Bacardi Southern Glazer's Deal Rocks Three-Tier System

Ever since the repeal of Prohibition in 1933, the American beverage alcohol industry has operated with what is called a three-tier system. The tiers are retail, wholesale, and production. Many industries have the same thing but the alcohol system is unique because it is mandatory. All three tiers are licensed and those licenses say producers may sell only to wholesalers and retailers may only buy from wholesalers. You can’t cut out the middle man. Cross-ownership is also prohibited.

Producers, obviously, are essential. Somebody has to make the stuff. Similarly, you must have retailers. The question is always with wholesalers. Do we really need them? Big chain retailers especially question their value. Big chain retailers would prefer to buy directly from producers. The producers would prefer that too.

Another aspect of the system is that it is controlled by the states. If I’m a retailer in Illinois, not only must I buy from a wholesaler, it must be an Illinois wholesaler.

Why? Because the system is all about control. Okay, taxes and control, but control is a big part of it. States feared they would have trouble bending big, national or international producers to their will. An in-state wholesaler, with valuable in-state assets, should be reasonably easy for the state to reach. That is the fundamental justification for the three-tier system.

That background brings us to two major and related news stories. First, the merger of two large multi-state wholesalers, Glazer and Southern, to form a national wholesaler. Second, the announcement that Bacardi is giving all of its business to that new combine.

It’s pretty obvious that the first event occurred to make the second possible. Although a big producer like Bacardi (second only to Diageo) would prefer to eliminate the wholesale tier altogether, dealing with one wholesaler for all of its U.S. and Canadian business is the next best thing. For even more convenience, both companies are based in South Florida.

But wait a minute, aren’t wholesalers supposed to be state businesses? Isn’t the whole idea of the system to force Bacardi to do business with 50+ state wholesalers?

Although Southern Glazer’s (the new name) is the first truly national wholesaler, both Southern and Glazer’s have been huge multi-state operators for a long time. The other big wholesalers, like the other recent mega-merger of Wirtz and Charmer, do the same thing. The state-by-state rule, as well as the no-cross-ownership rule, has long been a legal fiction. Yes, they have offices, warehouses, inventory, and a legal entity in every state, but they are a centralized, national business in fact. Everything else is window dressing.

Does a big change like this, made entirely within the established legal framework, make the three-tier system more beneficial, or more ridiculous? Big chain retailers are cheering. Although they’re not dealing directly with Bacardi, this is arguably the next best thing. Wholesalers who lost Bacardi business are griping, so are smaller producers.

It’s interesting to note that the business Bacardi is assigning to Southern Glazer’s is worth $1.3 billion. That represents only 7.6 percent of Southern Glazer’s business, so they can’t be perceived as Bacardi’s ‘captive’ wholesaler. They have too many other producers to keep happy. So what’s next? Wirtz Charmer is primed for a Diageo or a Beam Suntory to follow Bacardi’s lead. Will they? The answer isn’t obvious. This isn’t a clear slam dunk for anyone. Plenty of perils await.

Constellation Buys into Nelson’s Green Brier

It was announced yesterday that Constellation Brands has acquired a minority interest in Nelson's Green Brier Distillery through its investment unit, Constellation Ventures. The Nashville distiller and non-distiller producer (NDP) will continue to operate independently, according to the company.

Constellation Brands launched Constellation Ventures in August of last year to identify small-scale investment opportunities related to ‘innovative concepts’ and ‘emerging categories.’ Its first investment was bottled cocktail brand Crafthouse Cocktails (Charles Joly’s operation).

Constellation, known primarily for wine (Robert Mondavi) and imported beer (Corona), also has a small spirits portfolio (Svedka Vodka, Black Velvet Canadian Whisky, Paul Masson Brandy). It used to have a much larger spirits portfolio and owned the Barton 1792 Distillery in Bardstown, and Glenmore in Owensboro (both Kentucky, of course). It sold those facilities, and a bucket full of ‘value’ brands, to Sazerac in 2009.

