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Bourbon – Where Do We Go from Here?

by Chris Perugini

Is the bourbon world in shambles?

Depending on your point of view, the state of the bourbon industry—and the market that supports it—is either in the best or the worst shape it has ever been in. From a producer’s standpoint, the answer is as clear as white dog straight off the still. The whiskey industry continues its meteoric climb in production to meet the demand of an ever growing consumer base. With that increase in production comes a proportional increase in sales growth. The annual sales figures of the past few years are the kinds of numbers that bourbon producers in the 1990s could only dream of as they struggled to resonate with a consumer base that shifted away from whiskey a generation earlier. This market growth has also sustained an entire craft distilling industry that never would have existed before the whiskey boom. This new wave of distilleries initially rode the coattails of established producers, but many have transitioned over to their own unique identities with success. Whiskey in cocktails and as part of the bar scene has experienced a renaissance as spirit-forward cocktails are back in favor and whiskey-centric bars are everywhere. Liquor stores are frequented by more whiskey fans than ever before and many stores these days focus heavily on a literal wall of whiskey to attract customers. Ask anyone involved along the path of bourbon’s production and sales journey and they’ll all agree: bourbon is bigger and better than ever.

What about the people buying the end product? Would they agree that bourbon as an industry is better now than it was 20 years ago? More people flock to whiskey every year and it seems like there are fewer and fewer in-demand products to go around with each passing month. Prices are overinflated and greed has permeated every aspect of bourbon culture. There’s a very limited pool of products out there and consumers are competing with more and more whiskey collectors and resellers each year. There are more options than ever before but how many of those bottles on the shelf are truly worth buying? Can the bourbon world get much worse?

Let’s look at the state of bourbon through the eyes of three distinct groups in the American whiskey ecosystem: producers, retailers, and the end consumer. The interplay between these segments shapes the very bourbon world we’re living in and offers three very different lenses through which today’s market can be analyzed.

Fermentation Room at Bardstown Bourbon Company

Producers

Imagine being a long-time whiskey producer in the United States. Think about stalwart brands like Four Roses, Beam, Old Forester, and Wild Turkey with centuries of distilling experience under their collective belts. There was a time when the thought of doubling production, building several new rickhouses a year and regularly putting out limited or experimental releases was completely unheard of. The strategy for these companies in the 1970s, 1980s, and 1990s was simply to remain financially solvent. Imagine trying to stay afloat selling a relatively unpopular product. To complicate things further, long-term forecasting was just as important back then as it is today but for very different reasons. If you made too much whiskey and couldn’t sell it all, your unsold stocks continued to age which made it even more difficult to move. Well-aged whiskey wasn’t really a selling point in the early-to-mid 20th century and into the decline of the whiskey market. That meant that the ideal business model for these whiskey producers in the United States was a lean operation that carried just enough inventory (aged barrels) to satisfy demand. Any excess stock was at risk of aging past its useful life.

We’ve come a long way from those dark days, haven’t we?

Today’s modern whiskey producer faces a very different set of challenges. Seemingly everyone wants to buy their whiskey now. Production across the industry is at an all-time high and many operations are distilling around the clock to prevent shortages. Other producers are taking a more strategic approach to their production and release cycle. In many markets it appears that certain allocated releases are produced in small quantities that could never satisfy demand. Let’s look at Weller Special Reserve as an example. While it once carried a 7 year age statement, WSR is now non-aged stated and I’d assume that the whiskey in this release is around 4-6 years old. Most distilleries started significantly increasing production in the middle of the 2010s as the market boom was picking up steam. Logically speaking, the whiskey that was laid down in 2015 is easily of age today for a 5 year old product. We should see Weller Special Reserve on every store shelf in the country. Why don’t we?

In a way, Buffalo Trace Distillery is the benefactor of circumstance. In the 1990s, they inherited the Weller brand in the United Distillers brand shakeup and also began their agreement with Julian Van Winkle III at a time when no one was paying much attention to either brand. It wasn’t until years later that Pappy Van Winkle’s halo effect elevated the status of the entire Buffalo Trace whiskey portfolio. Sazerac executives in late 1990s never could have predicted the legendary status that their brands have attained in the 21st century and they’re taking full advantage of the situation (as we all would in their position).

