Why you should care
A surge in demand has distillers struggling to match pace, leading to potential shortages – and possible surpluses.
Approximately 4.9 million barrels of bourbon are coming of age in the Bluegrass State, more than one for every resident. It looks to be not nearly enough.
That’s because from Kentucky to Japan, bourbon is booming. Domestic bourbon sales have grown nearly 30 percent over the past five years, according the Distilled Spirits Council, topping $2.2 billion last year. Whiskey sales abroad are increasing, too. Whiskey, which includes bourbon, logged a third consecutive record year for exports in 2012.
Premium bourbon brands include Maker’s Mark, Woodford Reserve and Jack Daniels. (The last qualifies as bourbon but prefers the label “Tennessee whiskey.”)
The surge in sales would be wholly excellent for distillers, except for one thing: It’s hard to keep up with volatile demand. Unlike clear liquors such as vodka or gin, which can be distilled today and bottled next week, bourbon makers must plan ahead. Sometimes way ahead. According to the 1964 Congressional decree that defines “bourbon whiskey,” the amber stuff must be aged in new, charred-oak barrels. The law doesn’t specify minimum aging time, but for the premium labels that account for much of the bourbon boom, aging can last as long as six years.
Demand is a good problem to have, but it’s still a problem. As demand outpaces projections, some producers are facing a few unsavory choices: raise prices, risk shortages or somehow increase supply out of thin air.
Dilution doesn’t work. When Maker’s Mark announced last February that it would reduce its alcohol by volume by 3 percent — watering it down, essentially — it did so by way of the humblebrag. “We never imagined that the entire bourbon category would explode as it has over the past few years,” executives wrote in an email to customers, “nor that demand for Maker’s Mark would grow even faster.” Backlash was intense, and the Beam-owned distiller known for hand-dipping its bottles in red wax quickly reneged. It settled for warning customers of possible shortages.
“The forecasting is tricky,” says Dave Schmier, partner at Bardstown Barrel Selections, which bottles a line of small-batch bourbons and rye whiskeys. “Look at Maker’s,” he says. “No one really forecasted both the domestic demand and the global demand. Once you start seeing it, it’s still several years down the road before you can get your product ready for the marketplace.”
A few months after the Maker’s incident, Buffalo Trace Distillery in Frankfort, Kentucky, issued a similar warning. “We are making more bourbon every day,” marketing director Kris Comstock said in a statement. “Waiting for the bourbon to come of age is the hard part. While we wait, there could be temporary product shortages.” Shortages “could start at any time and may last a few years,” the company said, but promised it wouldn’t lower proof, reduce aging time or raise prices “excessively.”
It might sound like talk aimed at stoking demand, but it’s not just that: The distiller has invested millions to increase distillation capacity and add bottling lines.
So have others. In June, liquor giant Brown-Forman said it’s investing $35 million to expand its Woodford Reserve Distillery in response to global sales. The company owns Jack Daniel’s, too, which last month announced a $100 million expansion for the Lynchburg, Tennessee, distillery. Other expansions by Kentucky distillers, including family-run Heaven Hill and Gruppo Campari-owned Wild Turkey, helped bring total capital investments to $230 million last year.
Visit a Kentucky bourbon distillery and you’re likely to hear that it’s the state’s natural limestone-filtered water that makes the whiskey special. But legally, other critera make bourbon, bourbon. The 1964 law that defines bourbon requires that it be produced in the United States, made primarily from corn and aged in new, charred-oak barrels, among other things.
It’s the same game for smaller producers, just on a different scale. “We’re small enough,” says Schmier, of Bardstown Barrel Selections, “and we’re growing at a fast enough clip that I’m confident saying I’ll put as much whiskey in barrels as I can.”
All the investment in production has Schmier and other distillers worrying about a possible bourbon bust. “The longer-term challenge,” he says, “is what happens when there’s low demand. Everybody’s increasing their capacity – the big guys, not to mention the 500-plus micro-distillers who’ve entered the fray. That’s the question going forward, and it’s really tricky.”
Yes – but only if you believe there could be such a thing as too much bourbon.