Small-Batch Bourbon Article in Dow Jones

[mrviognier]

By Melissa Korn

Some of the world's major drinks makers are betting big on small-batch bourbon.

The companies, including Brown-Forman Corp., Fortune Brands Inc.and Diageo PLC are capitalizing on a renewed interest in classic cocktails, helped by the likes of AMC's "Mad Men," and increasing demand for flavored spirits. Though the artisan drinks don't sell in large numbers -- after all, they're only produced in small batches -- their high price points are giving the companies a solid earnings boost.

For example, Fortune's Knob Creek bourbon sells just 200,000 cases to wholesalers annually, compared with its Jim Beam sales of nearly six million. But Knob Creek retails for about double its mainstream sibling. Some of Beam's other small-batch brands, such as Baker's, are priced even higher.

Brown-Forman sees a similarly outsized contribution from its small, high-priced bourbon. Its Woodford Reserve brand sold 160,000 cases in 2010, which pales next to Jack Daniel's Tennessee whiskey sales of nearly 10 million cases. A 750ml bottle of Woodford retails at $32.99, while Jack Daniels' suggested price is $21.99.

But adding in Gentleman Jack's 334,000 cases -- retailing at $29.99 per bottle -- and 108,000 cases from the Jack Daniel's single barrel varietal at $44.99 per bottle, spokesman Phil Lynch said, "it provides a very nice profit stream to the company."

Lynch declined to provide specific revenue figures, but noted that sales of Woodford Reserve have increased by double digits every year since its 1996 introduction.

The recent uptick in interest is also due in part to clever marketing, as companies highlight the products' rich heritage and distilling process. The "nouveau speakeasy craze," with old-fashioned underground bars popping up across the country, doesn't hurt either, said Charles Cowdery, author of the whiskey history "Bourbon, Straight." With 20-somethings gaining a taste for Sidecars and Manhattans, Cowdery said, "The whole shtick works."

There's no set definition for a small-batch bourbon, other than it usually comes from mixing a small selection of barrels and is produced in small quantities. They are the main contributor to the high-end premium and super-premium sales segments, according to the Distilled Spirits Council of the United States, an industry group. Those segments saw revenue increase 23% and 91%, respectively, over the five years to 2010.

Beam, which claims to have launched small-batch bourbon, remains one of the main beneficiaries of the boom. It's seen sales of Knob Creek and Maker's Mark -- which it bought in 2005 -- increase by double digits in the past year, all without hurting Jim Beam. Knob Creek's single barrel varietal, made with bourbon from a single barrel rather than a mixture and introduced in February, sold out its entire year's inventory in about seven weeks. And the brisk sales of Maker's 46, introduced last year, also took the company by surprise. "We were out of stock the minute we released the first batch," said Bill Newlands, Beam's president for North America. Newlands said the company will continue with additional line extensions in the coming year.

While Beam and other established players can withstand the financial uncertainty involved in experimenting with new bourbons, smaller distillers sometimes struggle to wait as much as a decade without profiting from a product. That could position the bigger companies well for acquisitions.

Cowdery said he's seeing bigger companies grab upstarts "as soon as someone has a remotely viable product."

Lynch of Brown-Forman declined to discuss possible deals. Newlands said the company "certainly look at all solutions," and if something attractive comes along, "We're prepared to do it."