In the late 19th century, a Lithuanian immigrant named Max Shapira walked the roads around the rural town of New Haven, Kentucky. He was a peddler, who wore a pack on his back and sold notions, thimbles and threads to households around the town. Before long, he earned enough money to buy himself a horse and carriage. His trade became a successful enterprise, and he opened a brick-and-mortar store to sell his wares.
Max Shapira had five sons—David, Ed, Gary, George and Mose. When the sons came of age, he sent them forth to open similar stores in the surrounding area. The business grew into a prosperous chain of junior department stores, branded as The Louisville Store and The People’s Store, which thrived even during the Depression. They sold everything from socks and shirts to pickles in a barrel and small farm implements. Eventually the operation would number 18 stores around central Kentucky.
Ed Shapira ran the outlet in Bardstown, then—as now—a center for Kentucky’s whiskey industry. After Prohibition ended, people in town with distilling expertise were looking to get back into the business. One group included members of the Beam family, led by Joseph L. Beam, Jim Beam’s first cousin. They approached the Shapiras to see if they’d be willing to invest in a new distilling venture.
The Shapira family agreed to risk $17,500 on a venture that had no distillery, no brands, no warehouse and no inventory—not exactly a blue chip investment. Nevertheless, on December 13th, 1935, the first barrel was filled at Heaven Hill Distillery, formerly known as Old Heaven Hill Springs Distillery. The name was taken from William Heavenhill, a farmer who previously owned the land. Legend has it that when the distillery permit was filed, the name was typed in as two words instead of one.
With Joseph L. Beam serving as the first master distiller, Heaven Hill initially sold new whiskey to distributors to gain cash flow, and then rolled out a 2-year-old whiskey called Bourbon Falls. But the company’s first flagship brand, Old Heaven Hill Bottled In Bond, required patience. Today the bottled-in-bond designation has seen a resurgence of interest, and in those days it was the Bourbon of choice. There had been so many undrinkable, even dangerous whiskies sold during Prohibition that bottled-in-bond represented a reassurance of quality. Old Heaven Hill Bottled In Bond was a rip-roaring success, and in 1939 became the No.-1 whiskey in the state of Kentucky.
The Shapira family’s partners ran into financial problems unrelated to Heaven Hill, and announced they would be forced either to sell their shares or shut the distillery altogether. Faced with this choice, the Shapiras bought out their partners for another $20,000, gaining full control of the company for a total upfront investment of $37,500. Heaven Hill remains under Shapira ownership to this day.
Growth continued, though not without some bumps along the way. The Second World War intervened, and the U.S. government ordered distillers to make industrial alcohol in support of the war effort. Production boomed again after the war and eventually brought oversupply, but times generally were good. In 1957, Heaven Hill rolled out Evan Williams, which would eventually rise to become its flagship label and establish itself as one of the Bourbon industry’s healthier growth brands through good times and bad.
Entering A Turbulent Era
By the 1970s, trends in the spirits industry had begun to shift, as rival spirits like vodka and rum began to outpace American whiskey and whittle away at its market share. Into this approaching storm walked Max L. Shapira, Ed’s son, who joined Heaven Hill in 1971. Max became the first member of his generation to enter the family business. (His cousin Harry, who was David’s son, would arrive two years later.)
Max was 28, and after getting an MBA at Harvard, had spent five years on Wall Street working on mergers and acquisitions at Morgan Guarantee Trust. “I loved what I was doing—it was an exciting time and I learned a lot,” he says. “Still, the family business was always in the back of my mind. I had grown up in it, and knew what it was all about.”
Indeed, growing up was all about the family business. “I heard about it at breakfast, lunch and dinner—and after dinner too,” Max says. He always worked summer jobs at the distillery, doing various chores like rolling barrels, lifting cases and serving as plant messenger in the days before email. One summer he helped out in the guardhouse, opening the gate for trucks entering the facility. “That was a pretty good job for an 8-year-old, watching those big trucks roll in,” he recalls. “I knew everybody around the plant, and they knew me.”
Max would eventually assume a leadership role for the second generation, a position he continues to hold today. Tasked with learning all aspects of the business, he worked at his father’s elbow—literally—their desks sitting side by side, until Ed’s death in 1982. But it wasn’t a job for an entitled scion. Guiding Heaven Hill through a long period of turmoil in the Bourbon business took much hard work and complex strategy. “Most analysts were consigning American whiskey to that great liquor store in the sky,” says Max. “We became determined to have a branded product in every category where it made sense. We revved up internal development and acquisitions, and built upon the routes to market that we had developed with our distributors.”
