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09.2005

Massachusetts Beverage Business

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Article By: Lew Bryson

One thing's for sure: this ain't your daddy's bourbon.

But some of it is Pappy's bourbon - Pappy Van Winkle, that is. And the bourbon that still bears his name is a good example of what's going on in the bourbon business today. Pappy's grandson, Julian Van Winkle III, has been in the business since 1977, and now he's in a joint venture with Buffalo Trace distillery, producing a line of aged, wheated bourbons (and an aged rye; see sidebar) at premium prices. Let other distillers argue over who started the "small batch" bourbon category, Julian Van Winkle's on his board and riding the wave.

"From our side, we're selling every drop we've got," said Van Winkle, who spent the last 2O years tracking down barrels and tanks of bulk whiskey for sale, much of it from his grandfather's now-closed Stitzel-Weller distillery. "It's all allocated, we know where every case is going. Price increases don't seem to slow it down at all. It's a little scary, because it might be like the housing industry: it's gonna blow up one of these days."

Given the long decline American straight whiskeys (and we'll use that term and 'bourbon' interchangeably for the sake of brevity) have been on, it looks like things are blowing up now. Jack Daniel's long streak of solid growth against the category has finally turned into a category leader, as other brands show positive action as well. The major sales in the category continue to come from Jack Daniel's Old No.7 and Jim Beam White Label, with over 5O% of the market between them. Evan Williams and Early Times contribute another 13% or so, and the other brands together account for the other third.

To say that overall growth of the category is "blowing up" is an exaggeration - there have been very modest gains the past two years. But there's a lot to be said for holding steady, and the growth in the premium and super-premium brands has been nothing short of remarkable. "We've seen incredible growth in the super premiums," said Larry Kass, with Heaven Hill distillers. "We're doing very, very well in Massachusetts."

"There are three dynamics at work there," he explained. "First, the economy has been rolling. Second, super premium spirits have been doing well because they taste great: if you buy better, the experience is better. I also think that we're atoning for sins of the past by educating people about what makes special bourbons special, and so why it's right to expect to pay more for them. It certainly worked for Scotch and tequila. Our super-premium Bourbons are really great, but on the low end there's no such thing as a "mixto" bourbon. Even the standard brands are pretty good stuff. That's a good thing in our favor."

Wayne Rose, Brown-Forman's Woodford Reserve man, believes that there's plenty of headroom to this rush to super-premium bourbon. "We don't believe it's going to slow down any time soon," he said. "For example, about 9% of the Scotch business is at the super premium level, tequila is about 13% super premium, but super premium bourbon is only about 2.7% (of the category). There's a lot of consumer interest in super-premium products, and bourbon is just starting to capitalize on that."

Rose gives a lot of credit for this to overall better whiskeys. "Why are people willing to pay more for a bourbon?" he asked. "We've finally given them a reason to: it's better product. The whiskey is better than it was even 1O years ago. Everyone's making better bourbon than they did. They're actively competing for awards. There's real pride, and it's fun. The barrels that are selected for the premium whiskeys are truly premium barrels. We've hit on something consumers are looking for - a higher end - and now there are a number of products that are filling that niche. Some whiskeys that I don't care for personally, I still realize that they are made that way for a reason, they're not just what they had in the warehouse."

Julian Van Winkle sometimes feels like he's paying for some of those ten-years-ago bourbons. "We are always seeing people who've tried something they didn't like a long time ago and think they don't like bourbon," he said, "and then they try ours, or something else nice, and they say 'Wow, that's totally different from what I expected!' We get a lot of new customers that way."

People still aren't paying - and distilleries aren't charging - the kind of lofty prices single malt scotch and exceptional 1OO% agave tequilas can command. What's the deal? Are bourbons just not worth the money?

That's not really it; it's a self-inflicted injury that dates back decades, when bourbon distillers slashed prices in a desperate attempt to stay open. "The bourbon industry dug itself into a hole back in the '5Os and '6Os," said Kris Comstock, who's with Buffalo Trace distillery, "and we're just digging out now. You walk in a store and the premium bourbon section is mostly $2O to $3O. If I didn't work for a distillery and walked into a liquor store and saw Eagle Rare Single Barrel for $25 and some real expensive bourbon next to it for $1OO? I'm not even going to think about it, I'm going to buy four bottles of Eagle Rare!" Getting the consumer to consider that there might be $1OO worth of value in that $1OO bourbon is a process that's going to take some time.