In addition to their standard releases, established brands have the freedom to experiment with variables in production in an attempt to diversify their product line. Adjustments to barrel toast and char levels, finishing casks, yeast strains, mashbills, barrel entry proofs, and fermentation times all play a role in the end flavor of a whiskey and modern distillers have the freedom to to play around with one or more of these factors. Even if the end result isn’t something the distillery wants to reproduce, the whiskey can be released as a one-time limited product and will likely sell regardless.

On the craft distilling side of things, a brand new distillery can sell their whiskey almost immediately to their local market with relative ease. The pathway to business establishment, though, is much different than it was when the market boom began. The general blueprint for so many US craft distilleries was to source aged product that could be sold immediately while their own stocks aged. Once their own whiskey was old enough, they would slowly blend in more and more of their own product while lowering the amount of sourced stock until they eventually shifted completely to their own distillate. These days, it’s a seller’s market when it comes to sourced barrels. Let’s look at MGP bourbon and rye—the backbone of the entire American craft whiskey market—and what sourcing an MGP barrel looks like today. Not only are there fewer barrels of MGP available on the open market, but they’re both younger and significantly more expensive than they were a decade ago. That translates to higher start-up costs for a would-be craft distiller looking to enter the whiskey game. If you’re wondering why so many new brands are bottling Tennessee whiskey, it’s much cheaper to source because there’s a lot more of it on the open market.

Even newer brands that have established themselves in recent years like New Riff, Bardstown Bourbon Company, and Wilderness Trail are carefully expanding their distribution network as they grow. Many of these brands start out as “Kentucky only” and slowly expand to nearby states like Tennessee, Ohio, and Indiana before considering wider distribution across the country. Entering a new market usually needs the assistance of a regional brand manager or ambassador to get the product into stores and bars. Despite the popularity of the entire space, it’s not easy to make yet another new whiskey brand stand out among a sea of competitors and it takes a concerted effort to make an impact in these new markets.

From their viewpoint, producers have every reason to think that the current state of bourbon is about as great as it can be. Everyone wants to buy what they are making and thanks to this insatiable demand, they have the flexibility to experiment with both their product line and their pricing strategy with little consequence. What a wonderful time to be a whiskey producer.

Rickhouse at Kentucky Peerless

Retailers

From national chains like Total Wine and More to your local mom and pop shop down the road, every liquor store in the country is at least aware of the fact that whiskey is popular in the United States. A small percentage of stores deliberately choose not to enter the fray but they are part of an ever-shrinking minority. No matter the size, most liquor stores are playing a cut-throat game with both their distributors and their customers in a very delicate balancing act. What do these stores need to do to get sought-after whiskies from their distributors? If they do get highly allocated releases, how do they decide who gets to buy these bottles?

What do I mean when I call it a game? The answer depends on the state. Liquor sales in 17 states are run by the state government which takes most of the decision making away from the retailers and into the hands of a liquor control board. In most of these “control states,” the sale of all alcohol is uniform at every retailer in the state. In the case of highly allocated releases, these expressions are usually put into lotteries in an attempt to give everyone a fair chance to purchase them. The online platforms that facilitate these sales range from serviceable to downright abysmal (I’m looking at you, PLCB). What’s the main benefit of control states? Fair pricing. Because pricing in a control state is out of the hands of the retailer, it’s usually at or very close to MSRP. That means that if you got your hands on an Eagle Rare 17 Year, it would actually ring up for around $100. Of course, that’s a big if.

And the other non-control states? Welcome to the jungle.

There was a time just a few years ago when many liquor store owners didn’t realize that certain bottles carried a significantly higher secondary market value than the suggested retail price. This is no longer the case. From a retailer’s perspective, if someone is willing to pay $800 for a $100 bottle in an aftermarket peer-to-peer transaction, why wouldn’t that owner want to realize a piece of that profit? There’s a reason that more and more stores are turning into whiskey “museums” (i.e, with cases or shelves of limited bottlings that are priced so high that no one will ever buy them). The retail layer has had enough of being the middleman to yet another sale of their product after the fact. Can you blame them? We’ve already determined that it’s a seller’s market. Many stores have decided that they want to be the ones to benefit from it.

