Monday, December 9, 2013

It Was The Best Of Times, It Was The Worst Of Times


If these are the best of times for the American whiskey industry, the 1980s were the worst. The business of making and selling whiskey in the United States had hit rock bottom. The business had lost half of its sales volume and although sales had more-or-less stabilized (they were, in fact, still declining but at a much slower rate) there seemed to be no revival on the horizon. Because they believed the decline would be temporary, producers kept producing far too long and the industry was drowning in whiskey that fewer and fewer people wanted.

With sales down and inventories too high, profits were under intense pressure and whiskey assets were changing hands faster than a hot potato.

Most of the large producers were no longer independent. Instead they were part of conglomerates. In those days, unlike now, diversified conglomerates were all the rage. Spirits producers shared a corporate household with all kinds of unrelated businesses.

Back then, F. Ross Johnson was the powerful CEO of Nabisco. He was played by James Garner in the movie "Barbarians at the Gate" (1993). Nabisco had a subsidiary called Standard Brands that included Fleischmann's Distilling. Ferdie Falk was the CEO of Fleischmann's and Bob Baranaskas was president.

In 1983, Johnson decided to sell Standard Brands to Grand Metropolitan. A few years later, Grand Metropolitan merged with Guinness to form Diageo.

Grand Metropolitan already had a thriving drinks business that included J&B Scotch and Smirnoff Vodka. Assuming they would be replaced after the sale, Falk and Baranaskas resigned and decided to start their own company. Falk was previously an executive with Schenley, so he approached Meshulam Riklis, whose conglomerate owned Schenley, about selling some assets. Riklis always needed money so he agreed to sell Falk and Baranaskas the Ancient Age bourbon brand and the distillery that produced it, then called the Albert B. Blanton Distillery, today's Buffalo Trace.

Falk and Baranaskas called their new company Age International. As the name suggests, they believed bourbon's future was outside the U.S. One of their first moves was the creation of Blanton's Single Barrel Bourbon. Done at the behest of their Japanese customers, they released it in the U.S. as well.

In 1991, Falk and Baranaskas sold a 22.5% interest in Age International to Japan’s Takara Shuzo, with right of first refusal to purchase the remaining shares. In 1992, Falk and Baranaskas sold their shares to Takara for $20 million. Takara immediately sold the distillery to Sazerac, but retained the corporate entity and brand trademarks.

Today, Sazerac still owns Buffalo Trace and Buffalo Trace still produces all of the whiskey for Ancient Age, Blanton's, and the other Age International brands, using a special mash bill. Buffalo Trace distributes the Age International products inside the U.S. Buffalo Trace also makes its own bourbons and other products, using a different mash bill.

Sazerac and Age International have an unusual relationship, but it has worked for both of them for now more than 20 years. It was born at a low point for the American whiskey business. This little story shows how easily things could have been very different.

26 comments:

Josh Feldman said...

Thanks so much for explaining this mysterious little corner of the Bourbon business to me. I encountered Takara Shuzo when researching Rock Hill Farms, which is one of the Age International brands. I couldn't understand the relationship. Now, as a prior production arrangement connected with an unbundling of corporate assets, it makes sense.

EllenJ said...

And when one of the future owners of Seagrams/LDI/Angostura/MGP/whatever decides that it would be profitable to release brands of its own, it's going to be VERY interesting to see just how different they can become again.

Tony said...

How important was overseas sales of bourbon and whiskey to the survival of the industry?

Chuck Cowdery said...

Non-U.S. sales were crucial to getting the industry going again.

Chuck Cowdery said...

And they continue to be extremely important.

Eric said...

I'm repeating a bit from Chuck's book on AH Hirsch but the Japanese fell in love with well-aged bourbon (15+ years) and became a big consumer of it. Essentially Japan and other Asian countries became a dumping ground for glut bourbon. Which wasn't a bad thing at all if you lived or live in those countries.

Stacy Thomas said...

Didn't Riklis have a bimbo wife whose showbiz career he promoted at lavish expense? Might have been a factor in his cash flow requirements.

Anonymous said...

Wonderful reporting of an interesting and esoteric bit of whiskey history Chuck.

Pat in OKC said...

reply to Stacy:

That would be Pia Zidora. I was an auditor on the Rapid American audit engagement back in the early to mid-80s, when Schenley moved its headquarters to Dallas from NYC. Got a good exposure to the business. should have stuck with it. ha.

Anonymous said...

So does Age International own the #2 mashbill, or can Buffalo Trace make their own products with it?

Chuck Cowdery said...

"Owns" may not be the right word. However, all of the bourbon brands Age owns are made with that mashbill, and none of the bourbon brands Sazerac owns are. So, presumably, the mashbill and whatever goes with it (e.g., yeast) are for Age's exclusive use.

