Last year, Bourbon sales hit 20 million cases in the United States for the first time in more than three decades. But that achievement represents only an initial phase in Bourbon’s renaissance, the leading players say. “Bourbon is still at less than two-thirds of where it once was,” notes Max Shapira, president and CEO of Heaven Hill Brands. “We’re only on the cusp of where we think it can be, both domestically and internationally.”
There are grounds for such optimism. In 1970, sales stood at 36 million cases in a U.S. market with a population of 205 million, compared to today’s 325 million. Export sales in those days were virtually non-existent. These new demographics, along with the current strong demand for whiskies, have created a bull market in Bourbon country.
Indeed, the story of Bourbon’s collapse in the late 20th century, when vodka took the market by storm, is now a distant memory. From its 36-million-case level in 1970, Bourbon lost nearly two-thirds of its volume before finally bottoming out at 13.3 million cases in 1997. At that point, the United States was no longer much of a whiskey market. The remaining whiskey drinkers were mostly in an older age bracket and were dying off.
Then everything began to change. For a while, the progression was gradual. Bourbon volumes climbed from their nadir to reach 15.5 million cases by 2010. After that, the boom was on. Last year’s 20 million–case milestone represented a growth rate of 31 percent since 2010, a pace unseen in decades. Sales of higher-end Bourbons (above $25) have risen far faster and are up by a remarkable 141 percent since 2010, from 1.85 million cases to 4.45 million cases last year alone.
Standing at the doorstep of the Wild Turkey distillery in Lawrenceburg, Kentucky, master distiller Eddie Russell points to a warehouse across the way. “That warehouse was built in 1993,” he says. “At the time, it was the first one built in Kentucky in over 25 years. Today, I’m getting a new warehouse every year, and there have probably been 30 built in Kentucky over the last seven or eight years.”
Those new warehouses are rapidly being filled to capacity. This year, Kentucky’s Bourbon production is on track to surpass 2 million barrels—more than four times its level of 2000, and beating a previous record of 1.99 million barrels set in 1967. Kentucky now has 6.7 million barrels of Bourbon resting in warehouses throughout the state, compared to 3.4 million barrels in 2000.
Virtually every major Bourbon player has been boosting production as rapidly as possible. Wild Turkey’s owner, Gruppo Campari, was an early mover in the expansion boom. In 2011, Campari made a $50 million investment to more than double Wild Turkey’s output with a new 134,000-square-foot distillery. At the time, it was one of Bourbon country’s largest capital expenditures in years. The new facility can produce 11 million proof gallons annually, up from 5 million proof gallons at the old distillery, which was built in 1869. The first Bourbons from the new distillery started becoming available last year. Since acquiring Wild Turkey in 2009, Campari has invested more than $100 million in the Lawrenceburg distillery.
Beam Suntory, meanwhile, is in the midst of several major expansions. In early 2014, its Maker’s Mark distillery in Loretto, Kentucky, began a $67 million project that added new warehouses as well as a third still, which boosted its capacity by 50 percent. Last November, Beam Suntory also opened a new rackhouse at its Old Grand Dad plant in Frankfort, Kentucky. The seven-story warehouse, which has a footprint of more than 275,000 square feet and holds more than 59,000 barrels, is now the company’s largest in the state. More warehouses are on the way, and the company is boosting Jim Beam’s production by 20 percent, with accompanying increases for small-batch labels Knob Creek, Booker’s, Baker’s and Basil Hayden’s.
Last year, Brown-Forman announced a new $140 million expansion plan at the Jack Daniel’s distillery in Lynchburg, Tennessee, that includes a revamped visitors center, two new barrelhouses, larger bottling operations and other upgrades. That effort follows a $103 million project completed in 2014, which added 14 new 40,000-gallon fermenters and boosted capacity by 20 percent. Meanwhile, Brown-Forman’s $45 million distillery and visitor center for Old Forester on Louisville’s Distillery Row is set for completion next year. The distillery will produce 100,000 cases of Old Forester annually.
Building on the success of its thriving Bulleit brand, Diageo opened a new $115 million distillery in Shelbyville, Kentucky, this past March. The site spans 300 acres and features a 52-foot still and four barrel houses with a capacity of 55,000 barrels each. Since 2010, Bulleit’s sales have risen from 125,000 cases to more than a million cases last year.
