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The posts in this thread have identified most of the relevant factors. Here's another: stability. You don't want to be constantly raising and lowering prices, like a commodity, or making lots of changes to the product itself, because the consumer wants stability. They want a consistent product at a stable price. You need to respond to market forces, of course, but as much as possible without sacrificing consistency of product, message, and price.
I think I won with regard to identifying the problem with MM - distribution logistics. Didn't they say as much?
What about simple allocation? I.e. you honor all existing contracts and for uncontracted sales, you allocate amongst the customers as fairly as possible, e.g. regionally in proportion to the full market, and perhaps (although I'm not sure here) favoring the domestic market since it is the oldest and least likely to change with the trends.
This way, while not maximizing profits short-term that commercial logic would normally justify by raising price, people will feel fairly treated and retain brand loyalty when the supply can be increased. Whereas if you raise prices, that will put some people off and they may not return later. Or even if they would return, higher prices may leave some product on the shelves for too long, i.e., couldn't price increasing backfire? I'm no economist but this seems logical to me, given too we are dealing with products in which there is a certain emotional investment i.e. relatively high brand loyalty, but also a point at which people will switch, elasticity I think they call it.
Gary
Elasticity in pricing, aye, there's the rub, whisky may be the water of life but high tone whiskys command a premium and brand loyalty stretches thin if a customer starts to believe they're no longer getting their money's worth.
I feel like this question depends on the million dollar whiskey industry question: are we in a price bubble of some kind, or are increased demand and correspondingly increased prices here to stay?
If the latter, then definitely increased production would benefit customer and distiller alike - especially for the low and mid shelf brands. If the former, then I can hardly blame all of these big distilleries for getting it while the getting is good (raising prices, degrading quality via lowered age or proof, etc.).
Overall, if I could pick my poison, I too would come down on the side of cyclic shortages. But really, anything other than increasing production (except for a bubble pop) is not a solution.
I think we're going to see, over the long haul, continuous pressure on supply resulting in steadily rising prices. However, so much of the growth is export-dependent, which can be unpredictible, that we also will see periodic blips of excess supply, which result in short-term bargains. This is a pattern we're already seeing and I believe it will continue. Also possible is a bust in one of the major projected export markets, such as India or China, resulting in a price collapse, but the odds of this happening appear to be small.
Perhaps sequestration can start a worldwide recession. Prices drop and the juice tastes better since we're all depressed.Quote:
Originally Posted by cowdery
Problem is that distilleries can't (legally) ditate the end prices consumers pay. Even if they charge distributors the same price per case as before, those distributors have an incentive to raise the price they sell each case to liquor stores for.Quote:
Originally Posted by Gillman
For example, say a case costs distributors $100 and they typically sell a single case to each of their 10 customers for $150. If all of a sudden that distributor can only get 5 cases, even if still purchased at just $100, they have a big incentive to raise the price to determine which 5 of their 10 customers is the most "serious about" or "committed to" the product. Some of those customers will likely pay $200/case, others maybe even $300. But the mom and pop store who only carries a product because one or two customers asks for it would probably drop out pretty quick. So the distributor, seeing the potential profit opportunity, will raise prices on their customers, which trickles down to the end price we pay. A profit-maximizing distributor will try and figure out the what the maximum price the (soon to be) 5th highest paying customer will bear, then price each case at that price.
Price elasticity from a consumers perspective plays a part (as that informs the liquor store as to what the maximum price per case they can afford is), but the real price increase would come from the main distributor or first "middle man" to touch the product.
I believe in some states there is no extra layer between the liquor store and the producer, in which case the liquor store will raise prices, following a similar thought process.
By the way, products that can bear large price increases are said to have "inelastic" demand (think insulin, AIDS drugs, or other life saving medicines/necessities), where those that have lots of substitutes (and thus price increases really impact demand) have "elastic" demand.
The demand for certain brands may be inelastic to many on these boards but, as prices go up in the bourbon market, I would predict the general public will quickly find their demand to be relatively elastic. At least for those who buy bottles on a regular basis.
Also, I did some posting/research here a while back on new distilleries in KY. While doing that, I also saw a (relatively) new distillery in SC that focused on using technology to "refine" spirits. One of the benefits was said to be rapid 'aging' of bourbon. I remember looking them up briefly and hearing good things, but you never know what to believe without sampling for yourself! Company was called Terrassentia.
People pushing rapid aging schemes are either fools or crooks. Pay them no mind.
All 50 states have a 3-tier system, i.e., a layer between the producer and the retailer.
Your point, I think, though you never quite get there, is if the market will support a higher price on something and the producer doesn't take it, those further down the chain (distributor, retailer) surely will.