Anonymous said...

That's really what I was getting at I guess. Does that exclusivity preclude a #2 Mashbill BTAC bottling at some point? I'd dearly love to see a 17+ yo Blanton's.

Chuck Cowdery said...

Anything is possible, but it's up to Age, not Saz.

Brock said...

Chuck, great info! Would I be correct to assume mash bill #2 has remained the same for AI brands before and after Sazerac production? Trying to get to the bottom of some questions about AI AAA10. Thanks in advance.

Chuck Cowdery said...

As far as I know, mashbill #2 is the same as it always was.

Brock said...

Thanks!

Anonymous said...

The title of this article caught my eye as I was looking into Schenley's sale of this distillery in 1982-1983. My interest is personal. The pending sale eventually led to a cut in salaried positions by about 50%. I thought the new owners were responsible but the lay off was in 1982. The depressed market must have contributed to the absence of similar jobs, much to my dismay. Thank you for setting my record straight.

Chris Falk said...

My father was always thinking into the future. He was an amazing businessman with street smarts that propelled him to one of the best in the liquor industry. Our family purchased the Ancient Age brand from Schenley in 1982. It is true that my father worked for Ross Johnson at Nabisco Brands where he ran the liquor division ( Fleishman's Distilling Co & also created All Brands which began the import beer craze in the states with brands such as Moosehead, Foster's Lager and others.) Both he and Robert Baranaskas along with a handful of private investors approached the Riklis family originally with interest in acquiring Old Charter bourbon. Riklis was not interested in selling Charter but did offer the Ancient Age brand & distillery in Frankfort, Ky. My father was a hands on people person & made himself available to all of the employees in both Frankfort & New York. His employees appreciated his honesty & availability if needed. Each year he held a softball tournament and picnic at the distillery for the employees and their families. He created Blanton's after learning of the process from Elmer Lee who was our master distiller. In Elmer's honor, Elmer T Lee bourbon was created as well as others such as Rock Hill Farms Bourbon. His vision for products was incredible as he imported brands into the US such as Nocello & handled the original distribution for Patron. Unfortunately those brands were brought in just prior to selling the Age International company. This was in 1992. My father continued to dabble in the industry but eventually retired and turned to building a successful real estate business in Louisiana & Florida. We lost him in 2000 to cancer and he was responsible for bringing interest back to the bourbon category in the US. While we had a strong business in Japan he always believed that bourbon would make a resurgence one day in the states. He would be amazed today to see the vast amount of brands and growth in the super premium bourbon category. Blanton's was the original super premium brand and I remember watching him draw the packaging idea on a napkin back in 1983.

Chuck Cowdery said...

Thanks for sharing that, Chris. Your dad was one of the best. They don't make them like that anymore. I wish I'd known him.

Unknown said...

Nabisco sold the liquor company Fleischmann Distilling to Whitbread a British beer company. They had a deal originally to sell it to Falk and Baranaskas but that deal collapsed for reasons unknown to me or any of the other former Fleischmann employees. Whitbread owned us for 5 years before abruptly selling the company to Medley Distilling. Years latter it was learned that Whitbread who besides brewing beer was also big in the hospitality industry. They sold off their brewing operations to InBev and now are strictly a hospitality company.

ImNotDrunk said...

Thanks Chuck, that unearths a lot of the biz connections at that time. Here's the contention I always made: the business considerations drove the flavor profile, particularly during the dark years. What're your thoughts on that?

Chuck Cowdery said...

True to an extent in that business considerations always drive the flavor profile. What the consumer wants, the consumer gets, and tastes change. Blanton's was created to appeal to the tastes of Japanese consumers specifically.

Markcombs said...

Been a fan of Blanton’s for about 8 years and found this bit of history very interesting. I came across a bottle of Rock Hill Farms about 3 years ago and loved it. It didn’t last long on my shelf and I haven’t been able to find it since. I thought it was one of the best I’ve tasted. Is it no longer available?

Chuck Cowdery said...

Rock Hill Farms bourbon is still made but not widely distributed.

Alwin said...

Just wondering, now Blanton's has gained such a popularity in the US,would it be likely more and more will be released in the US, instead of in Europe, Japan etc?
Normally this would be a no-brainer, as supply goes where demand is. But I can imagine the other Sazerac brands not be to happy about an influx of this popular brand that is in fact owned by a foreign company. Also storage in warehouse H is very limited, to around 16.000 barrels...

Chuck Cowdery said...

What Sazerac wants or does not want has very little to do with it. Everything about Blanton's is controlled by Age International, not Sazerac. If Age wants more, Sazerac will be happy to make it for them, as much as they want. It has no effect on Sazerac's own products.