Diageo Announces New Distillery in KY

[smokinjoe]

It's a great location with plenty of room for growth, if needed.

[squire]

Not if they're single story in the Scottish style, presumably scale drawings will be made available as part of the public comment period.

[Paddy]

Check this out!

http://www.kentucky.com/2014/05/29/3264732/diageo-to-build-115-million-bourbon.html?sp=/99/101/

[squire]

Love the pagodas. So they will make current and future Diageo Bourbon brands eh? May they prosper then.

[bourboNcigars]

Is anyone going to attend the community Q and A? I think they are holding it on June 16th

[Gillman]

On the point of barrels, let's say you are projecting 100,000 extra barrels needed for Scotch whisky, malt or grain, every year, I have no idea of the numbers but these for Diageo do not seem small. A barrel costs around $85 now. Even with bulk purchases, and you need the availability to buy them (vs. new you can age on your own), that's upwards of $10,000,000. $100,000,000 over 10 years. It's not small even for them and if you can get value out of the bourbon you will make, it is win-win (well worth the investment), considering the life of a bourbon plant has to be 50 years at least.

Gary

[cowdery]

South of Louisville is a place called Kelvin Cooperage. Although they make some new barrels, their primary business is the refurbishing of used bourbon barrels for the scotch industry. The father, Ed McLaughlin, started the business in Glascow, then decided to go to the source. His sons Kevin and Paul run it now.

I'm telling you this because they have, in inventory, in their building and on their grounds, approximately 1,000,000 barrels. I've seen them. It's amazing. They seem to go on for as far as the eye can see. Walking through their building (which was built as a cooperage in the '40s) is like walking through a cave, made of barrels instead of rock.

They operate on a first in first out basis, so they are mostly working with barrels just off the truck from the bourbon producers, which they process to their Scottish customers' specifications and ship out, but if orders surpass the supply of 'fresh' barrels, they have a virtually unlimited supply of older barrels in reserve.

They are one of several companies in this business, in the U.S. and Scotland. As you may know, approximately 95 percent of the whiskey distilled in Scotland is aged in barrels that previously held bourbon.

I'm telling you all this in a probably-futile attempt to stifle this absurd speculation about Diageo building a distillery primarily for the purpose of 'seasoning' barrels. I know Diageo's tendency toward secrecy makes speculation of all kinds inevitable, but perhaps this will help keep the speculation within the realm of the plausible.

By the way, 'seasoning' of barrels is done, and you don't need to build a distillery in the USA to do it. Glenrothes does exactly that, in Spain. As they explain: "For new casks we buy flat staves in America and occasionally northern Spain. These are then shipped to southern Spain, made into casks and 'seasoned' to our specifications with Oloroso Sherry. The Sherry is then extracted and the casks are shipped to the distillery for filling." The whole story is here.

And while I'm at it, the question has been asked whether Diageo has ever built a new distillery, which I guess if you don't know, you don't know, but there is probably no company in the world that has built more whiskey distilleries than Diageo and its predecessor companies. Examples include the Bernheim distillery now owned by Heaven Hill, Cameronbridge in Fife (the largest distillery in Scotland), and Roseisle (their newest malt distillery). They operate more than 20 distilleries in Scotland.

Seriously, people, have you heard of Wikipedia?

Edited June 1, 2014 by cowdery

[TunnelTiger]

Great read. 1,000,000 barrels, just wow.

[393foureyedfox]

Seriously, people, have you heard of Wikipedia?

living up to that "crotchety" nickname lately, aren't we?

[squire]

Buying a company that built a distillery ain't the same as building it yourself but I've no doubt Diageo is fully up to the job.

[dmarkle]

... Glenrothes does exactly that, in Spain. As they explain: "For new casks we buy flat staves in America and occasionally northern Spain. These are then shipped to southern Spain, made into casks and 'seasoned' to our specifications with Oloroso Sherry. The Sherry is then extracted and the casks are shipped to the distillery for filling." The whole story is here.

Ah, that's why their sherry matured product is so thin and uninteresting...

[mbroo5880i]

And while I'm at it, the question has been asked whether Diageo has ever built a new distillery, which I guess if you don't know, you don't know, but there is probably no company in the world that has built more whiskey distilleries than Diageo and its predecessor companies. Examples include the Bernheim distillery now owned by Heaven Hill, Cameronbridge in Fife (the largest distillery in Scotland), and Roseisle (their newest malt distillery). They operate more than 20 distilleries in Scotland.

