statements are a double-edged sword. Without them, the producer has more flexibility. Age, after all, is just a number. The maturity of the whiskey as reflected in its taste is what matters. These days, when most producers are struggling to meet demand, age statements can seem like more trouble than they're worth.

But there are good business reasons to keep using age statements. Whiskey enthusiasts are a small cadre but we buy a lot of whiskey. We like age statements. We know they aren't the only measure of a whiskey's quality or character, and we know older isn't necessarily better, but it's like any other information. Assuming it is factual and reliable, the more information you have about something, the easier it is to make a purchase decision.

It seems to be only American producers who are turning away from age statements. In the scotch segment we're seeing more, not fewer.

What companies forget is that if you tend to like, for example, bourbon that is more than 6 years old, you will look for age statements that give you that information when you are looking for something new to try, and ignore all NAS products unless you are already familiar with them. It is, therefore, often a criteria for someone who wants to try something new, a quick way to reduce the number of candidates. If you're a producer, don't you want that trial? Isn't attracting new customers usually one of the pillars of successful brand growth?

The producer counts on regular drinkers of the newly-NAS product to either not notice the change or not care. They may be right, but that doesn't mean going NAS is cost-free. To the extent that age statements are important to attracting new customers, you give up some percentage of your potential growth when you go NAS. Is that good business?

One hopes the companies know this and have just decided, for cost reasons, to set the bar for age statements a little higher, above 8 years, maybe, or 10. Let's hope that's the case because if producers have decided they can't risk age statements at any level, they're making a mistake that could be fatal to the continuing profitable growth of American whiskey.

The Deconsolidation Of Irish Whiskey Continues.

In 1966, all of the whiskey producers on the Emerald Isle became one company and consolidated production at two distilleries, Midleton in the South, and Bushmills in the North.

Both distillery complexes made both malt and grain whiskey using both pot and column stills. Bushmills made Old Bushmills and Midleton made everything else.

It stayed that way for more than 20 years and the company, which came to be known as Irish Distillers Limited (IDL), came to be owned by Pernod Ricard.

Then something amazing happened. The consolidation slowly began to reverse itself. In 1987, Dr. John Teeling founded a new distillery at Cooley in an old government-owned industrial alcohol plant. It too made malt and grain whiskey. It was successful.

In 1994, ownership of the Tullamore Dew Irish Whiskey brand was split off from IDL, but it continued to be made at Midleton.

In 2005, Diageo bought the Bushmills Distillery and the Old Bushmills brand from IDL.

In 2007, Cooley built a second (very small) distillery at Kilbeggan.

In 2011, Cooley was acquired by Beam, Inc.

In 2012, William Grant & Sons, owner of the Tullamore Dew brand, announced that it will build soon a new, $46 million distillery in Tullamore to make Tullamore Dew Irish Whiskey.

When that project is completed, there will be five distillery complexes in Ireland owned by four separate companies. Sadly, none are Irish-owned, but it does show that industry consolidation is not always a one-way street.

And don't feel too sorry for IDL. Its distillery at Midleton is still the biggest in Ireland and its leading brand, Jameson's, is still the number one Irish whiskey in the world. It has recently seen sales grow at a double-digit rate. Who knows, maybe Midleton will need to expand too pretty soon, or IDL will build another distillery someplace else.

American entrepreneurs, take note. You don't even need to start from scratch. The Charles Medley Distillery in Owensboro, Kentucky, is available. It needs some more work, and mostly new equipment, but the buildings are all sound, including seven warehouses with space for about 140,000 barrels.

Higher Bourbon Prices Are Coming.

Shanken today reported that Beam Inc. has raised prices on its bourbon brands and could take a second round of U. S. price hikes this year. The announcement was made by Beam North America president Bill Newlands. The Beam bourbons (Jim Beam, Maker’s Mark, Knob Creek, etc.) will probably go up the most. Newlands cited rising corn prices in the U. S. as the primary reason.

Beam’s Scotch, Tequila, and Cognac prices could also rise, in response to improving economic conditions. Newlands expects vodka prices to remain unchanged, given the category’s competitive and crowded nature.

Commodity prices notwithstanding, products are always priced based primarily on what the market will bear. Bourbon will continue to represent a great value for American drinkers as compared to scotch and other imports. Beam's higher prices may shuffle the deck a little, if consumers who resist the price increase on their favorite brand shop for an alternative. When a big company takes a price increase, that gives smaller companies an opportunity to grab any alienated consumers. It's all part of the market dynamic.

If past history is any indication, we probably can count on Beam taking some of the sting out by promoting heavily, giving the more price-sensitive shoppers an opportunity to stock up at a discounted rate.

