Squeezing the Barrel, and the Public Purse

Yesterday was goodie day at the Kentucky Economic Development Finance Authority (KEDFA), where several well-known small-government conservative Republican distillery owners and wanna-bees lined up with their hands out. Toyota was the greatest beneficiary of taxpayer largesse ($145 million), but several bourbon companies also got a taste.

Among them was Maker’s Mark, which got $100,000 in incentives to support its $8.2 million plan to “extract additional gallons” from its barrels by introducing “a state-of-the-art rinse process” in a new facility at the distillery, according to the Courier-Journal.

Angel’s Envy, through one of its many cross-owned affiliate companies, won approval for as much as $800,000 in incentives for up to 10 years, and also $72,000 in state sales tax rebates, according to Business First.

Previously approved incentives for Michter’s and Wild Turkey were extended.

From Maker's Mark we get squeezing but from Angel's Envy, all we get is teasing.

According to its KEDFA filing, Angel's Envy estimates that within its first three years of operation, it will make a total investment of $10 million in building materials and capital equipment. The project is expected to create 40 new jobs with an average hourly wage of $25 and a total estimated payroll of $1.5 million. The proposed distillery will include a column still, bottling line, grain-handling equipment, and barrel storage, according to the Lexington Herald Leader.

The Herald Leader spoke to Chris Poynter, spokesman for Louisville Mayor Greg Fischer, who would not name a specific site but said that the city and the state have been talking to Angel's Envy about a project that would be part distillery and part visitors center for the Main/Market corridor in what is historically Louisville's Whiskey Row area, now under redevelopment.

Angel’s Envy has been teasing the distillery project for about three years, with company representatives typically saying they expect to make an announcement "soon" or in "30 to 60 days." They did it again a week ago and, as of today, have missed yet another of their own deadlines. A Louisville architecture firm has proclaimed itself the winner in a competition to design the new facility, but the company remains silent about its intentions.

Last week, a published rumor identified the site as the old Vermont American factory on Main Street opposite Louisville Slugger Field.

The Hendersons are well-liked and everyone is pulling for them, but fans need to curb their enthusiasm. Remember Willett/KBD? They resumed distilling about a year ago, but only after 20 years of promising it would happen "soon." No one wants Angel’s Envy to become the next "Distillery That Cried ‘Wolf.’"

In related news, Poynter also told the Herald Leader that there are more whiskey attractions on the way for Louisville. "We have most of the major distilleries looking at some sort of presence in downtown,” he said.

Maker's Mark has not given details about its 'new process,' beyond the KEDFA filing, but parent company Beam Inc. has been squeezing Jim Beam barrels for a few years now to produce its Devil's Cut bourbon.

Distillers have always rinsed barrels to get a little more whiskey out. Jack Daniel's was the first to take it further. Several years ago, they built a facility where they take freshly dumped barrels, fill them about 1/3 full with water, then store them for about two weeks before dumping them again. Beam took it a little further by heating the water and using a device like a paint mixer to shake the barrels. This probably accomplishes the same thing storing does for Daniel's, without the huge warehouse Daniel's had to build just for its 'super rinse' operation.

Obviously, the amount of additional alcohol extracted more than justifies the expense.

When asked if the Beam process makes the barrels less desirable for the scotch makers who get them next, Fred Noe replied, "I don't really give a fuck what scotch makers think."

A Modest Proposal for Solving the NDP 'problem'

The quotes around 'problem' in the headline above are there to signify that there is nothing wrong with NDP whiskey per se. We've had a lively discussion beneath Sunday's post about non-distiller producer (NDP) whiskeys. Here's a recap, and a modest proposal.

As some of the comments note, NDPs have always been part of the business. In fact, they were the business before Prohibition. Prior to 1920, it was NDPs (then called rectifiers) who owned and marketed most whiskey brands, not the distilleries. Although this began to shift after Prohibition, NDP brands were still common in the modern era. Wild Turkey, which began in 1940, was originally an NDP brand. They only bought their distillery in 1971.

Today, most American-made whiskey is sold by the same company that distills, ages, and bottles it. All of the major brands you know and love -- Wild Turkey, Jack Daniel's, Jim Beam, Knob Creek, Woodford Reserve, Evan Williams, Four Roses, Maker's Mark -- are distillery-produced. Although you won't find the words 'Heaven Hill Distilleries' on a bottle of Evan Williams bourbon, it's well known that Heaven Hill is the producer. Distilleries using assumed business names aren't the problem.

The 'problem' comes when companies fudge about the source of their whiskey, or about how much of a hand they really had in making the product. Most won't tell a provable lie, but they will go to great lengths to create a false impression, with a goal of deceiving the consumer and appearing to be something they are not. Rather than quibble about who should or should not be on that list, because every faker fakes differently, let's just agree that many producers are coy about this subject, hence the high intensity of feeling in many of the comments about Sunday's post.