Seriously, people, have you heard of Wikipedia?

That would be me. You are correct. Sometimes I open a thread and think more conversationally than about hitting Google and doing some research. I really don't know, especially respect to bourbon, Diageo's role in expanding and building distilleries. When I think of Diageo, I think of scotch and other spirits. I guess I was hoping for more "insight" from forum members on the history of Diageo with respect to bourbon than one might find through a general internet search.

I think this a great announcement and I don't want it to sound like I am skeptical on Diageo's abilities. I know nothing about the company other than the name and a few articles that I have read. I am hoping to hear that they have a great distiller in line to be in charge of the construction of the facility or to operate it once constructed.

[squire]

I expect there's no shortage of qualified candidates.

[Paddy]

I expect there's no shortage of qualified candidates.

ahem...

padpadpadpad

[Gillman]

Well I don't know, Chuck, maybe you are right, but it's valid speculation IMO. 1,000,000 barrels doesn't seem that much to me given the world-wide demand for Scotch whiskies which have been on an uptick for decades. What if a catastrophic fire damaged a good part of it? What if a competitor bought it?

Plus, it is always better to have your own source of supply and wipe out the middleman, it's vertical integration. And you can build new barrels from staves but you need the staves to begin with... I like the theory personally and given the new, more open (consumer-oriented) environment, plus it's a public company, I'd just ask them why they did this. Are they trying to secure a steady and safe source of used barrels? Are they trying to create a new long-term bourbon brand? Are they interested to supply bulk to NDPs? All of the above?

Gary

[squire]

Copy me with their answer Gary, please.

[Gillman]

I am not pro whiskey writer, so I'll have to pass. But others who participate here are...

Gary

[ModernThirst]

Well I don't know, Chuck, maybe you are right, but it's valid speculation IMO. 1,000,000 barrels doesn't seem that much to me given the world-wide demand for Scotch whiskies which have been on an uptick for decades. What if a catastrophic fire damaged a good part of it? What if a competitor bought it?

Plus, it is always better to have your own source of supply and wipe out the middleman, it's vertical integration. And you can build new barrels from staves but you need the staves to begin with... I like the theory personally and given the new, more open (consumer-oriented) environment, plus it's a public company, I'd just ask them why they did this. Are they trying to secure a steady and safe source of used barrels? Are they trying to create a new long-term bourbon brand? Are they interested to supply bulk to NDPs? All of the above?

Gary

[Gillman]

Makes sense, especially given how Bulleit's profile seems ever-greater.

Gary

[macdeffe]

Are you guys serious? They could buy a lifetime supply of used barrels for a fraction of what they're investing in this plant.

The problem is that the demand for new ex-bourbon barrels is far from the daily outcome. The demand is about 10% higher than the current "production". Together with the distillers holding on to their own produce, and it is getting harder to source bourbon, it is a very logical step for Diageo to get back in the game. They need bourbon and they need ex-bourbon casks. Diageo has build or rebuild 20+ distilleries and runs around 35 distilleries making whisky today. Cask seasoning is probably a hard word to use in this context, but it is exactly what the major distilleries do when it comes to sourcing sherry casks. I reckon most sherrycasks today is made for the purpose of whisky, and rented to bodegas for seasoning. A lot of this "sherry" is redistilled or made into vinegar.

Steffen

[squire]

Or rum, those guys seem to use a little of everything.

[cowdery]

I heard today that some scotch distillery has announced that it will run out of barrels next Wednesday, which sounds like nothing more than very bad planning. Maybe the barrels aren't where they need to be, like that million or so I told you about on Outer Loop Road. Maybe refurbishers are the bottleneck. You can't, even in a tough job market, hire people overnight for skilled positions if the applicants don't have the skills. Yes, you can train them, but that takes time, and the way this is being written about, this happened all of a sudden. By which I mean that while it wasn't foreseen 10 years ago, you could see what was happening three years ago. The point I am futilely trying to make is that the hysteria doesn't jibe with the facts. I suppose one explanation is that this hasn't happened in the whiskey business during the lifetime of anyone living. Effectively, it's never happened before. There are bumps. There are problems, all fixable. The sky is not falling.

So have your fun. I will try not to rain on anybody's fantasies.