The Bourbon Shortage Is Ending

With allocations for big brands easing, Bourbon builds for the long term.

Production of Bourbon and Tennessee whiskey is at a nearly 50-year high (Jack Daniel’s barrelhouse pictured).
Production of Bourbon and Tennessee whiskey is at a nearly 50-year high (Jack Daniel’s barrelhouse pictured).

Bourbon has become the brightest star in the brown spirits universe. In 2015, its volumes advanced 4.5 percent to 18.9 million cases, excluding flavors, according to Impact Databank. Up 22 percent since 2010, the category is the heart of the whisk(e)y renaissance—a trend that initially caught many suppliers flatfooted. A resulting shortage of aged Bourbons and rye whiskies drove up prices, put many mainstream brands on allocation and limited the category’s full potential. But now the worst of the scarcity has eased. According to the Kentucky Distillers’ Association, Kentucky Bourbon production hit a 48-year peak of 1.9 million barrels in 2015, up 315 percent since 1999. Stocks of aging Bourbon reached 6.67 million barrels—the highest number since 1973. As supply issues slowly fade, Bourbon, rye and Tennessee whiskey are positioned for a long, steady growth run.

“Almost all the significant trends in distilled spirits have had long life cycles,” says Gus Griffin, president and CEO of MGP Ingredients, which owns the former Seagram distillery in Lawrenceburg, Indiana, and is now a major contract distiller. “It took a long time for Bourbon to decline, and it will take a long time to come back.” Griffin notes that even after years of high growth, Bourbon isn’t much more than half the size it was in 1970, when the category stood at 36 million cases. “You’re going to see many, many more years of this growth,” he adds.

The Broad Market

The boom in Bourbon, rye whiskey and Tennessee whiskey is particularly notable because it’s so broad-based. “Bourbon is the hottest thing I’ve seen in a very long time,” says Jim Shpall, CEO of Wheat Ridge, Colorado’s Applejack Wine & Spirits.This is an entirely different phenomenon than the vodka craze, which occurred alongside the growth in wine. The Bourbon boom is coming on the heels of an upsurge of people who want cocktails instead of wine. Initially, the trend grew among millennials, but now it’s crossed over to the Gen Xers and baby boomers as well.” Jim Beam and Jack Daniel’s lead sales at Applejack, but Shpall notes that formerly low-profile brands like Booker’s ($65.99 a 750-ml. bottle) and Basil Hayden’s ($48.99) have gained traction.

Most leading brands posted significant gains last year off of already sizeable volumes. Jack Daniel’s topped the Bourbon and Tennessee whiskey category with 3.4-percent growth and depletions of over 5 million cases, according to Impact Databank. Excluding flavors, No.-2 player Jim Beam dropped 2.1 percent to 3.4 million cases. However, the brand’s flavor extensions have pushed it into growth territory. “In the 52 weeks ended June 18th, 2016, our portfolio is up 8 percent by volume, outpacing the Bourbon category overall,” says Jim Beam senior marketing director Gigi DaDan. The flavor lineup alone grew 35 percent over the last year, led by Apple and Honey. “Jim Beam Apple is the most successful innovation in the brand’s history,” DaDan notes. Meanwhile, Heaven Hill BrandsEvan Williams label grew by 15 percent to 2.1 million cases, and Beam Suntory’s Maker’s Mark advanced by 7.1 percent to 1.4 million cases. Diageo’s Bulleit shot forward by 17.5 percent, reaching 705,000 cases.

The largest players are launching major initiatives to capture more of the category’s growth. This summer, Beam Suntory unveiled the first major packaging redesign for Jim Beam in decades. No.-6 brand Wild Turkey—which gobbled up a 3.4-percent gain to 610,000 cases last year—also got a makeover in late 2015. As part of the revamp, Campari America rebranded Wild Turkey 81 as Wild Turkey Bourbon ($20.99 a 750-ml. bottle). “We haven’t changed the liquid,” says Campari America senior brand manager for fine whiskies Robin Coupar, noting that Wild Turkey 101 Bourbon ($24.99) remains the brand’s flagship. “The rebranding is meant to be more straightforward for the consumer.” This August, Campari partnered with Matthew McConaughey, who now serves as Wild Turkey’s creative director. The Oscar-winning actor will write, direct and star in ads for the brand and participate in new product development.

