Handling Increased Demand

[HighInTheMtns]

Rather than derailing the MM proof cut thread...

Considering the circumstance that demand for bourbon is higher now than it was a few years back, and seems to be increasing, I'm wondering how people would prefer the distillers handle the situation, obviously operating under the assumption that they wish to maximize profit. I'm also assuming the continued availability of the super high end bottles which are helping to create the demand.

Eliminate labels to support others? Weller Centennial is no more, but we all know that 10 year old juice has found a good home after sleeping all those years in the wood. No one was happy about this and plenty of us are fretting over the fate of the rest of the line.

Degrade age? The forum's Old Overholt drinkers were sad to find that it is now a three year old. Wild Turkey is a sadder tale. Weller, Evan Williams, and more. Never a popular decision.

Degrade proof? Maker's Mark's decision sure isn't popular but I don't think it has upstaged the demise of Wild Turkey 101 Rye. Jack Daniel's, Eagle Rare, more examples of this too. None popular.

Just increase the price? No one would be happy but at least it's free of subterfuge.

All of them have their drawbacks. I'm up in the air over which of these I think is the least worst.

Edited February 13, 2013 by HighInTheMtns

[c2walker]

The silver lining of all of this is that everyone reading this board is aware of these changes and has ample opportunity go bunker as much bourbon as they can afford. I don't like that MM is switching to 84 proof, but at least plenty of 90 proof is still available.

[smokinjoe]

Jim, this is a great thread, even though I'm not sure I can give an articulate response, now. I find myself going in so many directions on this topic, I can't be definitive. I hope to come back later. But, you have put forth the great conundrum to us "enthusiasts".

:toast:

[portwood]

Strategy depends on the brand.

For a mass market brand with high volume the first step is to lower proof. You can take the high road of "keeping same taste" and most of your existing consumers won't notice. If that isn't enough, lower age. Again, at high levels of sales, most people won't notice. The buyers that notice and leave the brand are easily replaced by new customers that are attracted by the "smoother" taste of lower proof alcohol. Price is a last resort because at the mass market level customers are more likely to be price sensitive. (Think mass market consumer goods - ex Tide - where prices are kept stable but package size gets progressively smaller.)

For low volume brands messing with the product itself is dangerous since their customer base is most likely enthusiasts that are most bothered by changes to their little undiscovered secret. For these premium brands, price is almost irrelevant, therefore price increases are the best strategy. In some cases the higher the price goes the higher the demand - the old gentleman with the cigar on the label comes to mind.

[Pieface]

You forgot to add in "Expand Capacity to meet Demand"

The options Jim has brought up are all low-risk strategies which suits the producer. Expansion is fraught with risk and the majors have likely all been burned before as evidenced by the whiskey glut of legend. I can see why the producer can be reluctant to pursue this method...

but then I look at Wild Turkey and you can see the end result of this mindset.

Their flagship product is just awful, sorry to the folks that offends but it is a poor product IMO. It is a shadow of it's former self that no "it tastes the same" fanboy could credibly deny.

They play a marketing game with 81 proof bourbon and rye offerings. I'm not sure how they taste but the 86.8 here is just about unsippable and fit only for mixing with soda.

The rarebreed label has been good but is being modified so we'll find out if it is a step forward, sideways or backward soon enough.

The Russells reserve lines are in the process of rebranding and dissociating from the wild turkey brand and have already suffered proof cuts.

Gambling on brand loyalty by discarding the qualitative properties of your product seems an equally big risk in the longer term to me. All it takes is for someone to take a sip of something else that is half decent and poof, there goes another one. I consider myself a bit of a Turkey fanboy but I just can't seem to put my hand in my wallet for their product anymore and that makes me sad.

[petrel800]

Strategy depends on the brand.

For a mass market brand with high volume the first step is to lower proof. You can take the high road of "keeping same taste" and most of your existing consumers won't notice. If that isn't enough, lower age. Again, at high levels of sales, most people won't notice. The buyers that notice and leave the brand are easily replaced by new customers that are attracted by the "smoother" taste of lower proof alcohol. Price is a last resort because at the mass market level customers are more likely to be price sensitive. (Think mass market consumer goods - ex Tide - where prices are kept stable but package size gets progressively smaller.)

