A Master Distiller’s View on Bourbon Pricing

**At the time of this publication, Beam has revised their price increase schedule for Booker’s. New prices will be phased in over the next 2-3 years.** However, the interview that follows still reveals an interesting perspective from a competing master distiller. All comments are used with the permission of the master distiller.

 

Beam’s upcoming price increase for Booker’s is old news now having been announced a month or more ago and reviewed, analyzed and critiqued by every blog post, commentary and whiskey magazine in circulation. With Beam’s official statement now internet fodder, I interviewed a master distiller about Beam, Willett and how changes in pricing affect sales.

On a routine recent stop at one of my favorite local liquor stores, I ran into one of the most prominent master distillers in the bourbon business. Fortunate for me, his appearance was not well advertised and no one other than the owner was in the store. We had met previously and after some polite pleasantries about business and what’s coming in the near future from his own mega-distillery, I asked if I could ask him some questions regarding the state of recent announcements in the bourbon world. A conversation that began with politically correct ‘stock’ answers quickly evolved into his personal feelings about some of these changes and, having been pre-warned that I’d like to use his answers in a blog post, he asked that if I used his comments that I refrain from naming him publicly.

Bourbonscript (BS): What are your thoughts on Beam’s announcement of a significant price increase for Booker’s?

Master Distiller (MD): Remember that when the bourbon boom began, distilleries were not prepared for the increase in demand. After we recognized that the increasing demand was more than a passing fad, most of the major distilleries added additional capacity. We added employees, we added stills, we added rickhouses, we added bottling capacity. Given the age of most bourbons commercially sold today, most distilleries entered into, minimum, 20 year plans to meet the perceived demand. This is true for _______(his own distillery) and for Beam and most everyone else. If I recall correctly, Booker’s is 6-8 years aged which means that a plan to have enough barrels of the right age and enough bottles on the shelf in 2017 would have been laid out in 2009-2011. So, if we take the press release at face value, this means that Beam either significantly failed in planning for their 2017 release or they are going to have an excess of barrels aged in the range that they need for Booker’s. I’d be more comfortable if they announced that, effective immediately, they were reducing production translating into reductions in availability in 2023-2025. What I think they’re doing by reducing bottling in 2017 is increasing inventory of those additional barrels that remain in their rickhouses, which means that in 5-10 years, we see Beam release an aged, production-limited expression akin to Buffalo Trace’s BTAC series. A Booker’s 17 or Knob Creek 17, maybe. They’ve already had some success with this with their Rye release this year. Beam has lagged behind other producers in not having a ‘flagship’ top shelf brand and while many are criticizing them for attempting to make Booker’s that brand, I think you have to look to the future and what they intend to do with those remaining barrels for your answer on creating a premium brand.

As for the price increase…bourbon drinkers know Booker’s. They know what they have always paid for a bottle and unless you can convince them that the quality is significantly better (which it won’t be), sales will dip as those loyal supporters change to lower priced labels that they perceive to be of similar quality. Look for sales of Rowan’s Creek, Noah’s Mill, Makers 46, etc. to increase as sales of Booker’s drops.

BS: Buffalo Trace’s price increases on Pappy Van Winkle doesn’t seem to have affected sales.

MD: Pappy was already a limited production premium brand before the bourbon boom began. Yes, you could find bottles on the shelf in many stores because consumers weren’t willing to pay high prices for bourbon. Now, it’s the face of bourbon and every distiller and every distillery is attempting to reproduce the success of Pappy. You can’t compare Booker’s and Pappy because the cache is not there for the brand.

BS: What do you think of distilleries charging secondary market prices in their gift shops?

MD: We’ve always sold our products in our gift shop at MSRP as have many of the other distilleries in Kentucky. If there was any markup, it was minimal in an attempt to not compete with the local liquor stores that are our life blood. Beam began doing this a few years ago with their Heaven Hill limited releases and with their Elijah Craig aged expressions. Now, we’re hearing that Willett is selling their Family Estate series at secondary market prices. I suspect this is an effort to curb the resale of their releases and bring some of those secondary market profits back to the distillery. I commend Drew for seeing the opportunity to increase profits for the distillery. However, that greed can also destroy a brand. None of us are supportive of stores that price gouge or flippers who sell our products on the secondary market but, the bourbon boom will end at some point and our research shows that public opinion of distilleries and of those of us that make the bourbon is better if we prove that we have stood with the consumer instead of only attempting to make a quick buck. I’d rather a consumer be angry at a flipper that sold them a bottle for three-times retail than me for selling it to them at that price in our gift shop. I hope that when the bourbon boom ends those consumers keep coming back and buying my bourbon over the competitor’s because they see that we didn’t try to screw them over just because we could.

BS: Tell me more about your thoughts on stores that price gouge.

MD: Tell me where they are! We get reports on stores that price gouge every day. To a certain degree, it is the prerogative of the store to set the price of their bottles at whatever they want to charge. The free market will dictate whether or not consumers will pay their price. Some of the price guidance stores get comes from the distributors but many owners watch the secondary markets and think they can get away with charging those prices. If you’re in New York City or Las Vegas or Los Angeles, you might sell a $2000 bottle of Pappy, but in central Kentucky, no one is buying it in a retail store at that price. We’ve been clear that we are opposed to stores that sell our products at prices higher than what we recommend. Look, we know when we produce an limited release product, not every store can have a bottle on their shelf. We want those bottles in the hands of the bourbon lover that will drink and enjoy that product. It’s our craft. It’s our art. I want my bourbon to be drunk not stared at on a wall someplace. A store charging secondary prices means that the average bourbon lover can’t have access to that bottle. It means that it doesn’t get enjoyed except by a store owner who wants it to decorate their wall. That’s not why I do what I do. I assure you that we take claims of price gouging seriously and we have our own employees and our distributors investigate these reports. If you know of a store that received bottles of an expression every year then you saw them charge secondary market prices and now they’re not getting any from us, it’s because I’ve slashed their allocation.

BS: Do you think the market can sustain high prices for bourbon indefinitely?

MD: In the near term, yes. The demand has continued to increase each year. With limited supplies and significant demand, people will continue to pay whatever the market commands to obtain a bottle of their favorite bourbon or the bottle of bourbon that they perceive to be a idol others will be impressed by. We continually evaluate the marketplace as we plan for each new batch of bourbon we produce. As I said earlier, we have to plan many years in advance and predict what we think the market will support at that time. I’m still planning for a busy bourbon market in the early 2020s. However, the boom will end. There will be a time, probably within the next 10 years where there will be more product than demand. When that happens, I wouldn’t want to be the guy that staked my retirement on investing in bourbon. There will still be premium products and there will be a limited market that will pay for those products. I expect you’ll see top shelf bottles sitting on the shelves of stores like this.

BS: Thanks for taking a few minutes to talk with us about the state of the bourbon market now and in the future.

 

 

 

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