Meanwhile, Jack Daniel’s is blending its heritage with a look to the future. The storied brand is celebrating its 150th anniversary this year with a variety of initiatives, from the renovation of the historic Jack Daniel’s Motlow House in Lynchburg, Tennessee, to the release of a virtual reality distillery tour. The company also debuted the Personal Collection, a revamped barrel program that allows consumers to select and purchase single barrels of whiskey through their local retailers. In addition, the brand will release two limited-edition anniversary offerings later this year.

Matthew McConaughey took on the role of creative director for Wild Turkey in August 2016.
Matthew McConaughey took on the role of creative director for Wild Turkey in August 2016.

Regional Trends

The Bourbon phenomenon is spread out broadly across the country, and it’s not limited to major urban markets. At Green’s Discount Beverage Stores—which has four locations in South Carolina and two in Atlanta—Bourbon sales were up by around 5 percent in the first half of the year. President Lock Reddic says that big-volume brands like Jack Daniel’s, Jim Beam and Maker’s Mark are all “status quo” at the moment. “They’re steady and unspectacular,” he explains. “The major brands have been big for so long that it’s almost hard for them to grow.” Instead, consumers are trading up within brands. Reddic cites the performance of the Evan Williams portfolio in his South Carolina stores, where the core Black Label ($11.99 a 750-ml. bottle) is flat—but the higher-tier Evan Williams 1783 ($14.99) is up 200 percent over the past two and a half years.

At the grocery chain Hy-Vee—which has more than 230 locations in eight Midwestern states—Bourbon is the fastest-growing spirit category and is poised to surpass vodka in the next few years, according to vice president of wine, spirits and coffee Jay Wilson. Major players like Jim Beam, Jack Daniel’s, Maker’s Mark and Evan Williams drive volume, while higher-end whiskies in the $25-to-$30 range have also excelled. BevMo, which operates over 150 locations in California, Arizona and Washington, has seen the category’s pricing sweet spot move above $20 as shoppers grow more comfortable with premium Bourbon, notes senior vice president of spirits, beer, tobacco and beverages Brian Bowden.

Even in New York City, category sales run the gamut of pricing. At Warehouse Wines & Spirits in Manhattan, super-premium offerings like Maker’s Mark, Woodford Reserve and Basil Hayden’s 8-year-old Bourbon sell well, but so do lower-priced offerings like Evan Williams, Jack Daniel’s and Rebel Yell. “Evan Williams is a go-to Bourbon for a lot of people,” says general manager Jim English. “A lot of smaller brands also do well—people are willing to spend a little extra money if they think a product has a real story and is truly small batch.”

Control states are seeing similar trends. In New Hampshire, Bourbon sales increased 13.8 percent to around $6.5 million in the 12-month period ending June 2016, according to New Hampshire Liquor Commission (NHLC) spirits marketing specialist Mark Roy. “That’s up from almost zero 10 years ago,” he says. Roy cites the success of flavored Jim Beam offerings, as well as Bulleit, which is up 26.5 percent in the last two years. New Hampshire–exclusive single barrels offerings from Jack Daniel’s, Knob Creek and Woodford Reserve have also done well.

New distilleries like Michter’s in Louisville, Kentucky (column still pictured), and expansions to existing facilities are driving Bourbon’s growth.
New distilleries like Michter’s in Louisville, Kentucky (column still pictured), and expansions to existing facilities are driving Bourbon’s growth.

Kentucky Luxury

Bourbon’s fastest growth is coming from the super-premium segment. The top five Bourbon brands over $25 jumped by 13 percent in 2015, according to Impact Databank. Maker’s Mark led the way with 1.4 million nine-liter case depletions and 7.1-percent growth, followed by Bulleit, up 17.5 percent to 705,000 cases. Brown-Forman’s Woodford Reserve vaulted 27.6 percent to 374,000 cases, while portfoliomate Gentleman Jack grew 11.9 percent to 349,000 cases. Beam Suntory’s Knob Creek rose 19.9 percent to 348,000 cases.

At Green’s, higher-end Bourbon is driving sales. “We’re seeing success with brands like Basil Hayden’s and Michter’s,” Reddic says. “Woodford Reserve is in tremendous growth mode. I don’t think any other brand of that size is growing as fast.” Roy of the NHLC adds that Sazerac Co.’s portfolio does well, especially Buffalo Trace ($24.99 a 750-ml. bottle), Blanton’s ($56.99), and single-barrel and small-batch offerings.

