Tuesday, January 31, 2017

Updating the list of Scottish distillery owners

Back in October of 2015, a question about the ownership of Glenrothes (both the distillery and the brand) led me to write a post where I compiled a list of all of the malt distilleries in Scotland and who they were owned by. I only included the ones that were currently distilling at that time and had been running for at least three years. A major purchase of three Scottish distilleries in 2016 necessitated an update of the list, which I’ve just done. I’ll take a moment here to detail the backgrounds of the buyer and the seller, as well as the distilleries involved

Billy Walker, a veteran of the Scotch whisky industry since 1971, began his career as a distillery chemist at Inver House (which was owned by Hiram Walker at the time; no relation). By the late 1980’s Mr. Walker had stepped into a management role with Burn Stewart, and was part of a management buy-in in 1988 that gave him a 3% stake in the company. Burn Stewart was established in 1948 as a whisky blending, brokering and export business. During Walker’s tenure there, the company acquired two distilleries; Deanston (1991) and Tobermory (1993).

When Burn Stewart was bought out by CL Financial at the end of 2002, Billy Walker was left with a pile of cash and no job. Rather than retire, he went on to look for his next challenge. Along with two South African funding partners (South Africa was on of Burn Stewart’s major export markets), Walker began the hunt for a distillery to buy. In April of 2004 they purchased the BenRiach distillery, with the new owners forming the BenRiach Distillery Company Limited. The group went on to purchase Glendronach in 2008 and Glenglassaugh in 2013.

BenRiach was established in 1898 in Speyside, a bit south of Elgin. But it closed down after just two years, in the wake of the bursting of the industry bubble of the late 1800’s at the turn of the century. The floor maltings at BenRiach continued to be used though, supplying malt for the nearby and co-owned Longmorn distillery. This was made practical by the new private railroad which had been constructed between the two distilleries.

BenRiach was purchased by Glenlivet in 1965 and completely refurbished before reopening in 1966. It was taken over by Chivas Brothers in 1978 and a second set of stills were added in 1985, but its production was dropped to just three months per year in 1999. When Seagram’s, the parent company of Chivas Brothers, broke apart in 2001, Pernod-Ricard acquired many of their assets, including BenRiach. The distillery was closed entirely in August of 2002.

When Walker’s group took over the distillery in April of 2004 its greatest asset was in the warehouses; a continuous stock of aging whisky dating back to 1966. In September of 2004, five months after the purchase, the distillery was up and running again.

Glendronach was established 1826 in Speyside, just outside of Huntly. The distillery went through a series of owners over the course of its history. It was rebuilt after a fire in 1837, fell silent from 1916 to 1920, had a second set of stills added in 1966-67, and was closed again from 1996 to April of 2001. After being taken over by Pernod-Ricard / Chivas Brothers in 2005, the stills were converted to steam heat, ending Glendronach’s reign as the last distillery in Scotland operating with coal fired stills.

Likely needing to free up some capital for their purchase of Absolut, Pernod-Ricard sold Glendronach on to Billy Walker’s group in 2008. In spite of the five year gap in production, there were still 30,000 casks aging in the warehouses; plenty for the new owners to work with as they rebuilt the brand.

Glenglassaugh was established in 1875, near Scotland’s north coast and just west of the modern boundary that delineates Speyside, making it a Highland distillery. In 1892 it was acquired by the Highland Distillers Company, which was in turn acquired by the Edrington Group in 2001.

The distillery saw long silent periods, which lasted from 1907 to 1931 and from 1936 to 1960. It was renovated during 1959-60 before going back into operation, but the next downturn for the industry caused Glenglassaugh to close down again in 1986. The Scaent Group, a Dutch investment consortium, purchased the distillery 2008 and with a healthy investment, had it reopened by November of that year. In 2012 Scaent sold the distillery to Lumiere, an Amsterdam based private equity group. Glenglassaugh was then purchased by the BenRiach Distillery Company in March of 2013. Walker invested even more in the distillery, with the goal of getting it up to full production as quickly as possible.

Just 26 years of production had been followed by 22 years of closure, and during that time the distillery’s owners had used most of the aging stocks in the warehouses for blended Scotches. By the time of the 2008 sale, there were fewer than 400 casks still in the warehouses. This led to the current situation of the distillery offering rare older bottlings (they have ranged from 28 to 51 years old) at very high prices, as well as younger, non-age stated bottlings created from distillate produced after the reopening.

Then, on June 1st of 2016, the BenRiach Distillery Company (all three distilleries, a bottling plant in Newbridge and the company headquarters in Edinburgh) was purchased by the Louisville, KY based Brown-Forman Corporation.

