Scraping the barrel

Despite a boom in American distilleries, producers are struggling to keep up with demand. Dominic Roskrow reports


JULIAN VAN WINKLE SITS AT HIS DESK IN THE SUBURBS OF LOUISVILLE, KENTUCKY, STARES OUT OF HIS OFFICE WINDOW, AND ALL BUT WINCES. I have only asked one question, one which I thought was a pretty straightforward one – about the healthy state of the American whiskey industry in general and his Van Winkle range in particular. “The thing is,” he says after some thought, “we haven’t got enough whiskey. There isn’t enough to go round. We only advertise to support the whisky magazines but rurally it’s a pain in the butt. All advertising does is create more demand for whiskey we still haven’t got.

“I spend most of the time taking calls from people complaining that x has five bottles and y has 10, and they only have three. Or I’m saying no to retailers wanting to buy more stock. I spend most of my day disappointing people.”

The year is 2005 and the worldwide whisky tsunami has yet to happen. In America bourbon has only just started climbing the shelves from its lowly status as a blue-collar spirit, nobody under 30 drinks it, there is no cocktail culture, and very few super-premium American whiskeys such as the ones Van Winkle and his newly recruited son Preston are peddling. There is no cult of rye whiskey yet, and only a handful of craft distillers. 

But, most of all, few others are experiencing the Van Winkle dilemma and no-one is predicting that they will do so any time soon. Nobody knows it yet, but Julian Van Winkle’s allocation issue is a whisky trickle that will become a flood in under a decade.

Fast forward to 2015, and while the world of whisky has been turned on its head in general, the makeover in America has been greater than anywhere else. Everything has changed – the variety of whiskeys, the number of distillers, experimental whiskeys, the reputation of bourbon and the demographics of the average drinker have turned the American whiskey world on its head. Most of it has been good but not all, and there have been growing pains along the way.

Frank Coleman, senior vice chairman of the Distilled Spirits Council of the United States, was one of the first to recognise the changes and was instrumental in DISCUS acknowledging the new distillers.

“We set up a division of DISCUS to allow craft distillers to become affiliates,” he says. “At that time there were 60, maybe 70, craft distillers. Back in 2001 there were no more than a dozen. Now the latest figures show there are 700 distillers making 100,000 gallons of spirit or less.”

At the same time, the big Kentucky producers have spent the past decade expanding, putting in new stills and building new warehouses. Unsurprising, then, that the volume of American whiskey sales has boomed. Figures from the Kentucky Cabinet Economic Office of Research and Public Affairs show that exports of Kentucky whiskey rose 99% over the four-year period from 2009 to 2013. According to 2014 US spirits market volumes released by DISCUS last month, bourbon and Tennessee whiskey accounted for 19.4m of the 210.2m total cases in the American spirits market.

These figures are provided by the president of Michter’s whiskey, Joseph J Magliocco, who adds: “With a 9.2% share bourbon and Tennessee whiskey seem to have plenty of room to grow in that market. At Michter’s we are optimistic about the future, both at home and abroad.”

So all seems rosy in the American whiskey market then? Well, not entirely.

Possible pitfalls

While the whiskey makers are making more whiskey than they ever have before, demand is still outstripping supply. Significantly. And there are other problems, too. The whiskey boom could hit the wall not because of a cyclical fall off in demand, but because there is a danger that the industry will run out of barrels to mature the whiskey in.

“The barrel issue is in control but is still an issue for the industry in the future,” says Kris Comstock, brand manager for Buffalo Trace. 

“As for allocation, all our whiskeys are allocated. Our ancient and experimental ranges are highly allocated. Very few bottles go to London. We were putting three barrels aside 15 to 20 years ago so there isn’t much of it. We were doing so to satisfy our own curiosity more than anything else, and not all the whiskey is good enough to release, so it is extremely rare.”

Magliocco argues that, despite what some of the craft producers are claiming over accelerated maturation, you just can’t close the time gap.

Given that there is no substitute for time in making good whiskey and given that there has been extremely strong growth in American whiskey that even the extremely optimistic would not have predicted, it is not a surprise that quality American whiskey is allocated pretty much everywhere. 

“We have been allocating Michter’s for years, and our gatekeeper master distiller Willie Pratt has been nicknamed Dr No by our sales staff for his refusal to release Michter’s ryes and bourbons until they are, in his opinion, at peak maturation for their type.”

Lew Bryson, editor of American whiskey magazine Whisky Advocate, says allocation was inevitable. “I’m sure the distillers figure, ‘why ship it when we can sell every drop here?’,” he says. 

