PDA

View Full Version : Why all the consolidation?



mythrenegade
03-26-2006, 00:19
I am very puzzled by the bourbon industry. Being a "wine guy" I am used to lots of small wineries producing a great product. I love to go to wine country and visit many of these small independent wineries, taste their wines, buy their wines, and in some cases join their wine clubs.

It seems to me that the bourbon industry consists of a few companies, Heaven Hill, Jim Beam, Buffalo Trace, and Wild Turkey, producing virtually all of the bourbon on the market.

Maker's Mark is the only bourbon that I know of that is it's own company.

What gives? How did this happen and why? Why, for example, is the van winkle family of bourbons now a buffalo trace product. What happened to the old facility, the old employees, etc. Why did it happen? Very curious.

Joel

BourbonJoe
03-26-2006, 04:28
Maker's Mark is the only bourbon that I know of that is it's own company.


Joel

This, too, is owned by Jim Beam and is not it's own company any more.
Joe :usflag:

Gillman
03-26-2006, 04:42
There are many reasons for this consolidation. Whiskey-making unlike wine making is a capital intensive-business. While land is the main investment to make wine, whiskey requires both land, plant, raw materials sourced from elsewhere, sturdy warehouses and most important, time. Wine is sold, even the best of it, young and any aging is done by the consumer. Distillers must age their product and invest money in doing so for years until they see a return. The risks and vagaries associated with this model caused distilleries to combine to create economies of scale and to benefit from national brands.

Also, the federal laws regulating the liquor trade after Prohibition favored large, "transparent" groups which were amenable to regulation and would not cause the type of abuses (including product adulteration) seen before 1920 when the market was divided into an unruly group (as perceived) of distillers (producers, not all of whom aged the product), middlemen (some of whom bought the product young and aged it) and retailers.

All this said, there is a clutch of some 30 or 40 small (micro) distillers in America. Some will probably start to age and sell straight bourbon before long.

It is important to realise that bourbon represents a certain level of industrial sophistication. There is nothing in a winery comparable to a large column still and the correlative level of science needed to ensure a consistent and safe product. Like many other larger industries, the larger producers tend to hold sway because they can keep prices low and undercut the small inefficient producers. Also, the large players can and do diversify (Beam is into luggage for example) to manage better the risk of the cycles in the liquor business. Bourbon today is on the upswing but it wasn't 20 and 30 years ago.

The fact remains that with only about 9 plants operating there is still a large range of bourbon flavours out there. Each plant makes many kinds and some people (merchants or independents) still buy and age young distillate to "produce" bourbon themselves which tends to widen the range of available products.

Gary

bobbyc
03-26-2006, 07:03
This, too, is owned by Jim Beam and is not it's own company any more.
Joe

Makers was owned by Hiriam Walker before Beam bought it, so they haven't been on their "own" for some time.

barturtle
03-26-2006, 08:27
About the only distilleries missing from the list here are: Four Roses(owned by Kirin of Japan), Old Forester and Woodford Reserve.

I went to a lecture given by Fritz Maytag once. He said that navigating the paperwork was a lengthy process, but the ATF was very friendly and helpful. Of course this is coming from a guy who can afford lawyers(and lots of them) to help the process, and also from someone who can afford to sell at a loss if he just wants to run a distillery for fun(at a loss here meaning that he's not trying to recover his startup costs, I think at the scale he's working at the high price of his product probably is break even for his production costs)

Hedmans Brorsa
03-26-2006, 08:52
And yet, everytime you´ve taken a nap, a new single malt distillery seems to have popped up somewhere around the world. With all that competition that already exists, surely this should be even more risky than unleashing a Bourbon distillery?

And all these micro distilleries : they seem to be interested in producing almost anything except Bourbon.

Is Bourbon really on the soar? The answer on my part has to be an inconclusive one.

I applaud the high quality and diversity of the existing producers but as sure as eggs is eggs, if no fresh blood is injected, then, in the long run, this will prove to be detrimental to the industry as a whole. :(

barturtle
03-26-2006, 08:59
The biggest problem with starting a new distillery is the time till first sale, however some of these micro distilleries could be outputting product that can be sold quickly(rum, eau de vie, vodka, gin) while aging some whiskey. Are they? I hope so.

TNbourbon
03-26-2006, 09:33
Heaven Hill, though large in the spirits industry, IS its own company -- not part of a larger corporation. It is owned privately by the Shapira family.
Similarly, Sazerac (which owns Buffalo Trace) is privately-held and majority-owned by a single family, the Goldrings.
Seems to me you can blame Prohibition for much of the diminution in numbers of distilleries. Being shuttered for 14 years simply killed many. It took a lot of money, patience and by-then-stale knowledge to 'reinvent' the industry, so few made the effort. Sure, the number of active distilleries has been winnowed even further since, but the real contraction in numbers is from pre-Prohibition to post-Prohibition.

boone
03-26-2006, 09:48
Is Bourbon really on the soar?