Nelson's Green Brier is known primarily for Belle Meade Bourbon, an NDP product made with whiskey sourced from MGP of Indiana. They started distilling in mid-2014 with a 750 gallon hybrid still from Vendome, and can fill about two barrels a day. Nothing they sell now was made by them.

Nelson's Green Brier is run by two descendants of Charles Nelson, who founded the company in 1860. Belle Meade was one of his brands. Nelson's Green Brier was a major whiskey producer until it closed in 1909. (Prohibition came early to Tennessee.)

"Nelson's Green Brier Distillery brings together two of today's hottest trends in spirits - whiskey and craft," said Bill Newlands, executive vice president and chief growth officer of Constellation Brands. Newlands joined Constellation about a year ago from what is now Beam Suntory. He was running Beam’s North American business unit but left after the Suntory acquisition.

This deal is similar in some ways to Bacardi’s acquisition of Angel’s Envy and also to Luxco’s investment in Limestone Branch. As in the case of Angel’s Envy, Green Brier’s main asset is a successful NDP brand, and like Limestone Branch with Yellowstone, which Luxco transferred to Limestone as part of the deal, the Nelsons have an authentic family history linking them to whiskey-making in Tennessee and the Belle Meade brand.

In the press release, Newlands also says, "The entrepreneurial spirit that made Nelson's Green Brier Distillery great nearly 150 years ago is winning accolades and enthusiasts again today. Constellation Brands' support of this entrepreneurial spirit will help Nelson's Green Brier Distillery accelerate growth as they continue to re-introduce these unique whiskies."

Charlie Nelson, CEO of Nelson's Green Brier Distillery, added: "Nelson's Green Brier Distillery was an established whiskey business pioneered by our great-great-great grandfather, and we are honored to continue his legacy.

"With the support and business acumen of Constellation Ventures, we are eager to progress to the next level in re-establishing our family business while building a strong portfolio of whiskeys."

Luxco to Build Major Bourbon Distillery in Bardstown This Year

According to Luxco President David Bratcher, the company is very close to "putting a shovel in the ground" for its first distillery, a bourbon distillery in Kentucky. Similar in size to the one Diageo is building for Bulleit in Shelby County, it will add significant new bourbon production capacity to Nelson County, which already claims the title of 'Bourbon Capital of the World.'

If all goes according to plan, Luxco will break ground in March. The new distillery will be on E. John Rowan Boulevard (KY 245) at County Road 1001, northeast of downtown Bardstown. Locals will know the location as the Ballard property. It is not far (as the crow flies) from Bardstown's other big, new distillery, the Bardstown Bourbon Company, which is in the Nelson County Industrial Park, east of the Martha Layne Collins Bluegrass Parkway. That plant is nearly complete.

Joseph & Joseph is designing. Buzick will build it. Vendome will make the stills.

The maximum potential capacity of a bourbon distillery is determined by the diameter of its column still, which in the case of Luxco's new place will be 36 inches. Typically, a new distillery will build up to its maximum still capacity by gradually increasing its milling, cooking, and fermentation capacity, until it operates virtually around the clock except for maintenance breaks. Luxco will follow that pattern, so it may be years before it maximizes its still at about two million proof gallons a year.

Luxco intends to build seven warehouses on the site, each with capacity for 20,000 barrels.

Luxco is not a newcomer to the bourbon business. The St. Louis-based rectifier and bottler has been a non-distiller producer (NDP) of bourbon for more than 50 years. It owns several significant if not major national bourbon brands such as Yellowstone, Ezra Brooks, and Rebel Yell. "We really believe in bourbon," says Bratcher. "Bourbon is here to stay."

With bourbon booming and every existing distiller operating at or very near capacity, it is becoming more difficult for NDPs such as Luxco to acquire even new make in sufficient volume to fuel growth. Luxco needs to control its own destiny if it wants to grow its bourbon business. It needs its own distillery. Similar to another Nelson County distiller, Willett, Luxco has been buying bourbon for many years. Luxco presently owns about 75,000 barrels of aging bourbon, now in storage at its various producers. This inventory has allowed it to create Blood Oath, a super-premium bourbon that combines 12-year-old and 7-year-old stock, and also to upgrade the Yellowstone brand with the new Yellowstone Select release.

