Beam Is Selling Bellows and Other Value Brands to Luxco

It takes different kinds of companies to make up the distilled spirits business. One way to divide them is between brand companies and commodity companies.

The brand companies base their business on household-name brands, which become and remain household names because the companies spend a lot of money to support them. They count on consumer demand to pull product off the shelf.

Commodity companies base their business on narrow margins, high volume, and efficiency. They push their products into distribution with price, and count on the distributors and retailers to push them out to value-conscious consumers. Commodity companies spend almost nothing on marketing support. Both types of companies make money, it's just a different approach.

Of course, brand v. commodity is a simple dichotomy and, consequently, not entirely accurate . Most of the brand companies have a few commodity products tucked away, and many commodity companies have a recognizable brand name or two.

Heaven Hill and Sazerac would be classed as commodity companies, for example, but Heaven Hill's Evan Williams is a serious brand, #3 in American straight whiskey. So is their Pama Pomegranate Liqueur, and a few others. Same with Sazerac (Blanton's, Weller, Van Winkle).

The commodity companies, generally, are privately-owned, while the brand companies are public. The announcement of this transaction, for example, came from Beam, not Luxco.

On the other side of the coin you have Beam, Diageo, Pernod, and Brown-Forman. Brown-Forman especially has a very lean portfolio, but it's packed with category leaders like Jack Daniel's and Woodford Reserve. Diageo, Pernod, and Beam--all much bigger than Brown-Forman--emphasize their category leaders, but they all have some 'cats and dogs' in their stables too.

So it is that, periodically, a brand company will off-load some of its commodity brands (also known as 'value' brands) to an established commodity company, as Beam announced it was doing this week. The buyer, Luxco, is a St. Louis-based rectifier and bottler (they don't distill).

For $65 million, Luxco got Bellows and Calvert, both of which Beam acquired in 1987 when it bought National Distillers. Bellows and Calvert are pretty old brands, but they never got off the bottom shelf. Calvert is blended whiskey, both Canadian and American, as well as gin. Bellows is bourbon, American blended whiskey, gin, rum, scotch, and vodka. Luxco also got a couple of vodkas, most notably Wolfschmidt, and a couple of other Canadians.

Wolfschmidt is a good example of a commodity 'brand.' It's a top seller in some markets, but strictly because of its distribution and price. Skol, a similar brand, was once described by its owner as the company's 'aircraft carrier.' Its profit margin was minimal, but its volume was so great that it paid to roll the trucks. The company's smaller but more profitable brands rode for free.

So a move like this is good for both companies. Beam gets $65 million and gets rid of what, for it, were mostly nuisances. Nobody at Beam wanted to manage Bellows. That's not how you advance your career.

Luxco, for its part, got that much more volume. It will keep selling everything Beam sold everywhere Beam sold it. Nobody is going to stop buying Wolfschmidt vodka because it's now sold by Luxco instead of Beam. Luxco will absorb its new acquisitions easily, because that's the business they're in.

The deal should close at the end of this month. Beam will continue to produce and bottle the brands for Luxco until at least January of 2014, according to Beam.

How Much Is This Bottle Worth?

It has been about 16 months since I've made a "what's my bottle worth" post. It's a question I get all the time.

“How much?” is a tricky subject with old liquor bottles because it is illegal to sell alcohol without a license. There are collectors, they buy and sell, and I haven’t heard of anyone being prosecuted for it, but because it is illegal most transaction are on the down low.

A precondition for assessing the resale value of anything is a sufficiently active secondary market for the type of object being assessed. An assessor studies recent sales to predict future prices. The secondary market for American whiskey is too small, fragmented and secretive to do that.

The only easily-accessible market for this sort of thing is the auction web site eBay.

The rarest and most valuable bottles are the oldest ones. Some post-Prohibition bottles have value, usually because the distillery where they were made is out-of-business. Prohibition-era medicinal whiskey is surprisingly common. Rarest of all are intact (i.e., full and well-sealed) pre-Prohibition bottlings.

The absolute high end on eBay is maybe $1,000, and that is only if you get lucky and a couple of people really want what you're selling.

There is a subset of this market that specializes in limited editions by particular producers, Jack Daniel's and Maker's Mark primarily. While most items sell in the sub-$500 range, there is no saying what the top end is. Naturally, big money transactions are the most secretive of all.

Among the people who buy old whiskey, many do it to drink the stuff. This tends not to be true of the Daniel's and Maker's Mark collectors.

I hope this is helpful.

How Much Do I Love Rittenhouse Rye BIB?

How much do I love Rittenhouse Rye Bottled-in-Bond? Not, it turns out, as much as I thought.

Rittenhouse Rye is an American Straight Rye Whiskey. It is a Heaven Hill product, made for them by Brown-Forman. There is a standard 80° proof expression but I've always preferred the 100 proof bond. It's a very good rye and until now was one of the best bargains in American straight whiskey. Not anymore.

When I first discovered Rittenhouse Rye BIB it was $11.99. It was still sublime at $12.99, which is how much I paid for it nine months ago. It's now up to $18.99. The bottle was actually in my cart before I started to think about it. Then I noticed 8-year-old Old Charter for $12.99, Elmer T. Lee for $26.99, and Weller 12-year-old for $24.99. The Weller won.

Now, obviously, I know one is a straight rye while the other is a wheated bourbon, but as a pure value proposition, Weller 12 for $25 is a great deal. I'll grant that Rittenhouse BIB is probably worth $19, but it is no longer a value at that price.

In other smart shopping news, I went to pick up some triple sec liqueur. Now when I say triple sec I don't mean Cointreau or Grand Marnier. I'm looking at DeKuyper, Bols, Hiram Walker, that bunch. You probably would have trouble picking one from another in a blind taste test, so I was looking at price, but discovered another differentiating factor: proof. They ranged from 42° up to 60° and the lower proofs were not necessarily cheaper. The best value seemed to be Du Bouchett, at 60° and just $7.99 for the 750 ml.

DuBouchett, as it turns out, is a Heaven Hill product, so they lost me on the Rittenhouse but got me back on the triple sec. And they didn't really lose me on the Rittenhouse, because I will buy it again, just not today.

It pays to read those labels.