Diversification indeed became a necessity. “If we had remained a whiskey-only company, today someone else might own all the brands we’ve created,” argues Andy Shapira, Max’s son and Heaven Hill’s western division sales manager and director of corporate analysis. “Instead, we own a lot of other people’s brands, like Old Fitzgerald, Henry McKenna and many others. Their owners either went out of business or sold them off because they were non-core assets.”
The strategy produced a slow, but steady expansion at a time when most of the spirits industry was contracting. During the 1980s, Heaven Hill’s total volume ranged between 2 and 3 million cases, and the company wasn’t even ranked among the market’s top 10 distillers. By 1995, its volume had climbed to nearly 6 million cases, and in 2005 passed 8 million cases. Growth has since exploded, reaching nearly 14 million cases last year. Heaven Hill is now the nation’s sixth-largest distiller—behind only Diageo, Sazerac, Beam Suntory, Pernod Ricard and Bacardi.
Meanwhile, Heaven Hill’s business spread has changed dramatically. Vodka, once non-existent, today comprises 44 percent of the company’s volume. American whiskey’s share, currently at 26 percent, might be lower than it was years ago, but that share number is somewhat deceiving because the pie has grown so big. Indeed, American whiskey comprises 3.56 million cases of the company’s volume today, compared to 1.96 million cases two decades ago.
Along with an expanded portfolio has come a transformation from spirits supplier to brand builder. In the old days, Heaven Hill often let its distributors measure the market, and would simply make products to meet their needs. “The company grew up in an era when the industry had thousands of distributors, and we were always very loyal to our distributor partners,” says Max’s daughter, Kate Latts, the company’s vice president of marketing. “If they wanted a brand of some sort, it got created.” Max concurs with that assessment. “We’re a different company today,” he says. “That’s the reason why we changed our name from Heaven Hill Distilleries to Heaven Hill Brands in 2014. We’ve become a brand developer, and that’s where we’re going in the future.”
Over the years, the portfolio has blossomed through a combination of acquisitions and organic development. Burnett’s gin, a castoff from the old Seagram company, was acquired in 1989. Two years later, Heaven Hill created Burnett’s vodka ($12 a 750-ml.) and built it into a 3-million-case brand. The company bought Christian Brothers brandy from Diageo in 1999, which was its first million-case brand and bigger than Evan Williams at the time. Heaven Hill acquired Hpnotiq liqueur in 2003, and created Pama pomegranate liqueur in 2005. The company bought Admiral Nelson rum from Luxco in 2011, and the brand is now the U.S. market’s second-largest spiced rum at 855,000 cases. Lunazul, a 100-percent blue agave Tequila ($21) made in a joint venture with Mexico’s Tierra de Agaves, reached 200,000 cases last year. And in 2014, the company acquired Domaine de Canton, a ginger liqueur that’s popular in the mixology community.
Most of the acquisitions have been quiet and conservative, but one high-profile deal was the 2015 addition of Texas vodka brand Deep Eddy. At the time of the purchase, Deep Eddy stood at 700,000 cases. By the end of 2017, its volume had nearly doubled to more than 1.3 million cases. Last year, production was moved to a new facility in Buda, Texas, about 20 miles from Deep Eddy’s original home in Dripping Springs. The state-of-the-art, 194,000-square-foot distillery has three bottling lines and annual capacity of 5 million cases. The old facility in Dripping Springs is now used as a visitor center. “We expect Deep Eddy to be a 2-million-case brand, and hopefully a 3-million-case brand,” Andy says.
While diversification has been crucial to Heaven Hill’s development, American whiskey is still its heart and soul. “It’s part of our original DNA, and carries through today,” Max says. The modern whiskey portfolio is led by three brands: the flagship Evan Williams, Elijah Craig and Larceny.
Evan Williams today sells more than 2 million cases a year and remains one of Bourbon’s greatest values. “On average, Evan Williams ($15 a 750-ml.) is about five and a half years old and 86 proof, and it’s less expensive than Jim Beam White, which is four years old and 80 proof,” notes master distiller and vice president of operations Denny Potter. “We don’t market it that way, but consumers pay attention to that. It’s very good juice at an affordable price.”
