The End of American Whiskey’s Latest Golden Age

Many have proclaimed a looming whiskey shortage, but the reality is, whiskey is a boom and bust business. Wayne Curtis explains the strange confluence of events that created a "golden age" from 2008 to 2014 and how its end may be more subtle than predicted.

Future historians, I wager, will peg the end of whiskey’s most recent gilded age to May 8, 2014. On that date, Buffalo Trace issued a relatively innocuous press release. It was titled “Buffalo Trace Distillery Updates Bourbon Inventory Shortages.” The release reported the unremarkable news that the distillery—which makes many fine bourbons and ryes, including Elmer T. Lee, Thomas H. Handy, and Pappy Van Winkle—was coming up short in meeting market demand. This wasn’t actually news—it was an update of a warning the distillery had issued a year earlier.

Yet it featured some ominous phrases: “rolling blackouts,”  “shortages still remain” and “we’re asking for continued patience.” As such, bloggers and mainstream media picked up this “news” widely, and dozens of stories suddenly loomed about a catastrophic whiskey shortfall. It resonated because it fit into a pre-existing whiskey narrative involving Pappy Van Winkle 23 and superhero bottles selling for $2,500. Also, it jibed with people noticing that it was getting harder to find favorites like Elmer T. Lee and George T. Stagg.

Thus, this didn’t seem the usual, time-worn marketing scheme to create “forced shortages”—that is, crying wolf to incite stampeding, panicked masses to strip the shelves, or using a manufactured shortage as leverage to prod retailers and bar managers to purchase a distiller’s lesser products in order get an allocation of the “rare” stuff. This seemed to be for real.

But in reality, the so-called “shortage” is really only a shift in the current whiskey market, built upon a strange confluence of circumstances.

Whiskey is inherently a boom and bust business. Because the best whiskey likes to age four to ten years, producers must decide how much they can sell far in advance. It’s hard to predict things like the clamor for authentic bonded spirits, or the mania for white wine spritzers in the 1980s, which prompted society to turn its back on brown spirits. It’s like going to your closet today to pick out an outfit to wear on November 5, 2020. You’re not sure of the weather, or how your tastes will have evolved.

When distillers overestimate demand and produce more than they can sell, it creates a minor golden age for consumers, who find a great selection at a reasonable price. I would peg our most recent mini golden age of whiskey (somewhat arbitrarily) as running from 2008 to 2014.  Simply put, this period saw supplies of good whiskey outstrip demand. Some established producers had over-forecasted demand for their products years ago, and found themselves with a surfeit of quality in their rickhouses. When the cocktail renaissance started to take off, they could open the faucet all the way and satisfy everyone.

Take Jim Beam’s rye, as one example. Fred Noe, master distiller at Beam (now Beam Suntory), told me they’d laid down a whole a lot of rye a bit more than a decade ago. The plan was to age it four or five years, then bottle and sell it as Jim Beam Rye and Old Overholt.

But Beam’s projections were ahead of the market, and consumers weren’t yet clamoring for rye. Demand lagged, and barrels full of it ended up sitting in rickhouses for six or seven years. “So we thought, let’s do something before it gets too old,” Noe says.

Beam called in their marketers, and they came up a new rye, called (rī)1, which was sold in a nontraditional bottle and hit the market in 2008. It was a whiskey born not of demand, Noe says, but of oversupply. It was good timing; it came out just as interest in historic cocktails made with rye was cresting.

That clearance sale wound down, and by last year, the surplus dried up. And thus, the golden age drew to a close. One group who understands this well is independent bottlers, like Kentucky Bourbon Distillers and Luxco. Their business model is built on buying bulk whiskey, then blending it or aging it further before bottling it as their own. They’ve suddenly found themselves going over Niagara Falls without a barrel.

Other seemingly obscure factors added to the whiskey surplus. For instance, in 2008 excise taxes on Australian pre-made cocktails changed. Prices of bottled, ready-to-drink cocktails soared, demand dropped and a lot of whiskey initially destined for blending into cocktails Down Under, instead, sat in rickhouses Up Over. Eventually, the unused whiskey found its way into the American market, often sold off to independent bottlers.