In late July, Heaven Hill was completing a third expansion of its Bernheim Distillery in Louisville—a two-year project bringing annual production to around 400,000 barrels for brands including Evan Williams, Elijah Craig, Larceny and Old Fitzgerald. Like other Kentucky distilleries, Bernheim is running 24 hours a day, seven days a week. Heaven Hill also recently acquired a 175-acre parcel of land in Bardstown to be used for new warehouses. The company currently has 54 warehouses, and will add a 55th unit in the fall. Thereafter, it’s expected to add one or two more warehouses annually over the next two or three years. At present, Heaven Hill has more than 1.3 million barrels aging across its facilities, equal to about 25 percent of the world’s supply.
At Sazerac-owned Buffalo Trace Distillery in Frankfort, Kentucky, production is running 24 hours a day, seven days a week, for the first time in its history. This year, Buffalo Trace expects to match an all-time production high set in 1973, and surpass it in 2018. Last year, Buffalo Trace earmarked more than $200 million to repurpose warehouses and relocate its bottling plant to create room for new cookers and fermenters. New warehouses are being built on 200 acres of nearby farmland—the distillery’s first major warehouse build since it opened in 1951. Those units will each hold more than 55,000 barrels and be completed by year-end. Thereafter, Buffalo Trace will build a new warehouse every four months for the next several years, at a cost of about $7 million each.
The New Generation
“This entire phenomenon isn’t very old—it’s only been about eight or ten years,” Russell notes. “Back in 2007 or 2008, there was just a hint of things changing from the 50-and-older gentleman to a younger consumer mainly drinking Bourbon in a bar.” Eddie Russell has been at Wild Turkey since 1981, and his father, master distiller Jimmy Russell, has been working there since 1954. “About 95 percent of what my dad made was sold in a retail store—to older men who simply bought a bottle and went home to drink it,” Russell explains. “What’s growing Bourbon now are young men and women who start out in a bar drinking Manhattans, Old Fashioneds and those types of drinks.”
That on-premise growth has led to exploding interest in upscale Bourbon offerings. Though mainstream Bourbons in the under-$25 segment account for the majority of U.S. sales, the higher end is outpacing the category. Super-premium Bourbons (above $25) rose by 14 percent to 4.45 million cases in the U.S. market last year, according to Impact Databank. “More and more, we see consumers trading up, whether it’s within the portfolio of a brand they already know or they’re seeking to discover something new,” says Greg Hughes, general manager of U.S. marketing for Beam Suntory.
Beam Suntory’s Knob Creek brand is performing well, although small-batch stablemate Basil Hayden’s has emerged as the portfolio’s standout. Basil Hayden’s, which retails at $39.99, was up nearly 27 percent last year to more than 140,000 cases. Beam has also seen rising demand for Booker’s, which retails between $70 and $75, as well as for special releases like 2016’s Knob Creek 2001 Limited Edition.
Brown-Forman continues to soar with Woodford Reserve, which neared 450,000 cases on more than 19-percent growth last year. Bolstered by innovations like its Double Oaked and Rye expressions, Woodford Reserve relaunched its Double Double Oaked expression ($50) as part of its limited edition Distillery Series earlier this year. While Woodford Reserve has long been Brown-Forman’s focus outside Jack Daniel’s, lately Old Forester has been receiving new attention. This past May, Old Forester partnered with Twentieth Century Fox and MARV Films to release Old Forester Statesman, a new Bourbon inspired by the upcoming movie “Kingsman: The Golden Circle.”
Made with the same mashbill as the core Old Forester 1870 Original Batch ($45), Statesman ($55) is a straight Bourbon bottled at 95 proof. At press time, the label was set to become available in August, ahead of the movie’s premiere in September. The total Old Forester brand was up nearly 18 percent last year to 174,000 cases, in the U.S. market. Brown-Forman plans to grow the brand past the 500,000-case mark over the next few years.
Major Bourbon producers are also seeking to spur growth by reviving heritage brands. Campari America recently expanded with its new Whiskey Barons Collection. The lineup includes Bond & Lillard and Old Ripy (both $50), two long-defunct brands that were popular before Prohibition. “We did a lot of research and testing to formulate our own stocks and bring these brands back to life,” says Robin Coupar, global brand ambassador for whiskies at Campari America. “Old Ripy is very close to the style produced before Prohibition, while Bond & Lillard has a much lighter, more delicate taste.”
Taking a similar tack, Diageo has relaunched heritage Bourbon brand I.W. Harper in recent years, offering 4-year-old and 15-year-old variants retailing from $35 to $75. And in January, Stoli USA acquired the rights to Kentucky Owl Bourbon, a mothballed label that was revived in 2008. Both brands trade heavily on pre-Prohibition nostalgia.