Evan Williams traditionally has targeted at-home consumption, with its 1.75-liter size being very popular, but that’s starting to change. The brand is perhaps the best example of how Heaven Hill’s marketing has evolved over the years. As recently as 2000, Evan Williams wasn’t even a consistent product, carrying different proofs and ages in different markets. Today it’s supported by a robust national marketing program centered on sports networks ESPN and FS1, as well as FXX and History Channel. Also important is the Evan Williams Bourbon Experience, a multimillion-dollar immersive tourism destination in a tall townhouse on Louisville’s Whiskey Row. Opened in 2015, the venue celebrates the brand’s legacy with museum displays, an event space, a retail store and an artisanal distillery that produces a few hundred barrels a year. The Evan Williams Bourbon Experience draws 90,000 visitors annually.
The Evan Williams line also includes flavored whiskies, which sell around 250,000 cases a year. “We’re very much traditionalists, but never so much as to say people have to only drink Bourbon and branch water,” Max says. “People should drink Bourbon however they like, and if that means honey-flavored Bourbon, fine.” On a more connoisseurial level is the sought-after Evan Williams Single Barrel vintage, as well as Evan Williams 1783.
The more upscale Elijah Craig ($30 to $200 a 750-ml.) has been in the portfolio since 1986, but the past two years have wrought major change. Traditionally, Elijah Craig was sought-after but quite small, with expansion constrained by insufficient supply. Volume hovered between 20,000 and 40,000 cases. “The marketing department would come up with great ideas for Elijah Craig, but we simply didn’t have the stocks,” Max says. Demand became further strained as the whiskey boom exploded: Elijah Craig took price increases to slow growth, but instead the brand accelerated. “We had two choices,” Kate says. “We could continue raising the price until it went from $30 to $60 and sell less volume, or remove the age statement and not have to keep raising the price.”
In 2016, the company changed Elijah Craig 12-year-old to Elijah Craig Small Batch, dropping the age statement, but retained it for Elijah Craig Barrel Proof 12-year-old and for the 18- and 23-year old expressions. The move coincided with a major packaging upgrade. “We’ve been able to transition stocks to have adequate supply to expand, and we now have a serious, full scale marketing program for Elijah Craig,” Max says. “It will be one of our big brands in the future.”
Indeed, the shift is already noticeable. Volumes jumped from 85,000 cases in 2016 to 105,000 cases last year. And in November, the brand received a further boost when its Elijah Craig Barrel Proof was named “Whisky of the Year” by Whisky Advocate magazine, a sister publication to Market Watch. The award created a surge in demand that’s likely to resonate in 2018 and beyond.
Heaven Hill’s third core Bourbon brand, Larceny ($25 a 750-ml.), is a wheated Bourbon whose taste profile is inspired by Old Fitzgerald. Wheat comprises 20 percent of Larceny’s mash bill—the highest of any Bourbon on the market, according to Potter. With a decidedly millennial-centric image, Larceny launched in limited distribution in 2012. It was in 19 markets by the end of 2017, and by year-end it will be available nationally. As with Evan Williams, the price is approachable, and the focus is on at-home drinking, versatility and mixability. “I believe Larceny could become our next Evan Williams,” Potter says.
Heaven Hill offers numerous other whiskey brands, including the Pikesville and Rittenhouse rye brands, as well as Bernheim Original, a Kentucky straight wheat whiskey, and its annual Parker’s Heritage release. All of the brands and others are featured at the company’s Bourbon Heritage Center in Bardstown, which offers tastings, a gift shop and historical whiskey memorabilia.
Expanding For The Future
With the portfolio showing such strong progress, establishing a runway for long-term growth has been a key priority. This past summer Heaven Hill completed a third expansion phase at its Bernheim distillery in Louisville, raising annual capacity by 34 percent to 400,000 barrels. Bernheim is now a 24/7 operation making 1,300 barrels a day, up from 970 barrels previously. The $25 million project now allows Heaven Hill to proclaim Bernheim as the largest single-site Bourbon distillery in the world. (Jack Daniel’s is larger, though it’s technically a Tennessee whiskey, not a Bourbon.)