This problem is particularly acute among small producers, because it's a crime when people who work so hard to establish a distillery and make a good product have to compete against Potemkins. Some have proposed that the U.S. Treasury Department's Tax and Trade Bureau (TTB) should require distiller disclosure on product labels, but the TTB has a hard enough time doing the job it already has. More stringent source labeling would be opposed by almost everyone in the industry, for different reasons, and who really wants the Federal government all up in the liquor business any more than it already is?

Hence this modest proposal. The industry has several voluntary trade associations: the Distilled Spirits Council of the U.S. (DISCUS), the Kentucky Distillers' Association (KDA), the American Distilling Institute (ADI), and the newly formed American Craft Distillers Association (ACDA), to name a few. Several universities, such as Michigan State, have distilling programs. One of those entities, or a new one established for this purpose, could create a certification program. It would establish criteria, and a monitoring and enforcement system, and award certifications to producers who apply and meet the requirements. It would all be voluntary and funded by the participants. Then it is up to the participants to promote and support it, to imbue it with sufficient credibility so that concerned consumers will learn to look for and trust that designation.

This has worked for many product categories, from 'organic' to 'kosher,' with the consumer deciding how important the designation is, and with no role for the government whatsoever.

Somebody just needs to do it.

The Quest for 'The Best,' and Other Myths

When someone hears you know something about bourbon, their next question usually is, "what's the best bourbon?"

"No best there is," says Whiskey Yoda. "Only like what you do."

Whiskey Yoda is right. Bourbon styles aren't as diverse as scotch styles, but they do vary. Some people like a lot of wood, while some prefer a balance of grain, yeast, and barrel. Some appreciate the spice and earthiness of rye, others drink wheaters to avoid it.

Some bourbons are clearly better than others. The cheap stuff on the bottom shelf is there for a reason. People buy them and they know why, but bourbon is a flavorful drink and most people prefer good flavor over bad, though it's hard to say what the objective criteria are. Should bourbon burn a little going down? Some say no, but some say yes.

Being able to drink whatever pleases us, regardless of what someone else thinks, is why we live in America, right?

Most readers of this space enjoy the search for a bourbon or rye that rises above the rest, but even when they find one they keep looking. "My favorite bourbon is the one I haven't tasted yet." The pleasure for them is in the hunt. Most veteran whiskey drinkers like some products better than others but most won't even entertain the 'best' question. They shrug it off with, "well, what I like is ..." or even, "well, what I'm drinking right now is ..."

The craziness that Van Winkle has become is driven by this rumor that it's the best bourbon. Lots of half-assed publications whose editors know nothing about bourbon and bourbon drinkers have published '10 Best' lists with Van Winkle at the top. It's the laziest form of journalism and, consequently, the laziest form of connoisseurship.

If you want to choose your next whiskey from a list, use this one.

The Van Winkle line, if you consider it as whiskey and not as Elysian nectar, has a wood-forward profile. You know that's going to be the case when you see age statements that start at 10 years and go up to 23. In another era, such long aging was considered bourbon abuse. The Van Winkles are genuinely remarkable for being beautifully balanced even for their advanced age, not that most of the people trolling for Van Winkles know or care about that. They just want to get their hands on 'the best' so they can proudly display it on their back bar while muttering something about Anthony Bourdain.

Bourbon is very popular right now so many people feel they need to serve or drink it. They don't want to invest any time or energy in learning anything about it, they just don't want to make a mistake and be embarrassed (you know, like when Robert Parker said Old Bardstown reminded him of Van Winkle 23), so they look for cover from an 'authority.' That's just human nature and will always be so.

But of you, young one, Whiskey Yoda expects better.

The Rational Way to Regard NDP Whiskeys

NDP is short for 'non-distiller producer.' The designation is self-explanatory. Some producers make what they sell, starting with the raw materials of grains, water, yeast, and charred oak barrels. They mill, cook, ferment, distill, age, and ultimately bottle the product, put one of their own names on it, and sell it through their own distribution channels.

Other producers buy aged whiskey in bulk from one of the distillers, either directly or indirectly through a broker. Then they bottle and market it. Those are NDPs.

You can't tell distillers from NDPs by reading the product label. You more-or-less have to know. This isn't as hard as it sounds because the number of distillers is small, especially if you exclude micro-distillers (who rarely sell in bulk). Virtually all of America's whiskey is made at 13 distilleries owned by eight companies. All of the NDP whiskey is made by those producers too.

Most distillers market their whiskey under multiple names. Some produce a handful of brands, others dozens, but they're not a secret. Some make a couple of different recipes and matching recipes to brands takes a little more research but that's not a secret either. The companies are usually upfront about it on their web sites.

