Thursday, April 17, 2014

Wild Turkey, Betting the Farm



The gathering at Wild Turkey on Tuesday had two main purposes: to honor Master Distiller Jimmy Russell for his 60 years at the distillery, and to officially open the distillery's new visitors center (pictured above).

Russell's distillery has had many different owners in the past 60 years. For the last five, Gruppo Campari has signed his checks. Tuesday was also the debut of Jean Jacques Dubau ("call me JJ."), the new CEO and President of Campari America. ('JJ' being an attempt to head off the inevitable 'Johnny Jack.')

Campari has invested heavily in Wild Turkey, hundreds of millions of dollars worth, and the place has been transformed probably more than any other distillery in Kentucky over the same five years. Campari has built Wild Turkey a new distillery, bottling house, and now a new visitor's center. It has built several new rackhouses. It has updated the packaging for the entire Wild Turkey line and ramped up production of its bourbon and rye.

In 1954, when Jimmy Russell started at what was then the J. T. S. Brown Distillery, they filled 60 barrels a day and had about 60,000 in storage. These days, Wild Turkey fills 550 barrels a day and has about 500,000 in storage. Those are numbers usually associated with much bigger brands.

Rye production alone has increased by 500 percent since 2009, to 187,000 proof gallons per year.

Dubau said they will have their 20-year plan meeting soon, but mostly they hope to get the next five years right.

At Jimmy Russell’s insistence, the processes haven’t changed with all this growth, they've just been scaled up. For example, Wild Turkey is one of the last bourbon distilleries to make its own yeast. (Most have switched to dry yeast.) Yet even their yeast strain hasn’t been there as long as Russell. It’s just 59 years old.

The sparkling new bottling house will bottle Wild Turkey, of course, but also Campari's Skyy Vodka, a much bigger brand. Skyy is distilled in California but will be shipped to Kentucky for bottling. (Some of it was already being bottled in Kentucky, by Brown-Forman.) Campari has spent money in other places too, such as buying Forty Creek Canadian Whisky. But the investment in physical plant in Kentucky is impressive. The company is gambling big on Wild Turkey’s growth in the U.S. and everywhere else. Should they stumble, they will have a lot of excess whiskey.

But no one is looking at it that way. Both the distillery and bottling house have room to grow inside their respective buildings and there is plenty of empty space on the 800-acre site. Wild Turkey also has rackhouses near the Four Roses Distillery and at Camp Nelson in Jessamine County.
.
Wild Turkey sells a little bit of two-year-old whiskey for its Australian Ready-to-Drink products, but everything else is five-and-a-half years old and older, according to Jimmy and Eddie Russell. (Most Wild Turkey products do not bear age statements.) That means none of the whiskey Campari has made has been sold yet. Whiskey is a cruel business that way, most of the cost is front-end while all of the revenue is back-end, and several years down the road at that. Crazy.

That makes it very expensive to grow, although it just got a little easier. Kentucky Governor Steve Beshear came to the festivities at Wild Turkey straight from a signing ceremony for $14 million in tax relief for Kentucky whiskey.

A note on the new limited edition Diamond Anniversary bourbon, created by Eddie Russell. It is a mixture of 13- and 16-year-old bourbons (and that is on the label). Eddie joked that Jimmy rather famously doesn't like anything older than 12-years-old. "I figured I could get away with 13," said Eddie. He used the 16-year-old to give the whiskey extra spice notes. The result tastes like a 13-year-old but with a little something extra.

The Diamond Anniversary Bourbon goes on sale next month, but only at the distillery. Suggested retail is $124.99. It will be released nationally in September.

If there's any left.

Friday, April 11, 2014

Join the Chuck Cowdery Bourbon Tour Experience, June 11-13



Just about a month ago, we wrapped up the first Chuck Cowdery Bourbon Tour Experience. It was a great success. The feedback from our guests was very enthusiastic. Several said they would like to do it again. The great folks at Mint Julep Tours and I reviewed all the comments and our own notes, made a few tweeks, and are now accepting reservations for the sequel, June 11-13.

