Thoughts on the Proposed Revival of James E. Pepper Bourbon.

Yesterday, a post appeared in the discussion forum at StraightBourbon.com. The poster announced that he is "working on a project to relaunch the old James E. Pepper brand and wanted to see if anybody had some thoughts on a good distillery to partner with."

James E. Pepper was the son of Oscar Pepper and grandson of Elijah Pepper. James started his company in 1879, in Lexington. The family was out of it after James died in 1906, but the James E. Pepper brand returned after Prohibition and was sold until about 1960. United Distillers (now Diageo) relaunched James E. Pepper bourbon into Eastern Europe in 1994, primarily into the Czech Republic, where it apparently had been popular before WWII.

Because I receive similar inquiries from time to time, I thought the readers of this space might find my reply to this one useful. Here it is:

You probably know that bourbon whiskey is very dear right now and very hard to obtain for a project such as yours. Non-distiller producers have been struggling for several years now and many who depended on the spot market have gone out of business.

If by "partner" you mean something more than "supplier," the odds get even longer.

Your best bet might be to establish a relationship with CMDK in Owensboro. Perhaps if Angostura got a few contracts they would see their way clear to accelerate the return of that distillery to production. Properly financed and motivated, they could probably start producing in six months or less.

Especially if you want to use a historic recipe, you need to work with someone who wants to be that kind of producer.

Your other best bet may be to spread the word among all the producers of how much you will pay to anyone who will sell you the whiskey you need. Distilleries are constantly making adjustments and in the current financial environment, some of the producers may need to unload some inventory in the short term, even as they increase production overall.

The thing is, warehouse space is at a premium right now too. You will have a better chance of obtaining some suitable whiskey if you are prepared to accept delivery of it immediately. To do that you will need, at minimum, a warehouse and the necessary federal and state licenses.

Another part of the problem is that no current producer has a real connection to Pepper, the way Buffalo Trace has to Old Taylor, for example. The closest would be Brown-Forman, since the Pepper family originally established the distillery now known as Woodford Reserve, but the connection is tenuous for James. Plus BF is probably the company least likely to be interested in a partnership. It's just not their style.

I'm not sure what sort of information you thought this group could give you. If you wanted to know which distilleries are most beloved, they all have their fans.

In recent years, the fastest-growing American whiskey brands have been new ones, like Maker's Mark, Knob Creek, and Woodford Reserve. Brown-Forman has had some success reviving Old Forester, but that is a unique situation.

In general, pre-prohibition brands have not fared well in the current era. Jack Daniel's is just about the only exception.

Four Roses could perhaps be an example but it too is in many ways unique.

But perhaps reviving pre-Prohibition brands is the next big thing. Keep an eye on Buffalo Trace and Old Taylor.

The New Bourbon Country Reader Is In The Mail.

It should have been the March issue, but it's the April issue instead.

Now in its unlikely 16th year of publication, the Bourbon Country Reader is still the only periodical devoted entirely to American whiskey.

We are always independent and idiosyncratic. We have no distillery affiliation and accept no advertising.

To join the party, you have to subscribe.

This new issue is devoted to two stories about new bourbon whiskey producers. One is a macro-distillery that has been dark for 17 years. The other is a tiny start-up in an unlikely place.

What ties them together is a prediction made in 1992 by an executive of a major, international drinks company, that a new distillery his company built that year in Louisville would be, "the last American whiskey distillery ever built."

Was he right?

You have to subscribe to find out, but if you do it before our next issue is published (scheduled for June), your first issue will be Volume 11 Number 6, which contains these stories. If you subscribe thereafter, you can always request that your subscription begin with that issue. (We're very agreeable here at Reader Tower.)

For a FREE download digest of the contents of all past Reader issuses, click here.

Invasion of the Bourbon Snatchers

The first reports came from upstate New York, then California, Massachusetts, Florida, and Arizona. Other states quickly followed.

Even Tennessee and Kentucky.

If this can happen in Tennessee and Kentucky, it can happen anywhere. No place is safe.

After the change, they look exactly the same. They sit exactly where they always did. Nothing looks different, so there is no reason to suspect. You don’t have a clue that anything is wrong until it is too late.

This has happened before but our technology is better now. We can detect it much sooner, get the word out much faster.

But still not in time.

It probably cannot be stopped. It is The Invasion of the Bourbon Snatchers.

The latest victim? Ten High Straight Bourbon whiskey. It is now Ten High Bourbon – a Blend.

When did this start? The granddaddy of all switcheroos happened more than 20 years ago, when Early Times changed from straight bourbon to Kentucky whiskey.

Changes aren’t always so drastic. Wild Turkey is still straight bourbon, but it dropped its eight-year-old age claim more than a decade ago. Age claims have disappeared from many other brands since.

A few years ago, Wild Turkey introduced a ten-year-old bourbon called Russell’s Reserve, at 101° proof. Then they reconsidered, changed the bottle, and cut the proof to 90°.

In 2004, an internet fire storm erupted because Jack Daniel’s cut the proof of its flagship No. 7 brand from 86° proof to 80° proof.