The roots of Brown-Forman date back to 1870, though the company didn’t take that name until 1890. Its original flagship Bourbon brand, Old Forester, was introduced in 1873. The company acquired its first distillery in 1902, and survived Prohibition by obtaining one of the few licenses to bottle and sell medicinal whiskey during that period. Brown-Forman also purchased Early Times, which was a major Bourbon brand, in 1923.

In 1933 a new distillery and corporate offices were constructed in Louisville. In 1940 the company acquired two more Kentucky distilleries, one in Shively and the other in Versailles. The Shively plant was modernized and expanded in 1955, which led to the Versailles distillery going silent in 1957 and eventually being sold off. Distilling ceased at the Louisville plant in 1979, though that location continued to be used for bottling and warehousing. Brown-Forman also established its own cooperage in 1945.

What ended up being their most significant acquisition, though, was the 1956 purchase of Jack Daniel’s. While Early Times had become the number one Bourbon in the US by 1953, Jack Daniel’s would fuel most of the company’s future growth. Its Lynchburg, TN distillery has been expanded many times, and the brand has grown into the best selling American whiskey in the world.

With the whiskey industry on a downward trend in the 1970’s and 80’s, Brown-Forman diversified through the 1980’s and 1990’s, substantially growing its wine business and acquiring Lenox (makers of fine China, among other things) in 1983.

Then, with annual sales topping $2 billion at the start of the new millennium, the company took a new direction. It began to sell off many of its wine assets and in 2005 announced the sale of Lenox. At the same time, it diversified within the spirits realm, adding vodka, rum and tequila to its portfolio.

Plans for a second cooperage were announced in 2012. In 2015 Brown-Forman purchased Slane Castle Irish Whiskey Limited with the commitment to build a $50 million distillery in Ireland.

Finally, in March of 2016, Brown-Forman had completed the sale of its Southern Comfort (which it had owned since 1979) and Tuaca (a brandy-based Italian liqueur) brands to Sazerac Co. Three months later came the purchase of the BenRiach Distillery Company.

What I found interesting were the prices involved in these acquisitions. Since we’re dealing with a mix of currencies, I’ll convert all of the figures to Pounds Sterling so they are relatable.

Billy Walker and company purchased the BenRiach distillery in 2004 for £5 million. The 2008 sale price of Glendronach wasn’t confirmed anywhere, but I’ve seen speculation / rumor that it was in the neighborhood of £30 million. The 2013 sale price for Glenglassaugh was also not disclosed. But we do know that the distillery sold for £5 million in 2008 and the new owners immediately invested £1 million to get it up and running again. I found one article saying that the distillery was sold to Walker for a “tidy profit”, but I found another where Walker stated that he got a great deal on it as the sale went under the radar and there were no competing bids. Keeping in mind that the distillery had almost no stock of whisky with significant age on it, I’m guessing that it went for between £10 million and £15 million. Let’s say £50 million total for all three distilleries.

I’m sure investments were made in all three of the distilleries after they were purchased. There was also the addition of a bottling plant and a company headquarters. I’ll take a wild guess and say £20 million for all of that, which puts the total at £70 million. The 2016 purchase of the company by Brown-Forman was for £285 million. So, the three founders probably quadrupled the money they had invested over the course of 12 years. It’s pretty amazing what you can do with an underutilized / undervalued distillery if you are good at managing the product, marketing and brand building.

While some people scoffed at the sum paid by Brown-Forman, they had just sold Southern Comfort and Tuaca for the equivalent of £373.4 million. That seems like a really high valuation to me for two brands that are probably past their prime (if Tuaca was going to rise with the tide of the craft cocktail movement I’d think it would have happened by now, and I just don’t see So Co having a Pabst Blue Ribbon-like resurgence). But hey, maybe the folks at Sazerac know something that I don’t.

Tuesday, January 24, 2017

Bernheim Wheat Whiskey vs. Parker's Heritage Collection Wheat Whiskey

stats:
Bernheim; Kentucky straight wheat whiskey, 7 years, 45%, $28
Parker’s Heritage Collection; Kentucky straight wheat whiskey, 13 years, 63.4%, $90

Unexpected circumstances will occasionally prompt me to open a special bottle of whiskey without much forethought. I was in a mood to open something interesting on New Years Eve, but a grueling 10 hour shift at work followed by a few last-call drinks at the local pub resulted in me being down for the count as soon as I hit the couch that night.

When I read about the recent passing of Parker Beam about two weeks ago, I knew it was time to open my bottle of Parker’s Heritage Collection 13 year old Wheat Whiskey. The bottle of Bernheim Wheat Whiskey I wanted to compare it to would also tie in nicely with my last post (more on that later).