The first tour sold out quickly. This one probably will too, as there are only 20 places, so don't wait. To reserve your spot, contact Josh Dugan at 502-583-1433, ext 107, or email him at josh@mintjuleptours.com.

I'll be heartbroken if you aren't there.

Here's how it works. Each morning, we board the bus in Louisville. I'm there the whole time, to tell stories and answer questions. With just 20 people, we all get to know each other. We already have a lot in common, since we're all crazy about bourbon and love to learn about its history and culture.

Since you don't need me to tour distilleries, we mix it up. We hit a few distilleries but some other places as well. We'll visit some authentic Kentucky place each day for lunch, and I'll even take you shopping -- for bourbon, of course. Then it's back to Louisville each day by early evening.

Day one we stay in the Louisville area. Day two we head east, to Frankfort and Versailles (pronounced Ver-SALES, y'all). Day three we head south to Bardstown and Loretto. We pack a lot in but we do it at a comfortable pace. The super-professional folks at Mint Julep Tours make sure we're safe and sound, amply fed and watered, and exactly where we're supposed to be at all times. They're terrific!

One thing that came out of the first tour is that every distillery wants to be included. This allows us to squeeze them a little to do something special for our group. Some, but not all of this, is explained on the itinerary, but we've kept a few surprises.

Whether this will be your first trip to Kentucky or you've been many times, you've never done anything like this. I had a blast doing it and I'm sure you will love it too. So don't wait. Reserve your spot by calling Josh Dugan at 502-583-1433, ext 107, or email him at josh@mintjuleptours.com.

Come on, we'll have fun. I promise.

Thursday, April 10, 2014

Why Kentucky Should Support Its Bourbon Industry


What maple syrup is to Vermont, wine is to California, orange juice is to Florida, and cheese is to Wisconsin, bourbon whiskey is to Kentucky. That makes 'Kentucky Straight Bourbon Whiskey' a valuable brand. Last week, Kentucky lawmakers wisely invested $13 million in that brand. The details aren't important, but you can find some of them here.

A few days ago, Fruit of the Loom announced that it is closing its last factory in Kentucky. Fruit of the Loom, which makes underwear, was once one of Kentucky's largest employers. Using that news as a bridge to talk about why the whiskey business is different may have been ill-considered. It's devastating for families and communities when any employer closes.

The comparison was in no sense meant to suggest that whiskey jobs are in any way more valuable than any other jobs. You can't make a jobs-to-jobs comparison between textiles or any conventional manufacturing and whiskey. Fruit of the Loom at its apogee employed more people than the entire whiskey industry. That was never the point.

This is.

Kentucky has no unique claim to its textiles plants, its auto plants, its appliance plants, nor to most of its other manufacturers. Those industries can and do locate anywhere. Kentucky is glad Toyota is in Kentucky but Toyota could just as easily be in Ohio or Tennessee. Once Kentucky has made its case (taxes, cost-of-living, quality-of-life, location, resources, quality of its workforce, etc.), it becomes a bidding war with other potential locations.

The whiskey business is different. Why? Because 'Kentucky Straight Bourbon Whiskey' is a powerful brand to millions of consumers around the world. Is it well established? Yes. Is it valuable? Absolutely. Can its value be enhanced? Of course.

Louisville Slugger is the world's best known baseball bat brand. Not many years ago, the Louisville Slugger factory was across the river in Indiana. Today it is on Main Street in downtown Louisville. It is open to the public and attracts thousands of visitors a year. You can make baseball bats anywhere. Louisville Slugger proved you can even make Louisville Slugger baseball bats anywhere, but having the Louisville Slugger factory and museum in downtown Louisville has been good for Louisville, good for Kentucky, and good for Louisville Slugger.

Once upon a time, whiskey was made in many states. In some years, Illinois was the biggest producer, not Kentucky. Pennsylvania made a lot of whiskey, so did Ohio and Indiana. Tennessee, of course, still does.

When the American whiskey industry contracted sharply about 40 years ago, it essentially collapsed into Kentucky and Tennessee. The reasons for this are many, and it took Kentucky about 30 years to figure out how to take advantage of it. Now American whiskey is booming and American whiskey tourism is booming too.