“The major problem they’re facing now is balancing sales growth with supply, and supply is behind the curve. It’s catching up quickly, but we have the same enthusiast problem here that Europe does. Whiskey drinkers think every great whiskey should be available to anyone who wants to buy it, at the same price it was 10 years ago, and they should be able to buy it by the case. This ignores the huge growth in the number of people who want to buy these allocated whiskeys. The 1990s are over, and they’re not coming back soon.”

This is a good point. The laws of supply and demand should force the price of American whiskey, as it has done with scotch, to balance out. It hasn’t happened in the States, partly because American whiskey drinkers wouldn’t accept it, and partly because the American industry is intent on staying loyal to its core drinkers. That gives the rest of the world a sizeable problem - many territories are simply not seeing great whiskeys such as Maker’s 46 or George T Stagg.

“You might just find a bottle of George T Stagg on one day in October if you’re lucky,” says Comstock. “But then it’s snapped up and it’s gone.”

That bottle will cost you about $100. Fly it to Europe, wait six months then put it up for sale and chances are you’ll be able to sell that bottle on for £250. That’s crazy economics.

The craft revolution is partly a reaction to this void. At first the big Kentucky distillers ignored the new producers, and then they criticised them for selling poor quality and badly made whiskey, and damaging the overall whiskey category. But some of the new boys are building strong reputations and are growing rapidly, to the point where they are joining the ‘establishment’.

Change of tone

In turn the big producers have changed their tone significantly. They seem to accept the best of the new distillers are here to stay, realise they’re attracting a new generation of whiskey drinkers, and they are warming to them.

“At the World Whiskies Conference last month the attitude towards craft distillers was surprisingly positive,” says Winston Edwards, brand ambassador for Texas distiller Balcones, which has won accolades across the world. 

“It’s interesting because the stance the big players have taken is exactly the opposite of the craft beer industry, which sees a lot of conflict between small and big brands. The large corporations have an edge though – their products are already good. Craft distillers will have to really up their game if they want to compete on a large scale.” 

Edwards expresses the view that the craft distilling sector is breaking into sub-groups, with the leading players just as critical as the established distilleries of the snake oil merchants who have tried to make a fast buck by cutting corners. 

“There’s some serious potential for the sector to get diluted, so to speak,” he says. “We’ve already seen age statements get dropped, proof lowered, rising prices, and the beginning of the flavoured whiskey revolution. Hopefully the innovation that craft brings to the table will raise the bar for everyone, leading to wonderful new whiskeys we’ve never imagined before.”

Lew Bryson goes further: “The whole thing’s being eroded by craft whiskey labelling; the Tax & Trade Bureau is letting them get away with it in the way of age statements, and ‘straight’ seems to mean nothing anymore. The big distillers have realised that it’s very much in their interest to make sure the Standards of Identity remain strongly in place, so they’re starting to make noise about that. 

“The TTB is also starting to make noises about stepping up its game on labelling, so I think that’s going to get better with regards to keeping standards. 

“That said, a lot of the craft guys are experimenting with used barrels and just dropping ‘straight’ from their labels. 

“As I predicted, no one’s really noticing except the 0.01% of whiskey geeks. No one in the general public knows what it means.  

“I’m not happy with some things – non-age statements, the boom in flavours – but the core remains strong. The thing that worries me is what happens when Jim Rutledge of Four Roses and Jimmy Russell of Wild Turkey pass from the scene, and no one fights the marketers?”

Barrel concern

“The rest of the world should be particularly concerned about the use of used barrels in American whiskey, because if it takes hold it means America will hold on to millions of barrels and won’t be selling them to the rest of the world, exacerbating the barrel shortage even further.”

Some problems then, but overall American whiskey is in rude health – even if we’ll have to wait longer to share in it.

“The American whiskey scene couldn’t be more exciting than it is at the moment,” says freelance whiskey writer Liza Weisstuch. “There’s a perfect storm of tradition and innovation. Small distilleries are increasing in number exponentially and, while there is some scandal about a lack in transparency around their products, it looks like there will be a Darwinian effect and the fittest – the ones being honest and making authentic products – will survive. Consumers are savvy, they don’t like to be deceived.

“But with the interest growing non-stop – with new consumers and seasoned drinkers alike – producers are prepared for the future and the US industry is in a good place for success.”

Trey Zoeller of Jefferson’s Distillery in Kentucky agrees. “The established Kentucky distilleries are all doing very well right now, increasing market share with their existing offerings as well as introducing new ones,” he says. 

“American whiskeys are in the first quarter of the game in my opinion. Not only is whiskey in a good place, there is a great knowledge from their consumers and they want more. More juice, and more innovation as long as it is still has proper time in the barrel.”