But the biggest shift in the whiskey market came in the aftermath of the Seagram’s collapse. While this occurred in the mid-1990s, it set in motion a series of fortunate events for consumers (for Seagram’s, not so much) that resulted in a small tsunami of excellent whiskey eventually flooding the American market in the mid-2000s.

Seagram’s Lawrenceburg, Indiana distillery and warehouse stock was acquired by Diageo and Pernod-Ricard, who divided the spoils, including warehouses filled with excellent whiskey that had been distilled, in large part, to flavor Canadian blended whiskey. Part of the operation was subsequently acquired in 2007 by the parent company of Angostura bitters, which soon stumbled, and sold everything off once again.

Much of the stock ended up in the hands of commodity producer Midwest Grain Products Ingredients in 2011. They conducted a top-to-bottom inventory and sold barrels off piecemeal, some to major producers looking to boost their own stock, and some to smaller contract bottlers hoping to score a few dozen barrels. Much of the latter made its way into the market under labels like Templeton, High West and Old Scout.

That clearance sale wound down, and by last year, the surplus dried up. And thus, the golden age drew to a close. One group who understands this well is independent bottlers, like Kentucky Bourbon Distillers and Luxco. Their business model is built on buying bulk whiskey, then blending it or aging it further before bottling it as their own. They’ve suddenly found themselves going over Niagara Falls without a barrel.

Within the past five years, independent bottlers could pick up excellent whiskey aged three or four years for about $400 a barrel. At an American Distilling Institute workshop last April, a speaker suggested that today a similar barrel would cost about $1,200. Hands immediately shot up. “If we could get it at that price, we’d buy it all day long,” said one exasperated bottler. Others told of paying upwards of $2,000 for a single barrel.

Distillers are sensibly responding to demand by expanding production capacity. Diageo recently announced it would spend $115 million building a new distillery in Kentucky capable of producing 750,000 cases a year, plus six rickhouses for aging. Sazerac is putting $71 million into expansions at three distilleries. And Brown-Forman has announced it will spend $35 million to increase capacity at its Woodford Reserve distillery. And then there are the dozens of craft distilleries cropping up each year, many laying down whiskey for the future.

Given aging times, these expansions won’t solve immediate problems; Diageo’s new distillery won’t be completed until 2018, and even then another three to five years of aging will be needed before the new whiskey gets to market.

How all of this will affect quality remains to be seen, but one might reasonably guess that if demand continues to outstrip supply, then distillers scrambling to meet demand for lower-priced whiskey will raid barrels earlier, further limiting the juice that would supply longer-aged boutique brands. In mid-range ryes and bourbons, we may see more straight whiskey with age statements on them (if it’s aged more than four years, it doesn’t require an age, but if it’s less than that it does).

My own hope is the demand for mass-market whiskeys and resultant short-term shortages of high-end spirits will leave an opening for young, talented craft distillers. Many have been patiently aging their whiskey, and they may find healthy consumer demand for high-quality product when it’s ready.

Of course, with all of the rapid expansion, the question of whether or not we’ll face a glut of inexpensive, high-quality whiskey in five years is a salient one. Should we just sit tight?

“There won’t be a glut,” Fred Noe insists in a discussion about rye. The Asian and European market want all the American rye we can send, he explains, and the spigot right now is open enough to allow only a slow drip. He expects the foreign markets will easily sponge up any surplus if the spigot opens further.

Anyway, according to industry sources quoted in USA Today, the demand for whiskey is still outpacing production expansion by a ratio of about 2 to 1, leaving a yawning gap into the future.

And other hazards loom. “They legalize marijuana, and nobody is drinking bourbon anymore,” Julian Proctor Van Winkle was quoted saying in Louisville Magazine. Which means more for us, and an opportunity for a new golden age. Not to mention a potential new bumper sticker: “Save whiskey. Legalize pot.”