Because American whiskey has become so geographically focused on those two states, it makes sense for diversified distilled spirits companies that have a major American whiskey business to locate other facilities there as well, such as bottling plants and distribution centers, research and development, and even headquarters. Recent examples include Jim Beam and Wild Turkey.

It also makes sense for related businesses to locate there, such as cooperages, bottle makers, label printers, etc. Kentucky corn farmers have a robust local customer for their grain and Kentucky dairy farmers have a cheap source of feed for their cows. A robust bourbon tourism industry means jobs in hotels, restaurants, bars, liquor stores, transportation companies, etc.

Whiskey is the gift that keeps on giving.

Micro-distilleries are the latest thing. They tend to be local in nature, but if a new whiskey producer has ambitions to be a national or international contender, isn't it smart to locate where you can make Kentucky bourbon or Tennessee whiskey? And where thousands of people are already coming to visit distilleries?

New producers aren't necessarily micro either. Angel's Envy and Michter's are both building distilleries with capacity of more than one million proof gallons per year. That's maybe one-quarter of what the smallest big guys produce, but it's still a lot of new production. They've both located in Kentucky.

What are the forecasts? That's the most exciting part. If Kentucky and Tennessee can keep this thing going, they can make major inroads into international markets, especially emerging markets in Asia and Africa. The $13 million, like any economic development spending, makes more money available for the producers to invest in new and expanded facilities in Kentucky. No one can say how big Kentucky bourbon can become, but it looks like the potential is huge. Arguably, Kentucky has an even better head start than Tennessee, but they're both way ahead of any other venue.

That advantage isn't a reason to lay back. It's a reason to double down.

Are investments in the whiskey industry a sure thing? Of course not. Are there threats? Of course. That's why industry leaders and state and local lawmakers need to be smart and realistic but also ambitious.

If they are, it's right there for them.

Saturday, April 5, 2014

Indiana Oak Is in Whiskey Barrels, But Not Very Much


This is from the web site of a new micro-distillery in Indiana: "Did you know that a significant portion of the whiskey in the world, both in Kentucky and Scotland, is matured in barrels made from oak trees grown right here in Indiana?"

The accuracy of that statement depends on your definition of the word "significant." Other Indiana distilleries have claimed it as well. Basically, the statement is false. They all seem to be getting their information from someone they believe is a good source, who told one of them that the world's largest barrel maker gets 60 percent of its white oak from Indiana forests, but the source's boss says that isn't so.

"At our mill in Southern Indiana," says Brad Boswell, President of Independent Stave Company (ISC), "we process white oak logs from Indiana, all the bordering states and a few other states. I’m sure the person you talked with assumed Indiana forests were the primary if not the only source of logs for an Indiana mill."

They're not.

The Indiana mill is Blue River Wood Products in Salem, Indiana. Salem is about 40 miles northwest of Louisville. The mill is owned by American Stave Company, a subsidiary of ISC.

For the most part, cooperages neither own white oak timber stands nor log them. The property owners hire loggers to cut the trees and transport them to the nearest stave mill. The stave mill accepts the logs that meet its standards and roughly cuts them into barrel staves and head pieces. The wood is then shipped to one of the company's cooperages. "Unfortunately, we do not publicly disclose details as to which of our mills provide what percentage of raw material to each of our five cooperages," says Boswell. At the cooperage, the oak is air-seasoned for up to two years before being made into barrels.

ISC is based in Missouri, where it has two stave mills and a cooperage. The company has always said that most of the wood for its whiskey barrels is Ozark oak from Missouri and Arkansas. The company's other main cooperage for whiskey barrels is Kentucky Cooperage in Lebanon, Kentucky. The other three cooperages primarily make wine barrels.

The company's fourth stave mill is in Zanesville, Ohio, which is close to Ohio's borders with Pennsylvania and West Virginia. ISC's Log Procurement Division is staffed with 15 buyers who cover more than ten states to supply the four mills with high quality white oak stave logs.