The Maker's Mark Distillery, which is owned by Beam Inc., makes Maker's Mark bourbon and nothing else, no other brands. The Jack Daniel's, Woodford Reserve, and George Dickel distilleries likewise make only their namesake brands in a couple of different expressions. Everybody else makes multiple brands. Jim Beam, for example, makes Jim Beam bourbon and Jim Beam Rye, but also Knob Creek, Booker's, Baker's, Basil Hayden's, Old Grand-Dad, Old Crow, Old Overholt, and a couple more.

MGP of Indiana is included among the distiller producers, although they make no brands of their own. However, most of the NDPs who use MGP whiskey identify it as the source.

That brings us to the NDPs who keep the source or sources of their whiskey a deep, dark secret. Templeton Rye, for instance, would like you to think its product is made at a little distillery in Templeton, Iowa, when it's actually made at a great big distillery in Lawrenceburg, Indiana.

Templeton is not unique. Some other NDPs you may know are Michter's, KBD (Willett), Black Maple Hill, Whistle Pig, Jefferson's, Pogue, and Angel's Envy. They make nothing themselves. Because most of their products are quite good, there is always a lot of speculation about who made this or that expression.

You are of course free to buy whatever you want and equally free to speculate about the provenance but consider this: why do business with someone who makes you play stupid guessing games about the basic question of who made their product?

"Because I like it and don't care who made it," is a fair answer.

There used to be a lot of bulk whiskey around that was made by closed distilleries, but virtually all of that juice is gone. All of the NDP whiskey you get today was made at one of those 13 distilleries by one of those eight companies. With the exception of MGP, it was made by someone who also sells that same whiskey (more-or-less) under their own names. When a distillery makes a bulk whiskey sale, do you think they deliver their best whiskey? Of course not, their best whiskey goes into the products they put their name on.

NDPs are secretive because they want you to believe they made the product themselves and some go to great lengths to create that illusion. They rarely lie but will spin like dervishes. When pressed, they claim they're contractually prevented from revealing their sources. Maybe they are, or maybe that's just a convenient excuse to continue the deception.

Look at it this way. You can get plenty of good whiskey from companies that don't try to deceive you at every turn. Do business with them.

ADDED A FEW HOURS LATER: Here's a good example of how NDPs hurt themselves with their dissembling. After this went up, a poster in a discussion group where I linked to it took great offense at it. She felt I was insulting her friends who work for the companies I named. She got very upset with me and called me many names, but who do you think she'll be mad at if she eventually learns that everything I wrote is true and what they told her is a big load of crap? And she's a bar manager, their customer.

Mark Brown on the Bourbon Shortage

Here is more detail about the bourbon shortage discussed here on Wednesday, courtesy of Sazerac President Mark Brown. (Sazerac owns the Buffalo Trace and Barton 1792 distilleries.)

On pricing: "Costs have been increasing for energy and raw materials like corn," says Brown. "Any price increases we are implementing, or contemplating, are primarily tied to recovering those cost increases, as opposed to changing any brand’s position."

On brands: "Each and every brand has a specific sales forecast out through its product age plus several years and therefore has its own allocation of whiskey," says Brown. That means for, let's say Eagle Rare Single Barrel, a 10-year-old, that they have allocated existing whiskey stocks based on meeting sales forecasts for 10+ years. If actual sales exceed the forecast in any of those years, shortages could occur, but since forecasts and inventory allocations are periodically adjusted based on actual sales, adjustments to production are made the only place they can be, in the current year.

On staffing: "We are actually ahead of the curve since we anticipate the need to manage sales, allocations and stocks increasing more so in a year’s time from now," said Brown in response to comments here and elsewhere that Buffalo Trace should have hired its new inventory manager sooner.

On the press release itself: "We felt it was time to explain why folks are already seeing gaps on the shelves (i.e. Weller 12) and from our vantage point why those gaps will be occurring on various brands for some time to come," says Brown. "We have had extensive debates about what to do about the supply / demand imbalance and our conclusion is that the best thing to do is stay the course with each brand’s position in the market and spread the available supplies out as evenly as we can."

It should be noted that this is an issue throughout the entire whiskey industry. Sazerac is now on-the-record as to how it intends to deal with the matter. If any other producers decide to weigh in on the subject, you'll read about it here.

Rumor Mill Identifies Site of Long-Rumored Angel's Envy Distillery

Last summer, part of the former Vermont American Corp. complex in downtown Louisville was razed to make way for the downtown portion of the Ohio River Bridges Project. At the time, Kentucky Gov. Steve Beshear announced that the remainder of the complex would be redeveloped and that negotiations with a prospective developer were underway.

The site is just south of Louisville Slugger Field, home of the Louisville Bats, a minor league (AAA) baseball affiliate of the Cincinnati Reds. It is at the easternmost end of the Whiskey Row district that Louisville has been trying to revive.