For low volume brands messing with the product itself is dangerous since their customer base is most likely enthusiasts that are most bothered by changes to their little undiscovered secret. For these premium brands, price is almost irrelevant, therefore price increases are the best strategy. In some cases the higher the price goes the higher the demand - the old gentleman with the cigar on the label comes to mind.

This mirrors my thoughts exactly. Raising the price of BT, Makers Mark, WT and other mass market brands pushes them into competition with more premium brands and they will lose market share with that approach. They also appeal to folks who probably won't notice the difference in proof.

As for the premium brands, their price is out of whack, as much as I hate to say it, at 70 a bottle for BTAC, I'll clear the shelf with no pain, until there is pain, people will continue to clear the shelves. Personally, I wouldn't mind seeing a decrease in bottle size for the BTAC and other high end releases. With a moderate increase in the price, this means more bottles in the market and the price increase will slow them just a bit from flying off the shelves. Maybe 375s at 50 a piece.

[kickert]

I will play along. Obviously we all would prefer no change, but if I had to choose, I would say distilleries should focus their cuts (proof and age) to the mass market bourbons (usually those under $25) and leave the higher proof / higher age ones along. They will see a great return on dilution with those and still keep whiskey lovers happy. Let's face it... most people buying the super popular brands care less about flavor and proof than "smoothness" or brand appeal. Of course that might mean we see some cuts to the cheaper higher proof brands that we love (OGD114, OWA, etc.), but if you have to cut somewhere, cut with the cheap stuff.

[MauiSon]

I would prefer cyclical product shortages to product dilution. Look, Ritt100, Weller12 and other products are sometimes missing from the shelves and that's okay because a prudent man can stock up when available. Why should a producer want retail shelves full of unsold product? To catch some spur-of-the-moment buyers? To prevent losing sales to their competitors? If all of one's production is periodically sold-out, that's a good thing in my book.

Who really wants more water in their whiskey bottle?

Here's the real question in the MM case - Why should buyers suffer a diminished product due to failure in distribution logistics? (Common experience suggests there's MM sitting on retailer shelves in most locations all the time.)

Edited February 13, 2013 by MauiSon

[ThirstyinOhio]

I don't know why they can only have one option when they can do multiple things and keep their base mostly happy. Maker's could easily dilute 80% of their stocks, giving them their room for growth, and leave 20% of it at the original proof with a 10% price hike. While the current customers won't like the price hike, it will give them options. Another upside to increasing the price is the illusion of an even more premium product, if its expensive it MUST be good. On top of all that, they need to increase production. The worlds population is growing and these Asian markets love their whiskey. Outside of a complete world financial crash, the demand is not likely to shrink any time soon. This also allows them to take even more advantage of scales of efficiency.

1) lower proof for most stocks = more profits

2) raise price for remaining stocks = more profits

3) increase productivity to meet market demand = more profits

[Pieface]

I will play along. Obviously we all would prefer no change, but if I had to choose, I would say distilleries should focus their cuts (proof and age) to the mass market bourbons (usually those under $25) and leave the higher proof / higher age ones along. They will see a great return on dilution with those and still keep whiskey lovers happy. Let's face it... most people buying the super popular brands care less about flavor and proof than "smoothness" or brand appeal. Of course that might mean we see some cuts to the cheaper higher proof brands that we love (OGD114, OWA, etc.), but if you have to cut somewhere, cut with the cheap stuff.

Do you work for a distillery Ben? I figure this is exactly the model most of the distillers bean counters would like them to head toward. A large supply of low proof young whiskey to underpin volume and a healthy premium on anything with a bit of age or proof. Just got to kill off those pesky historical value brands like OGD114, OWA etc that anchor the prices they can demand on "the good stuff".

Maybe I'm overly cynical, I sure hope so.