That's a understatement, in my view. I have worked in this industry for nearly 14 years :grin: It's grown in leaps and bounds...

I watched Heaven Hill nearly double it's lines in the short time I've been working there. Now, we are expanding again. We just can't produce enough to satisfy the demand...

Robotics, PLC's...It's evolved into a high tech industry. I learn something every day :grin:

I was at Maker's Mark a few weeks ago. I noticed that they have alot of new equipment in their bottlinghouse. PE executive labeler's were the most prominent. I've watched at least 5 new warehouses go up in Loretto.

Jim Beam, Booker Noe Plant in Lebanon Junction has added alot. Massive 4 story buildings and several warehouses to boot.

I know, there is a list probalby about a mile long for the "growing demad" for Bourbon....but that's just a few...to start :grin:

Yes, Bourbon is booming right now :grin:

50-60+ hour work week gets old really fast...

Bettye Jo

Virus_Of_Life
03-26-2006, 15:41
Seems to me you can blame Prohibition for much of the diminution in numbers of distilleries. Being shuttered for 14 years simply killed many. It took a lot of money, patience and by-then-stale knowledge to 'reinvent' the industry, so few made the effort. Sure, the number of active distilleries has been winnowed even further since, but the real contraction in numbers is from pre-Prohibition to post-Prohibition.

Even our government makes some very large mistakes it seems. This was a biggy in my opinion. I cannot fathom what a dark time that must have been to live through!

bluesbassdad
03-26-2006, 15:51
Christian,

Keep in mind that prohibition was very much a response to grass roots sentiment that had been gaining strength for many years. Government was acting in accordance with the will of the majority.

Just goes to show the truth of the old adage, "Democracy ensures that the people get no better government than they deserve."

Yours truly,
Dave Morefield

cowdery
03-26-2006, 16:50
Although both wine and whiskey are alcoholic beverages, that is about where the similarity ends. A good wine is all about expressing the grape and a good vintage is an expression of a particular year's harvest. Not to take anything away from either the vintners or the distillers, but not for nothing do the best wineries grow and use only their own grapes. That is what their product is all about. With whiskey, on the other hand, the grains used are a commodity, none any better than any other and, in fact, the distilleries buy them from the same silos. Whiskey gains most of its unique character in the barrel, not in the field. This is another difference. While even the best wines spend only a relatively short time in wood, whiskeys spend years, and at least up to a point, the more years the better. These differences lead to whiskey-making being inherently more industrial, while wine-making is inherently more agricultural. The industrial nature of whiskey-making leads quite naturally, at the manufacturing level but especially at the marketing and distribution level, to whiskey-makers being part of companies that make every other kind of distilled spirit. Yes, some of these companies also own wineries and breweries, but they make virtually all of the world's whiskey, whereas there continue to be independent wineries.

Those are the main factors at work, though I think there are some minor ones. I have been told, for example, that outside of California, North American wineries are primarily tourist attractions. Most of their profits come from what visiting tourists spend, not from whatever wholesale/retail distribution they may also have. This is true of many California wineries as well. While some distilleries, both here and in the UK, certainly benefit from tourism that is not their primary business.

As for Prohibition, if it had never happened there might well be more US distilleries, spread over a wider area of the country, but by this time they probably still would not be independent, based on the other forces described above. We might very well see more Heaven Hill-type operations, i.e., US-owned with whiskey as their primary business, but with a strong portfolio in other spirits products as well.

CrispyCritter
03-27-2006, 06:44
Government was acting in accordance with the will of the majority.
Majority, or very loud, very organized minority?

If you don't vote, you're playing into the hands of very well-organized minorities.

As for consolidation, a big factor is that our government is all too happy to look the other way as monopolies are built (or rebuilt, as in the case of AT&T - and Standard Oil is quietly being rebuilt, too). So much for antitrust enforcement!

bluesbassdad
03-27-2006, 14:29
The only majority that matters, as you point out, is among those who show up to vote. All others vote, in effect, "None of the above; do to me what you will; I don't care."



They have such refined and delicate palates
That they can discover no one worthy of their ballots,
And then when someone terrible gets elected!
They say, "There, that’s just what I expected!"

Ogden Nash



In regard to the role of an alleged organized minority, consider the following. Prohibition was enacted in a majority of states before it became the law of the land. One source says that Maine was the first in 1851. In 1911 a referendum in Maine upheld State Prohibition by a vote of 60,853 to 60,095.

According to Wikipedia in 1905 three states had enacted prohibition. The number was nine by 1912 and 26 by 1916.