A proof cut is a small thing. Yes, you get a little more water and a little less whiskey, hence less life-giving alcohol, for the same price. Yes, it is a rip-off, but a small rip-off.

Similarly, a dropped age statement may mean no discernible change. It just gives the producer more flexibility about how they match the taste profile.

The Ten High change is different. The alcohol level stays the same but instead of being 100 percent 4-year-old whiskey, it is now half whiskey, half vodka. Since vodka doesn’t have to be aged, the new Ten High is much cheaper to make. Those savings are not passed on to you, the consumer.

Now, in fairness, Ten High was already cheap. It was four-year-old straight bourbon that cost less than most vodka. It is still cheap, but now it is half vodka.

Why is this happening? Because straight bourbon is very popular right now and there is only so much of it to go around. The straight bourbon originally intended for Ten High is now too valuable to sell that cheap. This change makes Ten High itself cheaper to make and, therefore, more profitable as they also free up 4-year-old straight bourbon to sell at the much higher prevailing market price.

It is a gift that keeps on giving because all of the bourbon in the pipeline that was intended for Ten High in future years can be diverted too.

We could begrudge producers these changes, attack them as victories of cheapness and greed over quality and heritage, but that would be wrong. The current boom is good for everyone who loves American whiskey, because the industry is healthy and growing, in better shape than it has been for many years. The American whiskey-making regions are benefiting too from an explosion of whiskey-related tourism.

These changes are all good. It is so much better now than it was. It feels good to stop fighting it. You’re the same, really, only better. There is no pain. All you have to do is shut your eyes and relax.

Is there a pod in the basement with my face on it?

What Does Ten High's Demotion Mean?

On Monday, I reported that Ten High Kentucky Straight Bourbon Whiskey has become a bourbon blend, at least in the state of New York.

I have since heard that the switch is on in California as well.

What can we learn from this?

The obvious conclusion is that Constellation has decided to allocate its stock of fully-aged whiskey to more profitable distribution channels. It just can't spare enough 4-year-old bourbon to support Ten High as a 4-year-old bourbon. They can make more money by selling that whiskey someplace else.

But where?

Maybe their 6-year-old Very Old Barton (VOB) Kentucky Straight Bourbon Whiskey is growing faster than expected. VOB has very limited distribution but where it is sold, including in Kentucky, it is in the same league as the big boys: Jack, Jim and Evan. Or maybe they have some desperate bulk whiskey buyers making them offers they can't refuse.

They could have saved a lot more bourbon by making Ten High a straight-up blend, but this allows them to keep the word "Bourbon" on the label. Standard blends are usually four-fifths vodka, one-fifth whiskey. A bourbon blend is about half and half.

I assume that Ten High, in Barton's overall mix, is high volume, low margin. They probably calculate that a price increase will cost them more business than will a cheapening of the product. That is the kind of trade-off you make in business.

You don't do that to a key brand, but Ten High has not been a key brand for a long time. It's barely a brand at all. It's a commodity. Ten High has some base of loyal customers but it otherwise is sold on price, as it's frequently the cheapest bourbon in the store. Likewise in bars it is not a big call, but it is in many wells.

The fact that Constellation has other channels where they can sell their bourbon more profitably means the bourbon market continues to be healthy, which is overall good news for us as straight bourbon enthusiasts.

But it's still sad to see this happen, because Ten High was a major brand during the post-Prohibition golden age, and was the leading brand of Illinois-made bourbon, and because it's always sad to see a 75-year-old kicked around.

America's Whiskey Makers Are Cautiously Optimistic.

An Associated Press article from about a month ago just came to my attention. I wrote essentially the same story for WHISKY Magazine, but you can't access mine online like you can this one (as it appeared in the San Francisco Chronicle).

As Bruce Schreiner writes, "distillers are expanding their bourbon production and storage, and dispatching sales teams around the world, bullish for a traditionally Southern beverage gaining popularity worldwide. Surging exports, the weak U.S. dollar and rising popularity among younger Americans are driving the boom."

Virtually every producer is increasing capacity. Jim Beam, Wild Turkey, Maker's Mark, Jack Daniel's and Heaven Hill are all adding production capacity.

This expansion is literally unprecedented. The last time the industry grew like this is when it was getting back on its feet after World War II. The same sort of expansion is going on in Scotland. Whiskey is notoriously hard to forecast because of the long aging cycle, so at best people are cautiously optimistic.

What Is Really Going On With George Dickel No. 8?

Whiskey is weird.

How many other products can you name that take four or more years to manufacture? We always talk about this, how the whiskey aging cycle challenges distillery production planners. The story of George Dickel No. 8 Brand Tennessee Whisky demonstrates what can go wrong.

In the early 1990s, United Distillers was a company with big plans. The spirits division of Guinness & Co., it had been built by acquisitions over the previous decade. It was an international company with major brands in the scotch whiskey and American whiskey categories, as well as gin, rum, and others.

Among its assets was George Dickel Tennessee Whiskey.