Major brands are scurrying to take advantage of the ultra-premium boom. “Single malts emerged as the gold standard of Scotch 20 years ago,” says Campari’s Coupar. “American whiskey mirrors that with the growth of small-batch and craft Bourbon and rye whiskey.” Wild Turkey will launch the second edition of its luxury Master’s Keep label in early 2017. Brown-Forman, meanwhile, released Jack Daniel’s Single Barrel Barrel Proof ($65 a 750-ml. bottle) in 2015 and introduced a fully aged rye whiskey expression (around $50) in February. Vice president and marketing director John Higgins explains that such releases play a critical role in brand building. “They expand the consumer franchise, bringing in newcomers while keeping people in the Jack Daniel’s family,” he says. Jim Beam unveiled a new Double Oak expression ($22) this summer. Even MGP—which primarily makes whiskey for outside brands—has experimented with ultra-premium releases like the 2015 launch of Metze’s Select. “It’s part of our long-term strategy to have a limited portfolio of premium spirits brands,” Griffin says.

Some independently owned Bourbon producers, such as Louisville, Kentucky–based Michter’s Distillery, have built a following by playing entirely in the ultra-premium space. The Michter’s lineup ranges from the flagship US*1 Bourbon, rye, sour mash and American whiskies (all $48 a 750-ml. bottle) to the limited-edition Celebration  blend ($5,000), which will be released this year for the first time since 2013. The company opened its own distillery in Louisville and started barreling whiskey in August 2015. Previously, Michter’s had sourced many of its older whiskies and produced some of its younger whiskies using another Kentucky distillery’s equipment. “We weren’t just buying somebody else’s liquid,” explains Michter’s president Joseph J. Magliocco. “We used our own mash bills and proprietary yeast. It was like a chef who couldn’t afford his own restaurant kitchen yet.” While the whiskey from the new distillery won’t hit the market for a while, Michter’s has already announced plans to double capacity at the facility to a million proof gallons this year.

Allocations And The Backlash

Over the last half-decade, many distilleries have ramped up production and storage capacity dramatically—and the results are now starting to be felt. “Industry players have been able to put away a little more than they immediately need, so we may see inventories increase and some additional older product,” MGP’s Griffin says. As a result, many labels that were tightly allocated—from Wild Turkey 101 rye whiskey to Buffalo Trace—have become somewhat more accessible.

Easing the shortage is a long and gradual process, however. “Allocations are getting better, but there’s still room for improvement,” says BevMo’s Bowden. At Warehouse in New York City, higher-end offerings like Michter’s Sour Mash and Diageo’s Orphan Barrel series have found a receptive audience, but English feels that some producers are pushing limited-edition Bourbons too far. “Not everything can be allocated. With some labels, you get three bottles and have to charge an arm and a leg,” he says. “Spirits buyers are getting tired of one-offs with made-up stories. It just rings false.”

Some cult Bourbons are available in such limited supply that they demand special treatment. The NHLC offers bottles of Pappy Van Winkle via lottery. “That’s the only fair way to do it,” Roy says, noting that the bottles have a standard markup. “Otherwise, one or two customers would scoop up all the product.” Green’s announces when and where rare bottles will go on sale on social media. “We put our everyday markup on them and try to sell them as democratically as possible,” Reddic says. “We sell it all when we get it—no holdbacks and no higher-priced selling. It’s wrong for brands like that to stay in only a few hands.” He adds that George T. Stagg ($83.99 a 750-ml. bottle) is the most sought-after label, followed by Pappy Van Winkle ($79.99 to $299.99) and Elmer T. Lee ($31.99). Shpall of Applejack admits he hasn’t found a method that satisfies everyone. “Customers who spend thousands of dollars a year all want Pappy, and we can’t ever get enough,” he says. “We love getting Pappy and Colonel E.H. Taylor Jr., but they sometimes become a bigger problem than you would imagine.”

Craft producers outside of Kentucky, like Evanston, Illinois–based Few Spirits (founder Paul Hletko pictured), are also making forays into Bourbon.
Craft producers outside of Kentucky, like Evanston, Illinois–based Few Spirits (founder Paul Hletko pictured), are also making forays into Bourbon.