Although there is still some of it in the pipeline, the bottom shelf Yellowstone expression was discontinued in May of last year. The revitalized Yellowstone brand is being run by Steve and Paul Beam out of Limestone Branch in Lebanon. Luxco acquired a 50 percent interest in Limestone Branch about a year ago.

Bratcher originally envisioned a modern, top quality production facility without any frills. He cared about making bourbon, not entertaining visitors. He was persuaded otherwise and now the plan calls for a first class visitor experience, membership in the Kentucky Distillers' Association, and participation in the Kentucky Bourbon Trail. The property already includes a beautifully restored historic home built in 1806.

It has been clear for a year or more that Luxco wants to expand its bourbon footprint, but building a distillery is a huge step.

In 1992, when Diageo (then the United Spirits division of Guinness) rebuilt the Bernheim Distillery in Louisville, several company executives opined that it would be the last new bourbon distillery ever built in the United States. That seemed plausible in 1992 but it only took 20 years, a blink in bourbon time, for that prediction to fail.

How much capacity is too much? That depends a lot on India and China, and continued vitality here at home. Bratcher and the Lux family, which owns Luxco, are betting on Kentucky, Bardstown, and bourbon. Good for them.

Tales of Whiskey-Making Along Old Knob Creek

An early Knob Creek label from the portfolio of National Distillers, which Beam acquired in 1987.

Many bourbon brands have fanciful names and fictional origin stories, but a few have real history behind them. In the case of Beam Suntory's Knob Creek, it is named after a real body of water with a lot of history. That history has only a small connection to the current Knob Creek brand, but it is real nonetheless.

There are several streams called Knob Creek in Kentucky and southern Indiana. The word 'knob' refers to the region's characteristic round-topped hills. The Knob Creek we care about flows south-to-north roughly along US Route 31E in LaRue County, Kentucky. It gets pretty close to Beam's Booker Noe Distillery but there the connection ends. This Knob Creek is most associated with the various Athertonville distilleries, concluding with Cummins-Collins, which operated under the Seagrams banner until 1987. It is also associated with Abraham Lincoln's boyhood home, which he referred to as 'the Knob Creek place.'

It is an interesting story with as many twists and turns as Knob Creek itself, but to read the rest of it you need a subscription to The Bourbon Country Reader, the always independent and idiosyncratic journal of American whiskey.

Also in this issue, we examine the disturbing behavior of the Kentucky Distillers' Association and its tendency to overreach and under-deliver. This is an ongoing saga that you may have read about here or here.

The Bourbon Country Reader is America's oldest publication dedicated exclusively to American whiskey. Honoring tradition, it still comes to you on paper, in an envelope, via the USPS.

A subscription to The Bourbon Country Reader is still just $20 per year for addresses in the USA, $25 for everyone else. The Bourbon Country Reader is published six times a year, or thereabouts.

Click here to subscribe with PayPal or any major credit card, or for more information. Click here for a free sample issue (in PDF format). Click here to open or download the free PDF document, "The Bourbon Country Reader Issue Contents in Chronological Order." (It's like an index.) For the record, this new one is our 98th.

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My Dad's Pearl Harbor Story

Seventy-four years ago today my father, J. K. 'Ken' Cowdery, was in the Army stationed at Schofield Barracks in Hawaii. This is his account of that morning. He wrote it in 1991, for the 50th anniversary, for the Mansfield News Journal. It was later published in the AARP magazine.
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Sunday, December 7, 1941, dawned bright and clear at Schofield Barracks, Territory of Hawaii. At least I assume that it did because it was bright and clear when I got up at about 7:45.

To get breakfast I had to be in the chow line out behind the barracks before 8:00. I made it.

Someone noticed a column of smoke coming from the vicinity of Wheeler Field, the fighter field, south of our location. There were comments and conjecture that the fly boys must be having some kind of exercise and that one of them had cracked up.