One of the company’s big plans was to take selected American whiskey brands and give them a big marketing push in Europe and Asia, where American whiskey was starting to grow as a category, unlike the U.S. market, where it was doing nothing. One of the brands selected was George Dickel.

As a Tennessee whiskey, Dickel is a unique product. Unlike United’s many bourbons (at the time), the George Dickel recipe is shared by no other brands. Because of the whiskey aging cycle, any long-term sales growth strategy has to be accompanied by steady production growth, so that when the marketing plan succeeds, you have enough product to sell. United started to make more Dickel, a lot more.

The effort to sell more Dickel overseas wasn’t a failure exactly, but it didn’t meet expectations either. Part of the problem was that the newly huge company was unwieldy and often lacked focus. Dickel was too far back in the portfolio to get the attention it needed. Because the whiskey made at Dickel could only really be used for the Dickel brand, the stocks built up, and because nobody was paying close enough attention, they just kept producing.

In 1997, Guinness merged with Grand Metropolitan to form Diageo. To accomplish the combination, the company assumed a lot of debt. It soon had to start selling assets to generate cash and also cut costs wherever it could. It decided what its core business would be and, by 1999, it had decided that American whiskey was not part of that picture. Early that year, it sold off all of its American whiskey assets except two brands, I. W. Harper and George Dickel. It also stopped production at the Dickel distillery.

In addition to the excess whiskey inventory, Dickel had some environmental issues in Tennessee, having to do with wastewater disposal. They weren’t a huge deal but would require a significant investment to fix. Because of that, the company couldn’t casually crank up the distillery for a few weeks each season, just to keep some current production in the pipeline. They had to stay completely dark and take their chances.

When they stopped Dickel production, they pretty much stopped marketing it too. That will tell you what the underlying strength of a brand is. Maybe that was their plan, maybe there was no plan beyond stopping the bleeding and making the brand profitable again. With the distillery closed and the marketing budget at zero, it wasn’t too hard to make the brand profitable in the short term.

At that time, now almost nine years ago, product availability seemed like the least of their problems.

In 2002, Diageo began to pay some attention to Dickel again. The brand got a marketing budget and started to make some noise. Either the marketing worked, or it was just time, you never know exactly, but Dickel sales suddenly picked up here, there, and everywhere. They got their environmental problems fixed and resumed production in fall of 2003.

The new marketing program featured the premium Dickel expression, known as No. 12, but the less expensive No. 8 continued to be the main seller. In about the middle of 2007, Dickel No. 8 drinkers began to notice bare shelves. In some cases there was a note on the shelf explaining that No. 8 was in short supply because of the 1999-2003 distillery shutdown. Ads in a few markets explained that the shortage was being caused by the shutdown, combined with “an incredible surge in demand for George Dickel No. 8."

No company gets itself into a situation like that on purpose, but when you find yourself with that kind of problem you try to make the best of it. One tactic has been to generate publicity about the shortage itself. Nothing makes people want something like telling them they can’t have it. Another has been to release a temporary stop-gap, a new product called Cascade Hollow Recipe, aged three years. The strange thing is, the Cascade Hollow label looks almost exactly like the No. 8 label and it is being sold for the same price. It’s obvious that many shoppers, grabbing for the familiar black label, will never notice it’s a different product, a fact no doubt anticipated by the brand’s management.

Since the company could easily have made the Cascade Hollow packaging look completely different, why make it virtually indistinguishable from the No. 8? The strategy, it appears, is to have it both ways. They’re being upfront with the people who are paying attention while hoping to slip one past the people who aren’t.

Here are some simple facts the people at Diageo aren’t talking about.

No Dickel product except the new Cascade Hollow carries an age statement. It has one because it is required to, by law, because it is less than four years old. Unofficial statements by distillery personnel have pegged the top-of-the-line Dickel Barrel Select product as containing whiskey 8 to 12 years old, the No. 12 as 8 to 10 years old, and the No. 8 as 4 to 6, but those ages are all unofficial. They are trying to match a taste profile, of course, and if the whiskey starts to taste a little younger they hope no one will notice. Having no age statement gives them a lot of flexibility. With no age statement, all you know for sure is that the whiskey is at least four years old.

Regardless of what age it actually is, the oldest and most mature whiskey they have is going into the more profitable No. 12 and Barrel Select expressions. Those are reporting no shortages.

On Monday, the Associated Press (AP) ran a story in which a Diageo vice-president acknowledged the “temporary” shortage and promised that No. 8 will return early in 2008.

What seems underway, then, is an effort to turn a problem into an opportunity, always a good idea. By next year, Dickel hopes to be in greater demand than ever thanks to publicity generated by the shortage. The AP story alone was picked up by thousands of print and electronic outlets. When No. 8 returns, the company will have a new entry-level product on the shelves and its best-seller, the No. 8 Brand, will reappear, maybe at a higher and more profitable price. Then maybe they will start to change the two labels to give the two products more separation. They’ll transition price-sensitive shoppers to the Cascade Hollow product and get a little more scratch from No. 8 loyalists.

Let’s hope for their sake that all this works out better than their last master plan.