[kickert]

Do you work for a distillery Ben? I figure this is exactly the model most of the distillers bean counters would like them to head toward. A large supply of low proof young whiskey to underpin volume and a healthy premium on anything with a bit of age or proof. Just got to kill off those pesky historical value brands like OGD114, OWA etc that anchor the prices they can demand on "the good stuff".

Maybe I'm overly cynical, I sure hope so.

I used to work for a micro distillery, but I doubt that changes my view in any way. If you look at it from a business stand point (which all distilleries are), then high proof, high age, low price and constant stock can't co-exist as long as there is a market for the product. The same reason we like OWA and OGD114 is the same reasons they would be logical targets for "market adjustment" -- we know they are a great value.

The simplest option and the one most beneficial to the distilleries is just to raise prices until demand matches supply. Rather than see that across the board, I personally would like to see distilleries make quality cuts to the low end stuff while preserving the good stuff at lower rates. Just my opinion and it is worth what you paid for it.

[squire]

Or go to 700 mil bottles and claim "international" standards.

[zillah]

Tastes change. I am sure fans will be hurt, but I would rather have supply shortages that force me to check out other whiskeys. There are a lot of bourbon producers. Someone is bound to put out good product for a given season/year. Not every distiller is feeling the weight of increased demand, are they? The question would change from "What is a good bourbon?" to "What is a good bourbon right now?"

[squire]

That is a good question. When I present to the the local later today (weather permitting) I'm confident there will be something on the shelf right now that will suit my palate fine.

[kickert]

Tastes change. I am sure fans will be hurt, but I would rather have supply shortages that force me to check out other whiskeys. There are a lot of bourbon producers. Someone is bound to put out good product for a given season/year. Not every distiller is feeling the weight of increased demand, are they? The question would change from "What is a good bourbon?" to "What is a good bourbon right now?"

Now that I have reflected on it, I think this is probably the best option. There are many many good bourbons out there for a great price. I can stand to have some of them intermittently off the shelf. Of course when you are like Maker's that really isn't as viable an option because they have put their whole weight behind their standard bottle. I would think the same would be true for the "big name bottles" like Jack and Jim.

I can go without access to hopslam for most of the year, but people wouldn't put up with coors light being out of stock if that was your daily drinker.

[Trey Manthey]

Or go to 700 mil bottles and claim "international" standards.

I think you are being cheeky, but I would support this. The silver lining is that more international products would make it to the US. There might even be a price drop for imported stuff as they wouldn't have to create an extra 750 bottle anymore. I know that legislation would have to change for this to be possible, but it would be a welcome boon to the free market.

[VAGentleman]

Speaking of dropping the amount in the bottle, does anyone know when we went from the pint and half pint to the now ubiquitous 375 ml. I remember getting the 500 ml and 250 ml bottles of everything back in the day. Now we have a lot less (500 vs 375) for the same price

[HighInTheMtns]

I would prefer cyclical product shortages to product dilution. Look, Ritt100, Weller12 and other products are sometimes missing from the shelves and that's okay because a prudent man can stock up when available. Why should a producer want retail shelves full of unsold product? To catch some spur-of-the-moment buyers? To prevent losing sales to their competitors? If all of one's production is periodically sold-out, that's a good thing in my book.

Who really wants more water in their whiskey bottle?

Here's the real question in the MM case - Why should buyers suffer a diminished product due to failure in distribution logistics? (Common experience suggests there's MM sitting on retailer shelves in most locations all the time.)

I would prefer cyclical shortages as well but I don't see them as feasible from the perspective of the distillers (except for the limited-by-design stuff, of course). This is the reason:

Tastes change. I am sure fans will be hurt, but I would rather have supply shortages that force me to check out other whiskeys. There are a lot of bourbon producers. Someone is bound to put out good product for a given season/year. Not every distiller is feeling the weight of increased demand, are they? The question would change from "What is a good bourbon?" to "What is a good bourbon right now?"