Thursday, April 3, 2014

Fruit of the Loom to Close Last Kentucky Factory


Underwear maker Fruit of the Loom announced today that it is closing its last factory in Kentucky, in Jamestown, at the cost of 600 jobs. The company, which still has its headquarters and a distribution center in Kentucky, is moving the Jamestown operations to Honduras.

In Janet Patton's story about the announcement, the town's state representative is quoted as saying there was no warning, but there kind of was. Twenty-five years ago, Fruit of the Loom was one of the commonwealth's largest employers. Only General Electric was bigger. At the time there were many textile plants in Kentucky. OshKosh B'gosh also had several. Many were located in rural areas in the south-central region.

Fruit of the Loom started to close its plants in 1998. Every couple of years, another one would close. Jamestown went from 3,200 workers in 1990 to 600 today.

The Fruit of the Loom factory at Jamestown was built in 1981, so it lasted 33 years. That's the textile industry. Cutting plants, sewing plants, textiles move all over the world. They're always looking for the optimal balance of skills and wages. They know what skill level each type of plant needs and they go wherever the wages for people with that skill level are lowest. That's why Kentucky got a bunch of those plants 30-40 years ago and why it is losing them today.

This isn't a secret and shouldn't be a surprise.

This story is appearing in this space because of the story we reported on Tuesday. Many people reflexively condemn government 'handouts' to big business, but the purpose of those investments is to preserve existing jobs and tax revenue streams and create new ones. The new tax break for whiskey-makers was one small part of an overall budget bill that passed 91 to 9 in the House and 35 to 3 in the Senate. The Kentucky Senate, it should be noted, is ruled by Republicans while the House is ruled by Democrats, so passing a budget with those kinds of majorities is no small feat.

But let's look at the advantages of Kentucky investing in bourbon versus investing in boxer shorts.

'Made in Kentucky' never did a thing for underwear sales, but millions of consumers all over the world look for the word 'Kentucky' on whiskey labels. Every year, thousands of those millions personally bring their money to Kentucky because they want to experience the place where their whiskey is made. Just like underwear, you can make whiskey anywhere. You can make bourbon anywhere in the United States. But you can only make Kentucky bourbon in Kentucky.

(Pay attention, Tennessee.)

It is hard for many Kentucky legislators to support the whiskey industry because there are so many conservative, anti-alcohol voters in the state. They are to be commended for recognizing that an investment in the whiskey industry is a smart one. This particular change will be very good for the industry, but it merely eliminates a competitive impediment from which the state's whiskey-makers had long suffered, as Kentucky is the only state that taxes the value of aging whiskey. Producers are forced to balance the value of 'Kentucky' on the label against millions in taxes they can avoid just by moving to the next state. The value of that name on the label is proven by how few producers have (well, none), but you can't safely remain higher cost forever.

Just ask the soon-to-be unemployed workers in Jamestown.

Wednesday, April 2, 2014

ADI Announces Its Winners


The American Distilling Institute (ADI) today announced the winners of its 8th Annual Judging of Craft American Spirits. The announcement was made last night at the dinner concluding ADI's annual convention, held this year in Seattle. The American Craft Distillers Association (ACDA) announced its awards last week.

Like ACDA's list, ADI's is never-ending. The concept of 'less is more' apparently does not appeal to America's craft distillers. These would appear to be the key awards, based on being listed first in the press release.

Best of Class - Certified Craft Distilled Spirits™ 

WHISKEY Triple Eight Distillery - The Notch, Nantucket Single Malt Whiskey

GIN Oregon Spirit Distillers - Merrylegs Genever

RUM Cannon Beach Distillery - Donlon Shanks

MOONSHINE Flat Rock Spirits - Stillwrights Key Lime Pie Moonshine

BRANDY Merridale Artisan Distillery - Stair's Pear Brandy

LIQUEUR & OTHER broVo Spirits - broVo Amaro No 1 - John Ueding

VODKA Candella Micro-Distillery - Ytown Vodka

VODKA (Most Neutral) Hendricks Family Distillery - Pür Class Vodka

ADI is eleven years old, ACDA is brand new, but craft distilling itself is still a very young movement. It is growing so fast and changing so fast it must be very hard for distillers and distillery owners to make time to guide their respective trade associations, but some deep thinking may be in order. What do you want your awards program to accomplish? Is your current awards program serving your needs and what you perceive to be the needs of the movement as a whole? Do the people running your association care what you think? And what about consumers? What are they to make of all this?