Allocations, Pricing And Demand
Despite massive efforts to ramp up production, Bourbon inventories remain tight. For many brands, allocations will continue for at least the next several years. Buffalo Trace has an allocation system whereby each state gets a monthly supply—which means that some larger states don’t get as much as they’d like. “If we could get more Buffalo Trace, we could sell more,” says David Jabour, president of Austin, Texas–based Twin Liquors, which operates more than 80 stores across Texas. “The brand clearly has more opportunity to grow. Supply just needs to catch up with demand.” Despite being allocated, Buffalo Trace was still up 17 percent to 160,000 cases last year, according to Impact Databank.
Those issues also hold true for Buffalo Trace’s other labels such as Eagle Rare, W.L. Weller and Blanton’s. All will see moderate growth over the coming years, their pace restrained by supply limits. “We’ve steadily increased production over the years, but demand continues to outpace supply,” notes Buffalo Trace senior marketing director Kris Comstock. “Growth will be modest over the next few years, dictated by the number of barrels filled years ago. Most volume will be sold in the United States, where demand continues to rise.”
While torrid demand might be considered a nice problem, producers have been devoting huge effort to managing their inventories. Heaven Hill, for example, has sometimes raised prices in an effort to slow volume growth, but has seen the opposite result instead. “We’ve increased prices, and the volume grows even more—the elasticity is backwards,” notes Heaven Hill chief operating officer Allan Latts. “We’ve also had to rationalize some brands, because it made more sense to keep whiskey for more important labels.”
Like other whisk(e)y players, Heaven Hill has had to remove some age statements. Last year, the company took the age statement off its Elijah Craig 12-year-old Small Batch Bourbon label. The new non-age-statement Elijah Craig is comprised of 8- to 12-year-old barrels, and pricing remains unchanged. The 12-year-old barrel proof, as well as 18- and 21-year-old age statement Elijah Craig expressions, remain on the market, if in tight supply. The move was accompanied by a major packaging redesign, as Elijah Craig’s new bottles are taller, with cleaner lines and “1789,” the year the Reverend Elijah Craig founded his distillery, embossed on the glass. “With the change, we hope that Elijah Craig will be amongst the largest Bourbon brands in our portfolio—that it will be a flagship, amazing, very large volume brand,” adds Latts.
As Latts notes, the surge in upward pricing is meeting little resistance. “People are definitely willing to move up,” says Mat Dinsmore, general manager at Fort Collins, Colorado–based Wilbur’s Total Beverage, citing strong demand for high-end offerings like Buffalo Trace’s Antique Collection and Heaven Hill’s Parker’s Heritage series. “They’re no longer afraid to spend even $100 or more on a bottle of Bourbon.” Wild Turkey’s Russell agrees. “Back in 2008, our brand manager told me we’d never be able to sell a brand for over $100 or even one for $50,” Russell says. “Now, the $50 Bourbons are the ones you can’t keep on the shelf.”
But retailers caution that the product still must deliver. “At $50 to $75, you have to step it up,” notes Gary Fisch, founder, owner and president of four-unit New Jersey retailer Gary’s Wine & Marketplace. “We’ve tasted through some spectacular Bourbons that are more expensive, and whether it’s a mashbill that’s slightly different, or there’s a little more aging done, the producers aren’t resting on their laurels. They know that in order to continue growing, they have to be better than the competition.”
Despite rising prices, Bourbon still offers some of the whisk(e)y world’s better bargains. Eddie Russell cites Russell’s Reserve as an example. “That’s a 10-year-old Bourbon, retailing at $35 to $40. There are two-year-old craft Bourbons out there for $70 to $80 a 375-ml.,” he says. Indeed, most 10-year-old single malt Scotch whiskies, such as Ardbeg, Glenmorangie and others, retail for at least $10 more.
Smaller Players Rising
The craft distilling movement also has become intertwined with the Bourbon renaissance. “Ten years ago, Kentucky only had about six distilleries in the entire state,” says Eric Gregory, president of the Kentucky Distillers’ Association (KDA). “Today we have 52 distilleries from 39 different companies, and many more are on the way.” Nearly all of those new arrivals are craft players.