The Vermont American property has been vacant for decades. The site is heavily contaminated. Vermont American's parent company, Robert Bosch Tool Corp., has agreed to pay for environmental cleanup of the grounds and courtyard.

Meanwhile, Louisville Distilling Company has been talking about opening a distillery in downtown Louisville since before it launched its Angel's Envy brand two years ago. The bourbon whiskey for Angel's Envy is made by an undisclosed distillery, then finished in port casks by Louisville Distilling. The company is owned by Chicago entrepreneur Mark Bushala but Lincoln Henderson, former master distiller at Brown-Forman, is responsible for the whiskey. His son, Wes, and grandson, Kyle, run the day-to-day operation.

Rumors swirling around Louisville are now connecting Louisville Distilling to the Vermont American site. A few blocks west, Heaven Hill is nearing completion of its Evan Williams Experience and another non-distiller producer, Michter's, is trying to develop another old building into a micro-distillery and brand homeplace.

Earlier this week, the rumors gained credence by being reported at Insider Louisville. Asked about the rumors, Kyle Henderson did not confirm the Vermont American site but did announce which Louisville architects won the redevelopment job. He also hinted that an official announcement about the company's future plans would be made by the end of the month. Other sources at Angel's Envy/Louisville Distilling are making no effort to distance themselves from the rumors.

The Angel's Envy brand is doing well and doesn't need the buzz, but the distillery project has increasingly seemed like a pipedream. Since several recently announced new distilleries, including Michter's, have failed to materialize, the Hendersons need to manage expectations.

Even if the location is announced next week, realization of the distillery dream is still a long way off. Environmental remediation of the site has yet to begin. Construction will take about a year. Finally, the distillery equipment will need to be built, installed, and tested.

Louisville's Vendome Copper and Brass, which is nearby, will no doubt make the equipment. Vendome recently increased its estimated time from order to delivery to nine months.

Assuming distillation begins by the end of 2014, an optimistic projection, nothing will be ready to sell before 2019. It's also not known what Louisville Distilling intends in terms of scale. Will it be a small, demonstration distillery like Evan Williams is planning, or large enough to allow the company to stop relying on bulk whiskey purchases? Transitioning a bulk-based brand to home made has never been accomplished but if anyone can do it, Lincoln Henderson can.

Louisville city boosters praise the idea of a craft distillery on the Vermont American site because it will provide another tourism-friendly business across from the ballpark, as well as anchoring the Whiskey Row redevelopment with a whiskey-oriented attraction. Coincidentally, the western end of Whiskey Row is anchored by the Louisville Slugger Museum. The Michter's site is right across the street.

The recently-opened Yum Center arena is also on Main Street, in the approximate center of the redevelopment area, which is also adjacent to the Ohio River. During Louisville's recent Kentucky Derby festivities, Angel's Envy hosted a temporary 'pop-up' bar close to the Vermont American property at 400 E. Main. The neighborhood recently has become home to several popular new bars and restaurants.

We should know more in a week or so.

Whiskey Shortage Is So Bad, Buffalo Trace Has Issued a Press Release

Whiskey stocks have been tight for the last decade or so, but there has been no shortage of rumors about brands or expressions being discontinued, prices being raised, or products being degraded through reductions in alcohol content or age.

The problem is a simple one. Quantities needed for sale in 2013 were predicted in 2009 or earlier. Most of the bourbon being distilled today won't be available for sale until at least 2017. No one predicted that the current bourbon boom would shift into another gear about three years ago. It's a nice problem to have compared with the alternative, but it can be difficult to manage, as Maker's Mark showed in February with the proof cut fiasco.

The problem is so acute that Buffalo Trace Distillery (owned by Sazerac), no doubt in response to a barrage of inquiries from retailers and consumers, today felt compelled to issue a press release acknowledging the problem.

Despite our producing more every year, it says, demand continues to outpace supply.

“We are making more bourbon every day," says Kris Comstock, bourbon marketing director at Buffalo Trace. "Our warehouses are filling up with new barrels. Waiting for the bourbon to come of age is the hard part. While we wait, there could be temporary product shortages, even on favorites like Buffalo Trace and Eagle Rare.”

Although the press release doesn't mention it specifically, Weller 12 has already experienced localized out-of-stock conditions. The entire Van Winkle line, which is produced by Buffalo Trace, has become scarce to the point of absurdity. Buffalo Trace predicts that fans of its other leading brands such as Blanton's, Buffalo Trace, and Eagle Rare may soon be greeted by bare shelves.

Comstock wants you to know that Buffalo Trace is committed to quality. "We won’t take drastic measures to mitigate the shortages, such as raising prices excessively, lowering the proof or reducing the age of our whiskies,” says Comstock. And any shortages will be temporary.

The only news in the release is that Buffalo Trace will add to its staff someone dedicated to watching and balancing bourbon inventory with sales.