The passage of the Volstead Act in 1919 can be viewed as the culmination of a nearly seven decade campaign, one that spanned the Civil War.

Such a widespread phenomenon, stretching over so many years, looks like a popular movement to me, and that fact makes it all the more puzzling. Even the actions of pressure groups such as the Anti-Saloon League and the Women's Christian Temperance Union (at a time when the Constitution did not yet guarantee women's right to vote) would have been ineffective had not a majority of voters supported prohibition.

Recall that the Volstead Act, which enacted nation-wide prohibition in the USA, was enabled by amending the Constitution. That process requires approval by the legislatures in 3/4 of the states, a 2/3 majority in both houses of Congress and the President. A very loud, organized minority? I think not.

(When things get dull in this forum somewhere down the road, please consider starting a thread regarding the morality of anti-trust laws.)

Yours truly,
Dave Morefield

Gillman
03-27-2006, 15:04
Clearly this suggests that the majority for a long time supported Prohibition but the majority supports lots of things and that does not make it right necessarily, of course. For many years in Canada, even before the era of rights charters, polls suggested capital punishment should be reinstated. It never was. Today we have, quite properly, theories of minority rights and certain inalienable rights to coin a phrase. Prohibition arguably infringed on the rights of the minority who wanted access to beverage alcohol. So when people say, that is democracy, yes it is (majority rule), but only up to a point should it have free reign.

The case of anti-trust, which I have just read the practical history of in Ron Chernow's magistral biography of John D. Rockefeller, Sr., is a good example of laws sought by a majority which - in part - are political in nature although I would not go so far as to say minority rights are at issue here. Some anti-trust can be defended (eg the rules against most trade conspiracies) on grounds of classical economics: trusts and combines tend to create or reinforce inefficient markets by creating deadweight losses.

But some trade practices, notably the so-called vertical restraints (e.g exclusive dealing, tied selling) are actually pro-competitive in this sense.

Each country decides for itself how to balance pure economics and basic business or social fairness. So eg in Canada we have rules that prevent price discrimination amongst buyers who compete in the same markets (subject to volume purchase discounts). Some people believe these rules really protect the small guy, not the process of competition itself. But that can be a valid political choice. In Europe the rights of the PME sector (small and medium-size enterprise) are actively promoted by its competition policy, at least that of the EU. I see nothing wrong with that within reason.

By the way I never really understood the tremendous amount of money Rockefeller (Sr. and Jr.) gave away. They gave away much of what Sr. earned, billions in today's money. The University of Chicago was founded with ther money, for example. Whatever one thinks of some of his specific misdeeds or supposed misdeeds I could not but feel admiration for the tremendous achievement he pulled off in creating Standard Oil. He was a person of great ability and accomplishment who actually lived fairly modestly most of his life (the big estates and houses set aside). And, he was a devoted Baptist from a very early age. While it sounds contradictory to his stupendous business career, once you read about his background and influences the contradiction is much less pronounced than may first seem the case and in fact in his terms in his day it wasn't a contradiction, arguably. Anyway I liked the book. :)

Gary

mythrenegade
03-28-2006, 21:52
Wow, thanks for the education! I never thought about the fact that prohibition would have killed off a significant number of distillers. Also there was a great summary of how prohibition became law, which was cool. It is important to remember that it seemed like a good idea at the time to many people, but it didn't take long to realize that it wasn't such a great idea afterall...

Still I think that there has to be room for someone to buy one of the old properties being discussed in one of the other threads, dump in some capital to spruce the place up and start working on a super premium bourbon. Surely a small distiller making 9, 12, and 18 year bourbons should be able to command a good enough price, giving proper marketing, to make it work.


Joel

boone
03-29-2006, 13:01
Before prohibition, My grandfather Joseph L. Beam and his first cousin Jim Beam, were partner's in the F.G. Walker Distillery. Jim Beam, was president and Pop was Vice President...

I have a copy of this really cool document :grin: :grin: Signed by both of them...

Pop, had 41 shares, valued at $100.00 each...

All was lost because of Prohibition...

:grin: :grin: :grin: Bettye Jo Boone :grin: :grin: :grin:

:grin: 7th Generation :grin:

:grin: :grin: Jacob Beam :grin: :grin:

bluesbassdad
03-29-2006, 14:00
Bettye Jo,

Which of the Beams restarted the operation after Prohibition? The late Booker Noe spoke of him with great admiration in an interview in Chuck's video. I believe Booker said the gentleman was in his 70's when he took on the daunting task of starting over again from scratch.

Yours truly,
Dave Morefield

boone
03-30-2006, 08:57
Bettye Jo,

Which of the Beams restarted the operation after Prohibition? The late Booker Noe spoke of him with great admiration in an interview in Chuck's video. I believe Booker said the gentleman was in his 70's when he took on the daunting task of starting over again from scratch.