So far, most retailers like what they see. “When it comes to traditional Bourbon brands and craft brands, we want to have as many as possible and see how everything plays out,” says Brett Pontoni, spirits buyer for Chicago-based retail giant Binny’s Beverage Depot. “In terms of shelf space, we’re now about 50-50 craft versus mainstream. In terms of sales, it’s still 80-percent traditional brands. But a year ago that sales ratio was 90-percent traditional and 10-percent craft, so the craft increase has been dramatic.”
Craft player Bardstown Bourbon Co. arguably has the most interesting business model in the Bourbon category. The company’s strategy is based on its “Collaborative Distilling Program,” which creates customized whiskies for craft distillers and brand owners. Led by entrepreneur David Mandell and former Maker’s Mark master distiller Steve Nally, Bardstown contract-distills some 85 percent of its total output. Production at its $25 million distillery began last September, and the company plans to expand capacity from 1.5 million proof gallons (roughly 750,000 nine-liter cases) to 6 million proof gallons (3 million cases). Last year, Bardstown took on Constellation Brands as a minority shareholder.
Other new distilleries are also ramping up. This summer, the James Pepper Distilling Co. received a federal permit for its new distillery in downtown Lexington, Kentucky. Production will start this fall, with an initial capacity of just over 42,000 proof gallons, with long-range plans to reach 260,000 proof gallons. The James E. Pepper range includes 1776 rye, 1776 Bourbon, a barrel-proof rye and a Sherry cask–finished rye. While the original James E. Pepper distillery was built in 1869 and mothballed in 1958, entrepreneur Amir Peay relaunched the brand in 2008. The distillery is located on a 25-acre site that will house a museum, a brewery, restaurants, and other amenities. Castle & Key, a modern distillery built on the restored site of the ruined Old Taylor distillery, also began making whiskey recently and is expected to open to the public in the near future, offering a wide array of guest activities including historical and botanical tours.
Of course, Bourbon isn’t a Kentucky-only phenomenon, and non-Kentucky players are enjoying big success. Utah–based High West Distillery was acquired by Constellation Brands last October for around $160 million. The brand—which made its name as a non-distiller producer—is known for Rendezvous rye, Double rye, American Prairie Bourbon and Campfire, a Bourbon, rye and peated Scotch blend ($34.99 to $64.99). High West’s volume surged from 35,000 cases in 2014 to around 70,000 cases last year. For 2017, the brand projects sales of 95,000 to 100,000 cases.
Evanston, Illinois–based FEW Spirits has been on a similar upswing, thanks to the popularity of its Bourbon, single malt and rye. Founded by Paul Hletko in 2011, FEW has since forged an equity partnership with Samson & Surrey, a craft spirits–focused investment firm led by former Bacardi executives Robert Furniss-Roe and Juan Rovira. Meanwhile, Cedar Ridge Distillery, located in Swisher, Iowa, claims to be the state’s oldest and largest whiskey producer. The Cedar Ridge portfolio includes an Iowa Bourbon, Reserve Bourbon and Malted Rye Whiskey, among other offerings.
Thanks to Bourbon’s bull run, Kentucky is in the midst of a massive tourism boom. The KDA’s Kentucky Bourbon Trail includes distillery stops at Jim Beam, Heaven Hill, Wild Turkey and Four Roses, to a name a few. Its craft offshoot, the Kentucky Bourbon Trail Craft Tour, has also been popular. Jim Beam and various smaller players like Angel’s Envy have opened cocktail bars as part of the visitor experience. In addition, downtown Louisville’s historic Whiskey Row has been reborn. The Evan Williams Bourbon Experience was an early mover in the district, opening in 2013. In addition to Old Forester’s distillery and visitors center project, other distillers open or planning to open on Whiskey Row include Michter’s, Kentucky Peerless and Barrell Bourbon.
Last year, the Kentucky Bourbon Trail recorded one million visitor stops for the first time since its founding in 1999. “The average Kentucky Bourbon Trail visitor is from a very high-end demographic,” Gregory explains, citing a median household income between $75,000 and $100,000. “In terms of age, 70 percent are between 25 and 54 years old, mostly trending younger. The out-of-state group spends an average of between $400 and $1,200 during their trip. So it’s a young demographic with disposable income, which is advancing Kentucky tourism at a rate we never expected.”
Gregory projects that Kentucky Bourbon Trail attendance is on track to grow another 15 percent to 20 percent this year, indicating that Bourbon’s tourism potential, and the category’s overall performance, still has plenty of upside. “Everybody asks us when the bubble will burst, but we’re in it for the long haul,” he adds. “We’ve only just scratched the surface in terms of Kentucky Bourbon’s potential.”