Of course, to get their hands on these coveted limited editions, retailers are at the mercy of their distributors. While the system varies a bit from state to state, the distribution of allocated products to retailers is usually at the discretion of the distribution layer. The problem is that distributors incentivize their retailers based on sales volume of non-allocated products. That means that for a store or bar to get their hands on a Van Winkle or BTAC product, they may need to sell a ton of other products within the company’s portfolio like vodka or gin. Some of these products might not be particularly popular or tasty but the distributors need to sell them so they put the onus on the retailers. In a way, this holds stores hostage and forces them to push products that they might not otherwise recommend. I am also personally aware of handshake agreements in multiple states where certain store owners get more allocated products because they are personal friends with their distributor rep. Fair? Far from it.

Even if a store owner makes the decision to stay out of these whiskey games, it’s impossible for them to not be aware of it thanks to two particular categories of customers: hunters and hype chasers. A whiskey hunter is someone that scours the liquor stores of a given area—either by phone or in person—looking for limited edition releases. It has been a while since I last did it, but I admit to belonging to this group on occasion though I never hunt via phone as I find I have better success in person. Whiskey hunters walk into a store not knowing what they’ll find inside. In my own personal experience, I usually don’t know what I’m looking for but I’ll know it when I see it. Whether it’s a limited edition release, a long-discontinued expression, or something else that falls outside of your run-of-the-mill offerings, whiskey hunters are more likely to leave a store empty handed than with a purchased item. There was a time many years ago when whiskey hunting almost always resulted in something interesting. Eventually, though, the popularity of whiskey grew to the point where everyone was out scouring their local stores for hidden treasures. I can say with certainty that the stores in my local area are picked clean of older releases. I almost always strike up a short conversation with the store owner but I’ve observed other hunters that would walk into a store, check for limited releases, turn around and walk out while ignoring an owner asking if there’s anything they can help them find. At least be a decent human being and say “no thank you” on the way out.

The second type of customer is called a “hype chaser” which is a very specialized kind of whiskey hunter. A hype chaser visits the stores in a particular area just like a standard hunter but they are only searching for a very specific set of whiskies that have been popularized within the whiskey community—especially on social media. They are looking for releases like Blanton’s, Weller, or Pappy Van Winkle and have no interest in anything else. Hype chasers have infiltrated the very fabric of the retail layer in the United States to the point where Blanton’s has become a meme whiskey thanks to the fervent demand for it. It has gotten so bad that many stores have resorted to putting signs on their doors that read, “We do not have Blanton’s.” I personally know many store owners who tell me that they are asked about Blanton’s both in-person and over the phone daily. At least from my own experience, a regular whiskey hunter is more likely to have an open mind when visiting a store and may browse a store’s single barrel selections. I also love all types of whisk(e)y so I’m always keeping an eye out for interesting Scotch, Irish, and other world whiskies. Hype chasers want status symbol bottles and for many of them, these bottles won’t even be opened. They will either be resold or hoarded. Whiskey has become a collector’s item. Completism is a part of human nature and that “gotta catch ’em all” instinct is often a driving factor behind someone overpaying for a bottle if it’s the final missing piece of their collection. Hype chasers have even resorted to harassing store owners about bottles that they suspect are hiding in the back of the store. Imagine being an owner and having to deal with these presumptuous customers every day knowing full well that they probably aren’t going to buy anything.

Liquor stores aren’t the only ones in the middle layer of whiskey’s journey from the distillery to the end consumer. Bars and restaurants with liquor licenses are also vying for a piece of the proverbial pie and in many states, the restaurant segment receives a significant allocation of limited edition products. I think part of the rationale behind this is that a bar will give these products exposure to more people which could increase demand even further. Buying alcohol at a restaurant already includes a significant standard markup. In the case of limited bourbon, that markup could be upwards of 1,000% or more. I’m continually shocked at the premium people are willing to pay for a taste of something they might never try otherwise but it further justifies the inflated prices that are all too common these days. Just like a liquor store charging secondary market pricing for a bottle, why wouldn’t a restaurant want to capitalize on the whiskey boom as well?