Plans for another expansion are already in the works. “Right after the ribbon-cutting ceremony at Bernheim this fall, I walked through the distillery with four engineers, and we were already talking about a fourth expansion,” Potter says. Bernheim sits on a tight footprint, making that task difficult, though not impossible. The company is exploring a variety of options—including construction of a new distillery elsewhere—but no final decisions have been made.
Heaven Hill is also building new warehouses. Today, the company has whiskies aging in 55 warehouses at six different sites, with a 56th unit slated to open this spring. Total capacity is 1.45 million barrel spaces, which currently contain 1.32 million barrels—equal to around 25 percent of the world’s Bourbon supply. Two years ago, the company acquired a 185-acre property in Bardstown, known as the Heaven Hill Bourbon Aging Farm, where more warehouses will be added.
Meanwhile, the bottling lines at company headquarters in Bardstown have been fully modernized. “We were running low on warehouse space, but even lower on bottling space,” says COO Allan Latts. In 2016, Heaven Hill selected Westfalia Technologies to replace 30- and 40-year-old equipment with state-of-the-art technology. As with Bernheim, the Bardstown plant is constrained by its footprint. A modern bottling line requires twice the space of an older one, because today’s equipment is far more complex. The revamped facility has brought major productivity savings while also keeping everything on-site. “This means we can double our business,” Allan says. “We’ll be able to support around 20 million cases.”
The Third Generation
For Max, the transformation of Heaven Hill from a regional whiskey purveyor into a diversified national spirits powerhouse represents a long resumé of achievement in brand-building, deal-making and expansion. But when asked to name his greatest accomplishment, none of those top the list. “The biggest thing I’ve done is get the next generation (daughter Kate Latts, son-in-law Allan Latts and son Andy Shapira) into place,” he says. “They’re very involved and passionate, and that doesn’t happen very often.”
More remarkable still is the fact that their skill sets are so complementary. While Kate focuses on marketing, Andy is involved in sales and overall strategy. Allan, as COO, oversees such areas as finance, production, information technology, human resources, legal and administration. Kate and Allan met while studying at Duke University business school, and later spent five years at Procter & Gamble in brand marketing and finance, respectively, before they joined Heaven Hill in 2001. Andy’s background is similar to his father’s: He came aboard in 2006 after an 11-year career in investment banking.
Allan’s corporate expertise has helped the company reinvent and modernize many of its systems. “We’ve implemented sophisticated reporting and analysis capabilities,” he says. “Previously, decisions were made with more of a gut feel. Today our system controls everything—purchasing, manufacturing, inventory, finance and pricing. With a couple of clicks, we can understand the profitability of any SKU at any customer level over any period of time.” A proprietary database also manages the company’s 1.32 million Bourbon barrels. “We know where every barrel is, and we know everything about every one of them,” Allan says. “Our teams have RFID guns to shoot and read every single barrel.”
When Kate started in 2001, the marketing department consisted of four people, compared to about 40 today. As director of marketing, she has taken the lead in creating targeted consumer marketing for the portfolio. She cites the acquisition of Christian Brothers in 1999 and the purchase of Hpnotiq in 2003 as turning points in that development. Heaven Hill’s marketing offices have been based in Louisville since 2005.
Some assumed Andy would take a financial position at Heaven Hill because of his Wall Street background. But his main role is more on the sales side, in addition to acquisitions and strategy. “I’ve always been more of a sales person,” he says. “I have greater interest in relationships, in getting to know people.” Today, he helps oversee an 80-person Heaven Hill sales force. A separate selling division for Deep Eddy numbers 65 people.
Max says that for him, the secret to attracting the next generation into the business came down to simply not pressuring them into joining. As he tells it, his daughter always wondered why he never asked about her coming into the business, and one day she discussed the idea with her mother, Max’s wife Ellen. “That was by design on my part,” Max says. “The worst thing you can do in a family business is to make it a family responsibility. The next generation has got to want to come in. So I never said a word.” It was a similar scenario with his son, he adds.
It’s also possible that it wouldn’t have happened without a willingness by the family leader to embrace change. “Max has given our generation runway to do things,” Allan says. “He’s been very supportive and open to change. You hear stories of family businesses where the lead generation won’t let go. In Max you see a willingness to change. That’s an amazing trait—and one that’s not all that common with family leaders at other businesses.”
With that lesson in mind, the next generation of Heaven Hill should be well positioned to succeed for many years to come.