The Beam family is as massive as their participation in the Bourbon industry is pervasive. Several branches of the family tree through many generations have been involved with the operation of countless distilleries. I’ll try to simplify the lineage as much as I can for the purpose of this post.

It starts with Johannes Jacob Boehm, a miller and distiller of German descent who had changed his name to Jake Beam. He moved from Pennsylvania to Maryland to Kentucky and was distilling there, alongside his son David (one of 12 children) by 1795. Three of David’s sons (out of 11 children) went into distilling; Jack, Joseph B. and David M. Beam. The latter two brothers each had two prominent distiller sons, all four of whom gave birth to more sons who would go on to work in the industry.

David M. Beam’s two sons were Jim, who the famous brand that we all know today is named for, and Park. After Prohibition, they established the Clermont, KY distillery that still makes Jim Beam Bourbon today, although the company was bought out by one of its original investors after World War II. Park’s two sons, Earl and Carl “Shucks” Beam were distillers at that plant.

Joseph L. Beam, one of Joseph B. Beam’s sons started the Heaven Hill Spring distillery after Prohibition, but he had to sell out early on for financial reasons. He still played an important part in Heaven Hill’s first decade and his son, Harry Beam, was the original master distiller there. When Harry left the company in 1946, he was replaced by Earl Beam (his 3rd cousin, David Beam was the grandfather of both).

Earl’s son, Parker, started working at the distillery in 1960 and took over the master distiller position in 1975. Craig Beam, Parker’s son, started working at Heaven Hill in 1982 and worked his way up through the company, becoming the assistant distiller by the early 2000’s and joining his father as co-master distiller by 2006. Parker Beam still had the title of master distiller emeritus at the time of his passing.

Parker’s most notable achievements were the development of Elijah Craig Small Batch Bourbon in 1986, Evan Williams Single Barrel Bourbon in 1994 and the Parker’s Heritage Collection, a limited annual release of unique, one-off bottlings which began in 2007. Parker was diagnosed with ALS (Lou Gehrig’s disease) in 2010. When he went public with the illness in 2013, he decided to use the Heritage Collection to raise awareness and funds for the cause. The 2013 release was named the Promise of Hope and $20 from each bottle sold was donated to ALS research. Subsequent Parker Heritage Collection releases have donated $5 from each bottle to the Promise of Hope fund.

Jumping back to January of 2000, Parker Beam began distilling a wheat whiskey at Heaven Hill. This was America’s first commercially produced wheat whiskey, which would be introduced as a 90 proof straight whiskey in September of 2005. It bore no age statement, but was obviously about five and a half years old. The mash bill is not often mentioned, but reliable sources state that it is 51% wheat, 37% corn and 12% malted barley.

Wheat whiskey is clearly defined in the Code of Federal Regulations (Title 27, Part 5.22), but it took some digging to figure out when this definition came into being. The Bottled in Bond Act of 1897 defined a new class of whiskey, giving consumers an assurance of quality if it was so labeled. The Pure Food and Drug Act of 1906 brought more rules and regulated what could be called Bourbon. Further clarification was provided by President Taft’s “Decision on Whiskey” in 1909, which specified that Bourbon must be made from a majority of corn. I couldn’t find a copy of that document, but as far as I could tell it did not define wheat whiskey. In 1935 the Federal Government created the Standards of Identity for Distilled Spirits. In addition to a more detailed definition of Bourbon, the SIDS also defined several other styles of whiskey; rye whiskey, wheat whiskey, malt whiskey, rye malt whiskey and corn whiskey.

At that time the definition required wheat whiskey to be distilled to no more than 160 proof, bottled and no less than 80 proof and made from a mash of at least 51% wheat. The requirement for aging in new, charred oak (and possibly the requirement for a barrel entry of no more than 125 proof as well) was added in 1938.

But American whiskey distillers, by tradition, had primarily been making Bourbon and Rye for a very long time. Even with this newly defined style officially spelled out, it would be 65 years before anyone made a wheat whiskey. Heaven Hill’s Bernheim Wheat Whiskey was an interesting new product and got some attention, but never really caught on in a big way. I picked up a bottle of it early on, probably in 2006. I polished that bottle off long ago, so clearly I didn’t dislike it, but it doesn’t stand out in my mind as being overly remarkable.