At about the same time we noticed a line of planes coming over Kole Kole Pass, which was about three miles northwest of us and in full view because there was nothing in the way. Our barracks was the furthest northwest barracks on the post. As the first plane in the line passed overhead I could not only see the red circle markings on the plane but could see the pilot's face, he came in so low that he cleared the two story barracks by about 5 or 6 feet.

At that point he also started his guns. We never did figure out why he didn't start strafing a few seconds sooner and try to get some of the 30 or 40 guys in the chow line. I have no idea what the second plane in the line did, by the time he got there I was long gone.

We all made for cover, I went into the building via the back door to the kitchen. The kitchen was about 20 feet wide by about 30 feet long. Just inside the back door, to the right, was the walk-in cooler. I hit the floor at the far end of the cooler, putting the cooler between me and the line of fire.

There must have been several planes in the line as the firing kept up for quite a long time--at least it seemed like a long time. After the firing stopped everything was completely silent, there was not a sound. I wondered if I was the only one still alive.

There was a line of preparation tables down the center of the room, with equipment and utensil storage drawers below, and ranges along the far wall at the other end of the room. Looking around I could not see another human being, everyone was obviously hugging the floor. Then I saw a hand rise up, pick up a spatula, turn over two eggs frying on the range, then replace the spatula and again disappear.

Regardless of the circumstances, duty comes first.

I might add at this point that this was the 90th Field Artillery Battalion of the 25th Infantry Division, a Regular Army outfit.

When it seemed that the attack was over and people started stirring again I grabbed a plate, claimed the eggs, and sat down to eat my breakfast.

Putting Whiskey Rankings, Ratings, and Awards in Perspective.

You've seen the headlines. "Crown Royal Northern Harvest Rye Named Whiskey of the Year." Then the follow-up headlines. "Crown Royal Northern Harvest Rye Flying Off the Shelves."

In other news, the New York International Spirits Competition has taken to giving awards such as "Kentucky Rum Distillery of the Year" and "South Carolina Vodka Distillery of the Year." The facial absurdity of these awards, not to mention their sheer gall, seems to go unnoticed. Exactly how did Adam Levy and company assess and evaluate every vodka distillery in South Carolina and every rum distillery in Kentucky, and where exactly is evidence of the public's demand for that particular breakdown of information? The competition named Kentucky's best rum distillery but is silent about the state's much more prominent whiskey distilleries.

Just today, Whisky Magazine announced the results of the "Icons of Whisky Scotland 2016," "Hall of Fame Scotland 2016," and "Independent Bottlers Challenge 2015." Whisky gives an almost uncountable number of different awards every year, including its World Whiskies Awards, announced in the spring.

Whisky Advocate Magazine is dropping its annual awards now, one every few days, and this morning named Dad’s Hat Pennsylvania Rye as its Craft Whiskey of the Year. They are announcing award winners from eleven different whisky segments one day at a time, on their blog, from today through December 14. The Whisky Advocate awards will culminate with the naming of a Lifetime Achievement honoree on December 15 and Distiller of the Year on December 16.

Winners are inevitably proud to win and as the Crown Royal experience shows, a well-publicized win in the right competition is rewarded at the cash register. The normally circumspect Canadian whisky writer Davin de Kergommeaux is treating Crown's score as a matter of national pride. Competition results are news, after all. They are an automatic publish for many information outlets hungry for content that is timely, safe (uncontroversial), and free.

A part of every issue of Whisky Advocate and Whisky Magazine is devoted to rating new whiskey releases. Whisky Advocate uses a 100-point scale. Whisky uses a ten-point scale finished to one decimal point, so a 100-point scale. The content of most whiskey blogs is product reviews, usually with ratings. If you want to give your own whiskey awards there is nothing to stop you. All you need is a platform and a good PR agency.

Excluding hobbyists who rate spirits for their own amusement, most people involved in this sort of thing are selling something. Competitions typically charge a substantial entrance fee. Some are very profitable. Their 'product' is the awards themselves. If you win an award, you can publicize it. The publicity names the product and the award, but never talks about methodology. What was the basis for the win? Who was the competition? Who did the judging? You never hear or see any of that. It's just "Whiskey Name Wins Prestigious Award."