The other difference between vodka and whiskey, of course, is that you can always make as much vodka as you can sell, whereas the aging cycle means the supply of ready-to-sell whiskey is always finite.

Nobody likes to pay more but this is further evidence that the whiskey category, and the American whiskey segment in particular, continues to enjoy robust good health, and that's good for everybody.

Beam a "Very Scarce Asset," Says Key Investor.

I've written before about the newly pure-play Beam Inc. as a potential acquisition target. My skepticism came from looking at it from the industry side, and sizing-up the potential buyers such as Pernod and Diageo.

But another way of looking at it is from the perspective of Beam Inc.’s largest shareholder, Pershing Square Capital Management, which is led by activist investor Bill Ackman. Shanken reported today that Pershing Square held 20.8 million shares of Beam Inc., worth about $1.13 billion, at the close of 2011. That's roughly one-eighth of Beam’s current market capitalization.

In his third quarter letter to Pershing investors last November, Ackman wrote, “Beam now has many strategic alternatives available, including a sale of the business, a merger with another spirits company, and the acquisition of other brands. We believe the spirits industry will see significant consolidation over the next several years, and Beam’s leading global positions in Bourbon and Tequila could entice several bidders or merger partners in the future.”

Ackman added that Beam is now “the world’s only pure-play, publicly traded global spirits company that is not family controlled or influenced—in other words, it is a very scarce asset.” Beam has said repeatedly that it intends to be an acquirer and not a seller, which is how I see them going as well but, obviously, Ackman has a lot more skin in the game than I do.

The company’s comparable net sales rose 8% to $2.3 billion in 2011, led by a 7% increase for Jim Beam, as well as double-digit growth for Maker’s Mark, Courvoisier and Teacher’s and an exponential jump for its Skinnygirl cocktail brand.

Though burdened for many years as part of an old-fashioned diversified conglomerate, Beam's biggest growth spurts came by acquisition. In 1987, Beam was essentially a single-brand company (Jim Beam bourbon). That year it acquired struggling National Distillers, primarily to get the DeKuyper liqueurs brand, but it picked up a broad portfolio in the process, including several more whiskeys (e.g., Old Crow, Old Grand-Dad, Old Overholt).

Then, in 2005, Beam teamed up with Pernod to divide up the assets of Allied Domecq. That brought into Beam's stable many of the brands that are now contributing to Beam's success, including Sauza Tequila, Maker's Mark Bourbon, Courvoisier Cognac, and Teacher's Scotch.

Ackman is probably right about more industry consolidation, as the business becomes fully globalized.  If, for example, the Beckmann family were to deprive Diageo of Jose Cuervo in the current contract negotiations, Beam would be able to plug two of the biggest holes in Diageo's portfolio, American whiskey and tequila. That might prove irresistible to both Diageo and Mr. Ackman.

Beam Completes Cooley Acquisition.

Beam Inc. announced yesterday that it has completed the acquisition of Cooley Distillery, the award-winning Irish whiskey producer.

The acquisition includes the Kilbeggan, Connemara, Tyrconnell and Greenore brands, as well as aging inventory and Cooley’s malt and grain distilleries in Dundalk and Kilbeggan, Ireland. Cooley is one of only three sources for Irish whiskey and was the category’s only remaining independent producer.

"As one of the world’s fastest-growing spirits companies, Beam is excited to enter one of the world’s fastest-growing spirits categories," said Matt Shattock, president and chief executive officer of Beam. "We look forward to combining our whiskey expertise, brand-building firepower and strong routes to market with the experience, talent and passion of the Teeling family and the Cooley team to help take these award-winning brands to the next level."

There was an excellent article by Dominic Roskrow in the Fall, 2011 issue of Whisky Advocate about everything Cooley has accomplished in its short history.

While one may understandably wish they were still the brash, independent upstart, shaking the staid foundations of the Irish whiskey industry, this sale is a sign of success, not failure. Perhaps their trajectory will inspire another, new upstart to follow Cooley's path.

As noted above, Ireland has but three whiskey producers, now owned by Beam, Diageo and Pernod. Kilbeggan is the company's main blend and Tyrconnell is its main single malt. Both were introduced to the United States market by Heaven Hill, which had the exclusive U.S. distribution contract in the early years. Heaven Hill deserves credit for launching the brands and building them to the point where Cooley became the prize it now is for Beam.

In addition to its own brands, Cooley has been the source for several brands owned and marketed by non-distiller producers, most prominently the Michael Collins line (a blend and a single) owned by the Sidney Frank Company.

Your Vote, Your Bourbon.

It is an indication of how mainstream American whiskey has become in recent years that novelty products are now being made using whiskey as their platform.

This is a new/old trend, as there were many novelty bourbons 50 years ago, when the Republican Elephant in the picture above was made by Jim Beam for the 1960 presidential election. It had, of course, an equine counterpart. Beam continued the series through several more presidential election cycles, with new designs each time.