Maybe it's a facing issue: will more brands of a type mean more sales for a category? Put another way, do future advances for super-premium bourbon sales depend on line extensions, or deeper marketing for existing brands? "We'll see activity in both," answered Wayne Rose. "Selling a brand experience is so important; what a brand stands for, looks like, tastes like. Line extensions may add value to that, add to the bottom line, add consumers, but the core brand, the parent brand, is the one that drives the image of the brand. Vodkas may be an extreme example. It's hard to line extend without a powerful parent brand."

(That sounds like a possible line extension in Woodford's future; how about it, Wayne? "We're not ready to announce anything, but there is work in that area," he admitted. "That's all I can say.")

Kass, as a distiller, had some wake-up call words for the high-end bourbon negociants, selling their picked labels: "As bourbon heats up," he said, "there's less bulk bourbon on the market. People who were willing to sell off barrels, that market's the tightest it's ever been. As a distiller, you want to sell what you make. If you can take your barrels and put them in branded bottles, you make more money and you build your brands . . . and then you make even more money." If bourbon's hot, no one's going to be dumping what they could be making good money on.

There's still one factor lurking in the background: the Allied Domecq purchase. Some brands are going to wind up in new stables; Maker's Mark will almost certainly wind up sharing a stall with Jim Beam. Fallout? Minimal. This is something industry geeks love to talk about, but no one is going to take a successful brand and mess with it. Don't expect anything to change on your shelf because of this. You may talk to a different rep and give a check to someone different, but that's going to be the only real effect.

What about the guys in the trenches, what do they see? Is there really something going on? Gary Park, of Gary's Liquors in Chestnut Hill, MA, sees it. "We have had a tremendous uptick in bourbon sales over the past few years," he said, "it's quite strong, from Jim Beam to the high-end bourbons - the Beam Small Batch, Blanton's, Eagle Rare, Wild Turkey Russell's Reserve, Elijah Craig 18-Year-Old - it's all up. Well, some of the lower-end, bar grade stuff is still just puttering along. But from Jim Beam, Jack Daniel on up, it just sells more and more, and it's to younger people, which I am not seeing in Canadian whiskeys. I don't see young people going there. Bourbon is where people often start before going to Scotch whisky."

Neal Zagarella is the bourbon guy at Vinnin Liquors, Swampscott, and he sees the growth more focused on the high end. "The high end is going up," he said, "the low end is going down, and the middle brands like Jim Beam are still pretty strong. There's more of a single malt kind of clientele, especially on the high end."

Sometimes a whiskey does so well, it grows itself out of the 'special purchase' category. "Maker's Mark has grown in the last few years," said Zagarella, "and now it's less of a specialty purchase; it's a regular thing. If someone came in 5 years ago and wanted something special for a father's birthday, that would have been Maker's. Nowadays it's something like Knob Creek or Booker's."

The bourbon market is finally catching up, and bourbon buyers are starting to sound like every other connoisseur: "Got anything new?"

The bourbon industry is ready. "People will keep coming out with specialty whiskeys," predicted Julian Van Winkle. I can't do that right now, our supply's too tight. I do know that Buffalo Trace is coming out with a couple new things - new finishes, experimental formulas, unfiltered whiskeys. You can't just sell the same old thing all the time. People want new stuff."

New stuff from an old American business, new ideas and profits from an old reliable category. It ain't your daddy's bourbon, and that's good news - even for your daddy. He might like a bottle for his birthday.

Did You Say Rye?

"American Straight Whiskey" is usually just a way to say "Bourbon" and not miss Jack Daniel's, which is, of course, not bourbon but Tennessee whiskey. But these days "American Straight Whiskey" is starting to mean something else: rye whiskey.

Rye? Like the "hard stuff" in Billy Wilder's 1946 classic The Lost Weekend? "Gimme two bottles of rye!" Ray Milland bawls at the liquor store clerk. "Gimme the cheapest you got, none of that 12 years in the barrel 'chi-chi' stuff. Whiskey's all the same." And that was made back when rye had a good reputation!

Don't look now, but rye's undergoing a rehabilitation. You only have to look as far as the elegantly packaged Sazerac 18-Year-Old Rye to see that. Buffalo Trace (whose parent company is Sazerac) put that out and was surprised at the response: critical acclaim and bottles flying off the shelf.

"The rye world has changed a lot just in the past six months. There's a lot more interest in it," Heaven Hill's Larry Kass said. "It's real growth, no doubt about it. The only thing tighter than the bulk bourbon market is the bulk rye market - there's not a drop out there to be had. But don't be fooled - we spill more bourbon in a year than we make rye whiskey in a year. If it grew at this rate for 15 years, it would still be small."