Then some interesting things happened in 2014. The Parker Heritage Collection bottling that year was a 13 year old, cask strength wheat whiskey, which came from the original batch that was distilled early in 2000. By the end of the year, the packaging for Bernheim Wheat Whiskey had been redesigned and the new label had picked up a seven year age statement. In the midst of whiskey shortages (for certain brands at least), price spikes and age statements dropping like flies, this was quite unusual.

As I said above, this is a product that never really caught on in a big way. If they were consistently selling 20% less than the volume of sales they had projected for, the whiskey would gain two years of age over the course of 10 years. It’s probably been slowly creeping up in age and was likely a six and a half year old by 2009.

I mentioned up top that this post would tie into my previous post, where I discussed the dropping price of the Hudson brand of whiskeys. When I first saw the seven year age-stated Bernheim Wheat Whiskey in a store it was at $28, much less than I had ever seen the NAS bottling for. But a little research showed prices ranging from the mid-$20’s to the lower-$40’s through the past five or six years. When Bernheim debuted in 2005 the suggested retail price was $40. I finally found evidence of an official price drop for this product starting around mid 2010, but apparently it sells so slowly in some markets that there has been a huge disparity in its retail pricing for many years.

Unlike the Hudson Whiskeys, Bernheim Wheat Whiskey was made at a reasonable cost from day one. Its price drop was simply a function of its sales volume failing to live up to expectations for the first five years it was available. The increased age is pretty solid evidence of that fact.

Here in Vermont, a liquor control state where the prices usually reflect what the producer would like the product to sell for, Bernheim is still $42. Of course, we still have the NAS bottling; sometimes it takes forever to move through old stock around here. Hopefully we’ll get the lower priced, age-stated bottles before too long.

Anyway, on to the whiskey; I’m excited to try these. It’s been a long time since I’ve tasted the standard bottling and I’ve been sitting on the PHC bottle for a few years now.



Bernheim
The nose is fairly aromatic, with a dense richness. Some sweetness comes through and there’s plenty of clay-like earthiness. Vanilla-forward oak notes show too. Spice notes are the obvious no-show (as one might expect with no rye in the mix).
The dry earthiness wins out over the sweetness up front. It’s approachable while maintaining some backbone, though a little one-dimensional up front. It does evolve as it progresses, with flavors subtly reminiscent of Jim Beam’s funk and George Dickel’s Flintstone’s vitamins note.
The finish has a slightly warm burn, but it seems to be strictly from the alcohol, rather than that along with a contribution of spice notes.
I like it, but I don’t love it. I can kind of see this as being a good backdrop for a respectable cocktail.




PHC Wheat
The nose shows more depth and a shift in the profile of its aromas compared to the 7 year old, but it’s less volatile than one would expect for the given proof. The clay-like aromas are toned down significantly and the oak is more obvious and mature, with notes of old books and a hint of maple syrup.
It’s quite full bodied and a bit rambunctious on the palate. The sweetness that briefly fights its way to the fore up front quickly gives way to an intense dryness. Warming spice notes take over as it moves through the mid-palate, but in this expression they are primarily oak-driven. More time in cask seems to have effectively diminished the funk-and-Flintstone's notes.
The finish provides a wild ride of fiery spice notes which are exceptionally dry, but there’s enough underlying mature oak character to keep things interesting.
A doubling of the age and a big jump in proof has proven quite transformative for this whiskey. It took me a little while to wrap my head around this one and really get into it; well worth the effort though.




From all accounts Parker Beam was much loved and highly respected throughout the Bourbon industry. I’m grateful to have a glass of some of his finest work with which to acknowledge his passing.

Monday, January 16, 2017

What's on the shelf? - Hudson, Baby Bourbon and Manhattan Rye

You’d be hard pressed to find a whisk(e)y whose price hasn’t gone up in the last 10 years. While some have risen up a little, others have gone up a lot. Many have crept upward incrementally over several years, but some have leapt dramatically overnight. When a whisk(e)y price goes down in the current environment, that’s something which certainly catches my attention.

Scanning the shelves of some of the New Hampshire state liquor stores during the latter months of 2016, I noticed an interesting price disparity. Sitting right next to each other were two bottles of Hudson Manhattan Rye; at $45 was the 375 ml sized bottle that the brand has been known for since its inception, and at $50 was a recently introduced 750 ml sized bottle. They also had both sizes / prices for Hudson Baby Bourbon.


In an ideal world these two bottles of whiskey would not have been sitting on the shelf next to each other, but there is only so much influence that producers can exert in the retail space. When a distiller doubles the size of their whiskey bottles and the price only comes up by 10%, they are clearly serious about selling a lot more whiskey. Let’s take a look at some background and see what’s going on here.