In my opinion, I think the retail layer would argue that whiskey today is both a blessing and a curse. While whiskey certainly brings foot traffic into stores, hunters and hype chasers can easily sully the experience of a sale. When demand for whiskey was low, the retail layer operated exactly as designed: a transactional middleman to bring products from the distributor to the end consumer. Things are significantly more complicated now and I’d argue that for many small shop owners, it’s probably not worth the effort that goes into the losing battle of trying to keep everyone happy.

The bourbon selection at Seven Grand Austin

End Consumers

If you’re reading this article right now, there’s a pretty good chance that you are not a bourbon producer nor are you a distributor, store owner, or bar owner. You are most likely an end consumer. For the purposes of this article, we’re not going to talk about the casual Jack and Beam consumers that make up a significant portion of whiskey sales annually. Instead, let’s focus on the whiskey enthusiast—the bourbon fan that is interested in buying, opening, and drinking whiskey (hopefully in the company of friends and family). There are tons of us out there these days but the dynamic of being a whiskey drinker certainly isn’t what it was five years ago and this dynamic is almost unrecognizable when compared to the whiskey world of a decade ago. Whiskey is more popular now than ever before and I think social media is solely to blame (or credit depending on your point of view) for this unrelenting year-over-year growth. We’ve already touched on whiskey collectors and it’s no surprise that there are people buying bourbon solely to illegally resell it for a profit. If things weren’t complicated enough, there’s also overlap between drinkers, collectors, and flippers. Someone who has a huge collection might resell or trade one allocated bottle to get another bottle they want more.

Let’s forget the secondary market for a minute. For the vast majority of whiskey lovers, your best chance at finding a coveted bottle is at a local store. Competition for these bottles is fierce and even at small, independent stores, you’re likely dealing with dozens of other people who are looking for the same releases. There was a time just a few years ago when I would tout the benefits of establishing a regular relationship with a local store owner. Doing your regular alcohol shopping at the same store and getting on a first name basis with an owner used to yield decent returns when limited releases became available. Over the years, though, I have anecdotally observed two trends with the local stores in my area. The first trend is that stores I was friendly with before the market boom have closed or changed owners, effectively nullifying 10+ year long relationships I worked hard to cultivate. The other trend I’ve noticed is that because stores are increasingly aware of the secondary market, owners have abandoned MSRP pricing in an effort to both curb reselling and loss of profits. If I were in that position, I would very likely do the same.

There are still stores out there that are trying to do right by their customers. I know a few that offer their limited edition bottles to good customers on a rotational basis. Other stores save their allocated products for lotteries to give everyone a fair chance at winning something. Some lotteries require stopping by the store in person to sign up. Other stores have a rewards program that gives people lottery entries relative to dollars spent at that particular store. One particular store near me has been doing food and toy drives to benefit local families in need where one item donated equates to a raffle ticket and serves as a model on how to use allocated whiskey for good. Control states almost exclusively make their limited edition bottles available via a public lottery to residents of that state. Outside of that, there are plenty of allocated products making their way to store owners that either keep the whiskey for themselves or set it aside for a handful of friends or big spending customers. These bottles never see the public storefront so to a casual consumer, it’s almost as if the bottle never really existed. The bottles that do make it to a shelf or display case are almost always accompanied by inflated price tags. I used to question owners about inflated prices years ago and I almost always got the same answer: someone will pay it. And they’re usually right. We’ve reached a point where bourbon has transcended into a collectable luxury item. That “L” word completely changes the game because people are now willing to pay a hefty premium for an item because of the status associated with owning that brand.

Here’s the funny thing about our interpretation of the word “limited”. One could reasonably infer that a limited release is inherently scarce based on the nature of the label. If you associate the term “limited” with scarcity in the market, then one could make the argument that releases like Pappy Van Winkle are limited despite being available in every state in the country. Alternatively, if your association of “limited” relates to the total available volume of a release, single barrel products are much more limited than an annual nationwide release made up of hundreds of barrels. Many stores and private groups select single barrels of whiskey direct from the distillery. A single standard 53-gallon barrel holds about 265 bottles worth of whiskey and will inevitably lose some of that whiskey to evaporation during the aging process. That means that any one single barrel selection has a maximum yield of 265 bottles or less. Those bottles from that unique barrel will never be repeated again. In my opinion, these single barrel selections are the easiest way to find incredible whiskey without the time and capital investment of tracking down “status symbol” products.