The pictured decanter held Beam straight bourbon at 43% ABV, aged 100 months (8.3 years).

The contemporary version is Heaven Hill's new Red State and Blue State bourbons, which should be in stores now. The whiskey is Heaven Hill straight bourbon (i.e., Evan Williams) at 40% ABV, with no age statement. The price should be about $15.

The idea, of course, is to express your political preference according to which one you buy. Another suggestion is that you buy both for a party and see which one wins among your guests. No one pretends it's anything other than a fun way to sell a little more bourbon.

If you go to either product's Facebook page and 'like' it, a donation will be made to the USO.

The irony of both bottles containing the exact same whiskey is probably unintended.

Knob Creek Rye, Coming Not So Soon.

I heard from a reader that, at a recent bourbon tasting sponsored by Beam Inc., a company rep mentioned that they are coming out with a straight rye under the Knob Creek banner. Currently, the Knob Creek line consists of two bourbons; the standard expression and a single barrel.

I have confirmed that the rumor is true, but the release is not imminent. Look for it sometime in 2012. It will be a straight rye whiskey, but no other details are available.

How Maker’s Mark Was Made.

Most histories of Maker’s Mark Bourbon mention an early ad campaign, typified by the one above. “It tastes expensive…and is,” was always the headline.

Bragging about how expensive your product is can be a risky tactic, but Maker’s made it work. To understand how, it helps to understand the context.

The first barrel of Maker’s was laid down in 1954. The first bottle was sold in 1959. They were a true independent then, owned and operated by the Samuels family. They were tiny, starting from scratch. They grew slowly but steadily, almost entirely in Kentucky.

Bill Samuels Junior, whose father started the company, has said it is a good thing they were family-owned and independent then because it didn’t make much sense as a business and any real business would have shut them down.

It took, after all, 25 years.

Price was always an issue with retailers, especially in rural Kentucky, who couldn’t imagine why someone would buy an unknown bourbon for $7 a bottle when there were plenty of good bourbons for $6 and less. In the cities, where people routinely paid $7 or more for a bottle of good whiskey, it was scotch they were buying, not bourbon.

Bourbon was the working man’s drink. No one could imagine a bourbon competing directly with scotch or Cognac.

Maker’s was clearly swimming against the current. Because they were so small, they didn’t have much of an advertising budget. But they did have a story, a good one, one that they believed in. They also had a good advertising agency, Louisville’s Doe-Anderson.

Ads like the one above weren’t full-page or color. They were one-quarter page or less, in black and white. The message had to be clear and pertinent. It had to ‘move the needle.’

The “It tastes expensive…and is” ad campaign, launched in 1966, was successful because it under-promised and over-delivered, in an almost back-handed way. The ads said Maker's was expensive, but it wasn't. It was a little pricier than other bourbons but less than most good scotch or other things people might be drinking. The first time you looked at it in a store you were prepared by the advertising for it to be more expensive than it was. Perfect!

With price resistance thus overcome, they could get to sampling, and Maker’s sampled well because it had a different flavor. It genuinely was not a typical bourbon. It had a milder, sweeter flavor, even compared to scotch. It made an excellent first impression, regardless of the taster’s previous drinking experience.

After 1969, whiskey sales collapsed and the rest of the industry was in a race to the bottom. Maker’s stood apart even more. No one in the business believed you could sell bourbon with a quality claim. That was true when bourbon sales were growing and became carved in stone when sales nose-dived. No one took Maker's Mark seriously. It was still a tiny, Kentucky-owned brand.

Ultimately, Maker’s Mark was 'made' by a 1980 article in the Wall Street Journal, which described how it had been discovered by traveling businessmen, who began a word-of-mouth campaign, which led to surging sales and a chronic shortage that persists to the present.

The WSJ article told how Maker’s was making all the right moves, so it’s likely they would have succeeded anyway, but the article sure helped. It can also be said to mark the beginning of the present bourbon revival. Once it was okay to think of bourbon as a quality product, anything was possible.

The independence that had been such a large part of Maker's story was gone in less than a year. People often mistakenly believe small privately-owned companies sell out because they've hit a bad financial patch. Usually it's the opposite. They sell out because they can't afford to finance the growth their success has made possible without help. In 1981, Maker’s Mark was acquired by Canada’s Hiram Walker and Sons.

Now part of the new Beam Inc., Maker’s Mark has become the first super premium bourbon to break the one-million-case sales barrier. Its success has been built on a perfect convergence of smarts and luck. Bill Samuels Jr., since 2010 the company’s hardest-working retiree, has often said that his primary guiding principle has been, “don’t screw it up.”

So far, so good.