Yours truly,
Dave Morefield

That was "Jim Beam" :grin: During prohibition he moved to Florida to grow citrus, then ran coal mines and a limestone quarry.

After repeal (1933) he founded and built "by hand" his new distillery...in 120 days. He was 70 years old

Musta been a race to get things going back then :grin: They specifically note the time it took to get it in operation...

During prohibition, my great grandfather, Joseph L. along with his son Harry (my grandfather) and another son Otis (with daughter, Katie Lou, in tow) dismantled a entire distillery, moved it to Mexico, and distilled there for awhile...He came back home, ran for Jailer of Nelson County, and won...They said, he had a soft spot for folks who "tended the recipe" back then :grin: ...His second term was unopposed :grin:

I have a picture of my "entire family of Beams" in front of the old Jail House, in Bardstown...located right beside the Talbott Tavern. It's a bed a breakfast now, Jailer's Inn...I believe this picture is a jewel in the history of Bourbon in the early days of distilling in Kentucky. There are 8 Master Distiller's in this picture...all of them in "my immediate family". Pop had seven son's...all of which were distillers throughout Kentucky :grin: :grin: This picture is used as a "back drop" in one of the displays at the "Heaven Hill Bourbon Heritage Center". It's located in the section called the early days...

I posted it here, on these forums quite awhile ago...Somewhere?

My great grandfather, Joseph L. Beam, was one of the original incorporators of Heaven Hill and served as the first Master Distiller.

I went to the courthouse and found the documents of incorporation, signed (July 22, 1935) by four men...One, of which was my Pop :grin:---the others were Gary Shapira, Nolan and Muir. I remember finding that document very well. It was as if I "finally" got to meet this :grin: :grin: "Dean of Distillers" :grin: :grin: <----(quote Pappy VanWinkle) :grin:

He was a lost man for quite awhile...that document was the most satisfying of all my "treasure hunts" :grin:

Note this..."Old Heaven Hill Springs" was built in 5 months. The very first barrel was produced, Friday, December 13, 1935....They didn't let a little superstition get in their way back then :grin:

Bettye Jo

bluesbassdad
03-30-2006, 13:01
Bettye Jo,



I have a picture of my "entire family of Beams" . . .


This one (http://www.straightbourbon.com/ubbthreads/showthread.php?p=8464&highlight=picture+jail#post8464), perhaps?

Yours truly,
Dave Morefield

boone
03-30-2006, 13:19
Yes, Dave that's my picture...it sits on my sideboard with the rest of my bunker :grin:

My grandfather (Harry) is on the far left holding a baby (Aunt Jo)...My grandmother Josephine (Josie) is on the far right she's holding my mother...Mom and Aunt Jo were identical twins :grin: :grin: Aunt Bettye (part of) my namesake is in the "oven" :grin: :grin:

Uncle Everett, C.E. Beam, Master Distiller for Michter's for 40 + years...Most everyone is well aware of his whiskey :grin: Uncle Everett, is the man in the far back row...almost dead center :grin: I always like to put faces with names...The Hirsch label would go hand in hand with his whiskey :grin:


Bettye Jo

BourbonJoe
03-30-2006, 13:42
Bettye Jo,
Did your uncle Everett live in Pennsylvania? Michters surely put out some great whiskey under his watch. Do you still have any relatives in the Schaefferstown, PA. area. If so, I'd like to look 'em up.
Joe

Gillman
03-30-2006, 14:52
Joe, on a different tangent, it sounds like you live near the old Michter's plant. Do you happen to know anyone who worked there? A lot of us are curious here about exactly what types of whiskey were made by Michter's between the mid-1950's and its final closure in the 1990's, how they were made (distillation method, aging time) and under what brand names they were sold.

Gary

BourbonJoe
03-30-2006, 16:39
Gary,
I live 12 miles from the plant but don't know anyone who worked there. One of these days I'll have to go there and snoop around. Maybe I can find someone who worked there. I have a million questions to ask them.
Joe

Gillman
03-30-2006, 17:20
Thanks Joe, I always wonder about these things and have probably similar questions to yours. One thing I have found is, when a local business or other feature of an area goes, before too long, people forget what it was about. Memory erodes and time passes..

Gary

cowdery
04-02-2006, 21:06
Although Bettye Jo generally is not one for understatement, she doesn't give her grandfather quite as much credit as he deserves. Heaven Hill was basically his idea and it never would have happened without him. Also, he and his sons put many other distilleries back into operation after the drought, including Stitzel-Weller, where he 'placed' his brother-in-law, Will McGill.

'Pops' Beam probably was the single most important American whiskey distiller of the 20th century.