Tuthilltown Spirits was established in 2004, but it was born out of a failed business venture that dated back to 2001. That was when Ralph Erenzo purchased the Tuthilltown Grist Mill property in upstate New York with a vision of turning it into ranch for visiting rock climbers. Three years of legal challenges from neighbors who opposed his plans crushed that dream.

Looking for an alternative business use for the place, he came across some state regulations that could work to his benefit as a distiller. Right-to-farm laws that protected agricultural concerns would beep the pesky neighbors at bay and a new class of state distilling license introduced two years prior meant that the fee to start the business would be $1500 instead of $60,000, as long as he made less than 35,000 gallons of spirit each year.

Erenzo partnered with Brian Lee, an engineer and technical designer, and they spent the next two years building the distillery, figuring out how to distill and experimenting with aging in small barrels. By 2006 they were selling the first bottles of Hudson Baby Bourbon. Eventually three other aged whiskeys joined the lineup; Hudson Single Malt Whiskey, Hudson Four Grain Bourbon and Hudson Manhattan Rye Whiskey.

Tuthilltown Spirits was noteworthy for being the first distillery to open in New York since Prohibition and for being the first producer of Bourbon in the state, ever. The brand caught on in the New York City craft cocktail scene, and they quickly built a small but strong following. Then in 2010 they sold the Hudson Whiskey brand, along with the rights to its distribution, to William Grant & Sons (yes, the one that owns Glenfiddich and Balvenie). Erenzo and Lee still own and operate the distillery.

I did a little digging and found some interesting information about their maturation regime. An article from 2011 stated that the Baby Bourbon was aged for four months in three gallon barrels. A 2014 article noted that the barrel size used for these whiskeys ranges from two to 14 gallons. A comment on a blog post from someone who had visited the distillery in 2014 mentioned that the whiskeys were being aged for about a year.

I do take issue with the fact that the Hudson Whiskeys have carried (and still do) age statements of “aged less than four years”. They may be honest about their short aging times in interviews or on distillery tours, but the label is misleading at best. It’s also illegal. TTB regulations for most American whiskey styles (and certainly the ones made by Hudson) state that they must carry an age statement if they are aged less than four years and that the age shown on the label must be that of the youngest whiskey contained in the bottle. Quite honestly, I’m shocked that the TTB approves labels with such flagrant violations of their rules.

Digressions aside, an article from 2013 stated that the Hudson brand had sold 6500 bottles in 2012 and was on track to sell 60,000 bottles in 2013. While that’s a big increase, it’s still not that much whiskey. Remember, those were 375 ml bottles, which translates into 2500 9-litre cases (the industry standard for measuring sales volume). Just to put that into perspective, Glenfiddich sold 1 million cases in a year for the first time in 2011.

William Grant & Sons obviously would want to grow the brand, increase sales and see a good return on their investment. Aging the whiskey for a longer time in bigger barrels will help them do that.

Smaller barrels have a greater surface area of wood for a given volume of liquid compared to larger barrels, allowing them to age the whiskey much more quickly (many would argue that oak flavors are imparted more quickly, but that maturity can only come with time). But that greater surface area means there will be more loss to evaporation, even when aging times are taken into account. I don’t have exact numbers, but I’ll make some up to give you an idea of what I mean. Let’s say a three gallon barrel requires four months of aging. Its total loss to evaporation might be 40%. If you scale up to a 10 gallon barrel it will have to age for a full year to get the same effect on flavor, but it might only lose 30% of its content.

Since labor is a big part of the cost of a barrel, small ones cost much more, proportionally. A four gallon barrel might be around $75 where a traditional 53 gallon barrel can be had for less than $200. Small barrels will get a new distiller’s product to market more quickly, but their cost effectiveness in the long term is terrible.

Once a producer grows their operation to a certain point, everything gets less expensive. Buying grain by the truckload rather than is 50 lb bags costs a lot less. Buying barrels, bottles, labels, packaging, etc in larger quantities will get you volume price breaks. Shipping rates are going to be much better on all of these items if you can take a whole cargo container of them at once rather than paying to ship one palette at a time. The fixed costs of a distillery’s overhead (property taxes, heating the building, etc) all take a smaller percentage out of the bottom line when you start dealing with bigger sales volumes.

Once they had grown to the point that they could reduce the cost of making the Hudson whiskeys significantly, it was time to drop the price, which would fuel further sales growth. In Tuthilltown’s early years, consumers were much more likely to try the product if it was in a small bottle that didn’t break the bank. With a much lower price, it makes sense to shift to bigger bottles which means twice as much whiskey going out the door with each sale.

It will be interesting to see where they go with barrel size and aging time over the coming years.