"If I had the supply, we'd be selling more rye than anything else," said Julian Van Winkle, who does sell the "12 years in the barrel 'chi-chi' stuff" (actually, Van Winkle Rye is 13-years-old). "When we first had it, we were selling 7OO (to) 8OO cases a year with no problem. But we have a finite lot of aged whiskey. Now we only have 29O cases to sell in the US each year. We're making more for years down the road, but we can't just crank up production like the makers of younger whiskey."

The makers of the younger whiskey - Heaven Hill's Rittenhouse and Pikesville Ryes, Jim Beam's Old Overholt and yellow label Jim Beam Rye - are cranking up - but not much. "We were making it one day a year when we couldn't blend the stuff away," says Kass. "Now, I don't see it getting to be as big as bourbon, but it could easily double its volume in the next five years. That wouldn't be much, though. If it really took off, we might have to make it two days a year."

What is it about rye whiskey that makes it different, and has so many whiskey aficionados interested? Well, obviously, it's the rye. Rye has a spicier taste than corn, a zing to it that sets off fireworks of pepper and mint in the mouth. As Wild Turkey master distiller Jimmy Russell said on how his Wild Turkey Rye is different from bourbon, "Well, it's like how rye bread is different from regular bread. It tastes different."

The other appeal is that it's simply not bourbon, or Tennessee whiskey, or Scotch whisky. It's different, and that's like candy to a budding connoisseur. By drinking something different, he knows he has more knowledge than the other guys, that he's learning more, that he's opening himself to new experiences. "It's a natural extension of interest in whisk(e)y in general, American whiskey in particular, and specialty whiskeys," said Kass.

If anything, rye has even more American pedigree than bourbon. It was issued to the troops at Valley Forge, it was the spirit at the heart of the Whiskey Rebellion (and a number of the rebels fled western Pennsylvania and floated down the Ohio River to Kentucky, where they would learn to distill with corn), and was the favorite tipple of Davey Crockett, who said it will "keep you warm in the winter and cool in the summertime".

It has an interesting and valuable cocktail pedigree as well, and that's one of the best reasons for your customers to give it a whirl. "People are tasting classic cocktails for the first time," said Van Winkle, "because they're finally tasting them with rye whiskey in them." Cocktails as well known as the Sazerac and the Manhattan are rarely made "right" - try them with rye to see what they were supposed to be like before Prohibition cut rye's reign short.

That's great, but can you sell it? Depends on where you are and how you go about it. "We occasionally special order it, but we don't get much call for it," said Neal Zagarella at Vinnin Liquors in Swampscott. Closer to Boston, Gary Park at Gary's Liquors in Chestnut Hill has seen definite growth in rye. "We have four or five different straight ryes now," he said. "We used to have one! People are exploring."

Look for the right customer. "It goes back to people wanting to try, and experiment, and learn about different types of American whiskey," said Buffalo Trace's Kris Comstock. "If they have a wheated bourbon, and then try Eagle Rare or Woodford Reserve, and they come back and say, 'That was good, but not spicy enough,' tell them they need to try rye. You'll know they're thinking: if that rye bourbon's spicy, what's rye whiskey like? You can't just hand it to anyone. But it adds another perspective to American whiskey: rye bourbon, wheat bourbon, Tennessee whiskey...and you got this thing called rye."

"Put it on the shelf," said Larry Kass, keeping it simple. "You've had about 15O articles on rye out in consumer magazines in the past year. Reprint some and put them on the shelf, put them by the register. People are having a hard time keeping rye in stock right now. The internet has a buzz on rye. It's on the radar. And sometimes people say, 'Yeah, I remember rye, my Uncle Fred drank rye.' And they'll try it. But it's got to be there on the shelf."

Rye recently got a major boost when Esquire's drinks authority, David Wondrich, wrote a short piece praising Rittenhouse Bottled in Bond Straight Rye as The Best (cheap) Whiskey in the World. The effect was phenomenal. "Lenell's in Brooklyn is the biggest American whiskey account in New York City," said Kass. "They got a case of Rittenhouse Bond in, and she sold the entire case in 15 minutes." Maybe they should raise the price a bit.

"There's certainly money to be made in the category," said Kass, speaking for both distillers and retailers. "If you do it right, you can make some nice money on it. But what's happening about rye is wonderful. It's creating interest in this uniquely American whiskey, and that raises the interest in every whiskey."

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