And what does the trademarked phrase 'Certified Craft Distilled Spirits' mean? Why is it trademarked? Here is what ADI says it means. You might also want to read this. Go here for the complete list of winners.

Congratulations to all the winners and good luck next year.

Tuesday, April 1, 2014

Kentucky Distillers' Associations Applauds Passage of Bourbon Barrel Tax Reinvestment Credit


The Kentucky Distillers’ Association (KDA) announced yesterday that Kentucky lawmakers have passed a state revenue bill that gives relief to ad valorem taxes levied every year on aging bourbon.

House Bill 445 offers distilleries a corporate income tax credit against the amount of barrel taxes paid, and requires distilleries to reinvest that money into their Kentucky operations, said KDA President Eric Gregory. Kentucky is the only place in the world that taxes aging barrels of spirits.

“We are appreciative that the General Assembly recognizes our signature Bourbon industry as a major economic development engine of the Commonwealth,” Gregory said. “This reinvestment tax credit will allow our distilleries to create more jobs and increase investment in the state.

“Plus, it will help us attract more craft distilleries and strengthen Kentucky’s rightful place as the one, true and authentic home for Bourbon and the Kentucky Bourbon Trail experience. We thank the legislature for its hard work and partnership.”

Joe Fraser, Chairman of the KDA’s Board of Directors, said the industry has struggled for decades to find a solution without jeopardizing the local communities that distilleries call home. The KDA first filed this measure in 2010 and has been advocating its passage every year since. Local barrel taxes help support critical needs in education, health care, libraries and public safety, Fraser said. The bill does not impact that key funding; it simply allows a tax credit against barrel taxes paid by the distilleries, which total about $13 million a year.

“Thanks to this new law, distilleries will increase bourbon production to meet the growing global demand, which translates into new jobs, increased revenue for education, additional grain markets for our farm families and more tax revenue for local and state coffers.

“This is a win-win strategy that’s good for business and our local communities and keeps the Commonwealth competitive in the global marketplace,” said Fraser, who is Vice President of Operations at Heaven Hill Distilleries, Inc.

Beginning in tax year 2015, the bill will phase in the ad valorem credit over five years. Leveling the playing field on taxes will allow Kentucky to attract more craft distilleries that are locating elsewhere. Kentucky’s spirits tax rate is third-highest in the country while the state ranks eighth in the number of operating distilleries, according to the KDA.

“Right now, Kentucky produces 95 percent of the world’s Bourbon,” Gregory said. “But as these start-up distilleries grow, that number might slide to 90 percent or lower. Imagine the impact on Kentucky’s economy if we begin to lose our historic monopoly.

“That’s why this bill is one of the most historic and monumental achievements for our legendary industry and it will provide benefits to generations of Kentuckians for years to come.” Gregory thanked the General Assembly for passing two of the group’s other legislative priorities – a new craft distiller’s license with reduced fees and a bill allowing communities to approve the sale of alcohol at state parks. “It’s been a highly successful session,” he said. “We are truly thankful.”

The KDA, a non-profit trade association founded in 1880, is the state’s leading voice on spirits issues. Its 18 members have invested more than $350 million in new facilities, equipment and tourism centers in the last three years alone.

KDA 'heritage' members include Beam Inc. (Jim Beam and Maker’s Mark), Brown-Forman Corp., Diageo North America, Four Roses Distillery, Heaven Hill Distilleries, Inc., and Wild Turkey Distillery. 'Proof' members include Michter’s Distillery. 'Craft distillery' members include Alltech’s Town Branch Distillery, Barrel House Distilling Co., Corsair Artisan Distillery, Kentucky Artisan Distillery, Limestone Branch Distillery, MB Roland Distillery, The Old Pogue Distillery, Silver Trail Distillery, Wilderness Trace Distillery, and The Willett Distillery. 'Educational' members include the Distilled Spirits Epicenter.