Beyond Bourbon

In truth, the Bourbon boom is something of a misnomer, since the trend also extends to Tennessee whiskey, rye whiskey and flavored whiskey. Many of the new generation of Bourbon drinkers first entered the category through the flavored segment—an area that’s now seeing some tumult. “The flavored Bourbon craze has been interrupted a little bit by Canadian whisky flavors,” says Reddic of Green’s, citing the immense popularity of Fireball and Crown Royal Regal Apple with African-American consumers. At Hy-Vee, Jack Daniel’s Tennessee Fire, Jim Beam Kentucky Fire and Jim Beam Apple are all growing, but Wilson sounds a note of caution. “A flavor here and there is great, but hopefully they won’t overwhelm straight Bourbon, as happened with vodka,” he says. Even some suppliers are cautious. Jack Daniel’s has done well with Tennessee Fire and Tennessee Honey, which appeal to multicultural millennials, but the company intends to keep a tight flavor portfolio. “We’re not looking to come out with the flavor of the month,” Higgins says. “We’ll ensure there’s a consumer need.”

Rye has been on an upswing similar to Bourbon, albeit from a far smaller base. “Rye is growing by about 25 percent a year in the United States,” says Coupar of Campari. “It’s now over a million cases.” Griffin of MGP notes that “as more brands come into the rye market, it leads to greater investment and consumer interest in the category, which helps drive growth.” Wild Turkey has doubled its monthly production of rye. “Demand is very high and supply is low, and those trends inevitably push up prices,” Coupar notes. “But distillers will eventually catch up with demand.” Retailers also note the steadily increasing consumer interest. “Rye is picking up dollar share,” BevMo’s Bowden says. “We’re creating a rye-only section.” At the NHLC, rye whiskey extensions of major brands like Woodford Reserve and Jack Daniel’s lead the category. “There aren’t too many standalone brands out there yet,” Roy says.

Bourbon isn’t limited to Kentucky, and craft distillers around the country are also starting to release mature products. Evanston, Illinois–based Few Spirits offers a range of Bourbon ($50 a 750-ml. bottle) and rye ($60) whiskies, none of which are sourced. Founder and distiller Paul Hletko doesn’t see such offerings as a challenge to the big brands. “I believe we’re all in it together,” he adds. Standing out among the Kentucky Bourbon brands is both a challenge and an opportunity. “The large brands make fantastic quality products,” Hletko says. “We can’t compete on price, so we have to make sure our whiskey hits their quality level and tastes different. Our Bourbon is spicier and less sweet than a lot of Kentucky Bourbon. It doesn’t taste like Kentucky Bourbon because it’s not Kentucky Bourbon.”

Artisanal and regional Bourbons are making major inroads at retail. “There’s real interest,” Applejack’s Shpall says. “Everyone’s trying to find that Bourbon nobody else has found before.” Wilson of Hy-Vee agrees. “We’re doing really well with local craft Bourbons,” he says, noting such offerings attract millennials in particular.

Jim Beam (master distiller and global ambassador Fred Noe pictured) launched a major packaging redesign this summer, its first in decades.
Jim Beam (master distiller and global ambassador Fred Noe pictured) launched a major packaging redesign this summer, its first in decades.

The Future Of Bourbon

Suppliers believe that Bourbon’s growth trend will continue for many years—and most distilleries have made multimillion-dollar investments in new equipment and facilities to position themselves for the future. “We have strong faith in the category’s long-term potential,” says Griffin of MGP, which has invested $20 million in new warehouses over the last year and is aggressively building inventory. Shpall of Applejack says that even increased supply won’t upset the value growth curve. “As these hard-to-get whiskies become more plentiful, with longer aging times, what happens to the pricing?” he says, citing the Scotch whisky category for comparison. “As long as a brand continues to grow, it supports the pricing.” Magliocco of Michter’s projects continued growth, but knows that the future is always uncertain. “In the whiskey business, we have to figure out today what to lay down for years into the future,” he says. “We’re deciding now how much whiskey to put down for our 25-year-old Bourbon and rye. We do the best we can. The only thing I’m confident about is that I’m going to be wrong. I don’t know what I’m going to sell next week, let alone 25 years from now.”