The Bar at Michter’s Fort Nelson

What now?

So where do we go from here? That depends on your role in this market dynamic.

If you’re a producer, keep making as much whiskey as you can because people desperately want as much of it as they can get. I personally don’t see the whiskey market slowing down at all in the 2020s so there’s plenty of time to forecast a market downturn in 10-15 years or more. I honestly don’t think there’s much more that can change on the production side of things. Huge distilleries like Buffalo Trace and Heaven Hill aren’t going to suddenly flood the market with their highly sought after releases and everyone else is already trying to capture the magic of limited editions. There was a time when limited releases mostly came out once or twice a year. These days, special edition bottlings come out all year long. There are also a slew of newer distilleries that are putting out quality 4-5 year old whiskey. Those stocks will only continue to age and I suspect that we’re going to see a renaissance of quality products with decent age statements in the next decade. Finally, producers are beginning to experiment a bit with new mashbills, barrel finishes and adjustments to other parts of the production process such as barrel entry proof, yeast strains, and toast/char levels.

If you’re a retailer, it all comes down to the owner. There are fewer and fewer store owners in today’s market that are willing to put a highly desirable limited bourbon on the shelf at MSRP and I really can’t blame them. What I hope, though, is that store owners are still willing to offer some of these bottles at reasonable prices to customers that frequent their business. Otherwise, the idea of a raffle or some sort of rewards system keeps things fair and gives a slight edge to a store’s regular customers. If you’re a restaurant or bar owner, I truly understand the pricing strategy. Pricing something relative to MRSP will result in just a few people drinking through the whole bottle in no time. If you are going to price things above the normal rate, at least let it fall in line with what other places around the country are doing and allow for 1 oz pours.

If you’re an end consumer, you aren’t going to like what I’m about to say. It’s only going to get worse as more and more people flock to whiskey and dilute the pool even further. The same amount of allocated releases are being made and more people are fighting for them with each year that passes. I didn’t mention this earlier but it’s well worth noting that pricing in most stores is completely reasonable for non-allocated expressions…but you don’t want standard releases, do you? You’re looking for the good stuff. This, my friends, is the crux of the entire secondary market. The whiskey market at large has been manipulated into believing that certain expressions are way more valuable than others when they are often similar in age, proof, and mashbill as other expressions that can be found in most stores in the country. What makes some releases worth more than others? Perception. There is nothing inherently better about the E.H. Taylor line compared to brands like Old Forester, Four Roses, or Wild Turkey and yet, E.H. Taylor special editions can fetch astronomical sums of money on the secondary market. In a blind tasting, most E.H. Taylors would likely perform just as well as any other comparable bourbon. It certainly won’t taste 10-20 times better despite being priced that way in stores and on the secondary market.

One thing you can do right now to get on the path to great whiskey without the high price tags and constant hunting is to focus your attention on single barrel selections. Get to know a retailer that chooses barrels that align with your taste preferences. Join local barrel pick groups in your area. These are where some of my favorite favorite whiskies have come from in recent years and it’s usually much easier to track these bottles down because local selections have a much narrower footprint and less demand overall. There are also plenty of worthy “shelfies” that are readily available in stores that drink above their price points. Releases like Old Forester 1920, Wild Turkey Rare Breed, and Four Roses Small Batch Select are great everyday pours that you can find almost anywhere. For the budget conscious, lower price tag bottlings like Wild Turkey 101, Old Granddad BiB, and Evan Williams BiB deliver great flavor for an extremely reasonable price. I’ve thrown these bottles into blind tasting lineups and they always perform quite admirably compared to whiskies that are double the price or more. Perception based on price, brand, or status should not be a major determining factor when it comes to evaluating how the whiskey actually tastes.

Between mashing, distillation, and aging, whiskey is crafted over the course of many years and is the product of many hands. It’s a shame when all of that hard work isn’t appreciated with an open bottle and a few glasses of bourbon. If you do manage to get your hands on an elusive limited edition release, I urge you to open it and share it with friends and family. I have tried many, many old and expensive whiskies over the years and have been a part of some incredible whiskey-related experiences around the world but my absolute fondest memories are the ones where I was in the company of good friends and family.

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