Since awards are the product, award givers maximize revenue by giving lots of them. Here's an interesting statement from the folks in New York. "While other renowned competitions prize up to 85% of entrants with awards, the discerning panel and ethos of the NYISC is to honor the brands that are most deserving among their peers. This year, NYISC prized only 46% of its entrants." So instead of almost everyone winning a prize, only about half do. That's integrity!

Crown Royal's big prize, which certainly sounds universal and definitive, is actually just the opinion of one person, Jim Murray, who writes and publishes an annual whiskey buying guide called, with unapologetic hubris, The Whiskey Bible. When one is disseminating the inspired word of God, no more explanation is needed.

Just as Murray's awards are designed to sell his book, awards given by publications such as Whisky Magazine and Whisky Advocate Magazine are intended to sell magazines and advertising. In each case there is a pool of voters, typically comprising the magazine's staff and maybe some of its freelance writers too.

Sometimes there are blind tastings, though often not. Sometimes the judging panels include producer representatives and sometimes awards go to that producer's product. Yes, really.

The problem with all of this is simple. The award givers are engaged in a ruse to convince you that something inherently subjective and personal can be rendered objective and universal just by how you describe it. One way to test the validity of these exercises would be to look at how often they agree with each other, which is almost never.

The target of all this folderol is you, the whiskey buyer. If they influence your buying decisions they perhaps provide a service by weeding out the really bad products, which rarely win awards. But are the products blessed by these self-proclaimed taste-makers really 'the best' in any sense?

Let's compare whiskey awards to something really important, the naming of Best in Group and Best in Show at the annual Westminster Kennel Club Dog Show. One obvious difference between whiskey awards and doggie awards is standards. The 'perfect' dog of each type is rigorously defined by a body recognized as the authority on that particular breed. While a judge's opinion is still subjective, it is based on comparing the candidate animal to a standard, an ideal. Learning and internalizing those standards is literally the life's work of the competition's judges.

Is there a comparable universally-agreed-upon standard for whiskey? No, not even close. Even the top distillers can't agree on what would constitute a perfect whiskey. Do judges at whiskey competitions have organoleptic training? Some do, some don't, and among those who do some have more than others. Are whiskey judges screened, are their organoleptic abilities evaluated? In a word, no.

So what? Well, if you understand all this and still find some or all of these declarations useful, then no harm done. Do lazy people use them as a cheat sheet, both for buying decisions and personal pontifications? Clearly, that's the downside.

The Badger State in a Bottle

The Wisconsin supper club is much less interesting than it sounds. It's basically the restaurant you go to with your grandparents. The type is not unique to Wisconsin. What is perhaps noteworthy is the affection in which they are held in the Badger State. That may be because they are a reliable place to get that peculiar regional cocktail, the brandy old fashioned.

Soul Boxer Cocktails is a new venture from Jason Neu and Doug MacKenzie, both formerly of Milwaukee's Great Lakes Distilling. Their first offering is the 'Wisconsin-Style' brandy old-fashioned. It's a pre-mixed cocktail that gets it right, for about $20 a bottle. They're making it at Yahara Bay Distillers in Madison but the ambitious Misters Neu and MacKenzie are working on a distillery of their own.

The ingredients are California brandy, real fruit including Door County cherries, bitters, and sugar.

The Old Fashioned is a sweet drink to begin with and the brandy base makes it even more so. The key here to balancing that out is bitters. They give the drink a spice cake quality. Many Wisconsinites spritz their old fashioneds with club soda or a soft drink. Soul Boxer leaves that up to you. It tastes pretty good straight from the bottle, over ice.

Soul Boxer's Brandy Old Fashioned is not widely distributed but perhaps your whiskey monger can order it for you. Soul Boxer's slogan is "Less Time Making. More Time Drinking." I think my suggestion is better: "Soul Boxer. You Can Almost Taste the Badger."