Those of us here who are out trying to taste every whiskey under the sun aren't typical. If Maker's Mark, for example, allowed cyclical shortages to happen, the loyal MM drinkers would be forced to try something else. Maybe Larceny, maybe Weller, maybe not even a wheater at all. Some of them might like what they try better and switch brands. That being said, a couple days ago I picked up a bottle of Baby Saz which I see on shelves even less frequently than BTAC bottles. Cyclical shortages seem to be working fine for that brand.

I hope that the long-term solution to this is to increase production, but I realize that is a slow process at best. I'd take cyclical shortages over price increases, but ultimately, the more I think about this, I'd prefer outright price increases to increasing the price by lessening the product. Maker's Mark in particular doesn't hurt my feelings, but if the next one to get worse is a Weller bottle, I'll be very sad. It comes down to this: I'd much rather say "I wish I could get Eagle Rare 10/101 for what it used to cost" than "I hope that someday I am lucky enough to stumble upon a dusty bottle of Eagle Rare 10/101."

[Lazer]

Raise prices, cut bottle size so it won't hurt as badly.

700ml - good

500ml - good

375 - acceptable

250 - too small.

[HighHorse]

Great thread and a lot of good discussion. I'm a bit curious about the "shortage". Is there one? Here we are in financial hard times and US outlets are, for the most part, struggling to meet last year's numbers. There is, no doubt, a giant sucking sound heard on the barrel stocks coming from the Asian markets and the big boys are certainly turning their heads that way. The glut (and bastardizing) will be in the mass appeal popular brands and I can see these guys stretching out as far as they can get away with to grab as much of that low hanging fruit as possible.

We may be seeing these producers jockeying for position to hang on to that very small (5 percent?) of the market that we represent .. the premium market. Maker's did that with the 46 .. Beam .. HH .. BT .. are all on board with their more premium brands. We should be safe until they start tinkering with those.

The corporatization of this business won't be without consequences. I haven't met a corporation yet that didn't have a room full of bean-counters and bonus-inspired executives who couldn't figure out how to screw up a product and company in the chase for the holy grail.

We have left to cheer the private distillers and those new ones coming on board. The byword will be to buy them while they got 'em because they are all subject to being bought up by the corporations in time. It also makes it clearer to me why the distillers seem so eager to please when folks come their way to select barrels. That's still the pure stuff .. and it gives the MD a chance to show his/her talents.

[Brisko]

Bottle sizes are set and regulated by the TTB, so a producer couldn't just start using 700 mL bottles. And to answer VAGentleman's question, 500 mL was dropped in 1989.

As far as handling shortages, different producers have taken varied approaches. Sazerac has taken a balanced approach: eliminate some products, drop age statements on some, and drop proof on others while maintaining age statements. Heaven Hill is a little more targeted, changing the Evan Williams line but not Elijah Craig, for instance. Wild Turkey... well, they're still trying to recover from the 1990s. A lot depends on how diverse your lines are. Sazerac has a lot products and thus a lot more options than say, JD. Maker's is the most extreme example, with only two expressions to work with.

Up until last week, Beam was largely immune to this problem, with the exception of Knob Creek a few years ago, which they managed to turn into a successful PR campaign. And really, they probably don't have a choice with Maker's, although I'll bet they're wishing they'd started that 3rd expansion.

[Lazer]

...Heaven Hill is a little more targeted, changing the Evan Williams line but not Elijah Craig, for instance...

[Brisko]

Yeah, good ole EC18 as dependable as always. Still 18 years, still $45.

[squire]

I'll bet they're wishing they'd dropped the proof sooner.

[Bourbon Boiler]

As much as I'd love to see it, increasing production just isn't that likely. Figuring 6 months for approvals, 18 months for construction, 3 for testing/hiring, and then 6-10 years for aging, We'd be looking at the 2020's before we saw a real increase on the shelf. Also, I don't think we're looking at the micros through the correct lens. While most of then aren't making premium products right now, in aggregate, they still represent a lot of idle still capacity that could be turned on instantly. I don't know which brands they will be, but a handful probably will take off. A big producer could buy that brand, purchase some idle capacity to increase distirubtion of their new brand (after aging), and improve their sales much faster than through factory expansion.