Our ongoing observations about whether the boom has peaked

[Harry in WashDC]

On 10/19/2017 at 8:03 AM, The Black Tot said:

When supply goes up, prices go down, not up. It will be selling for retail instead of store owners gouging for 80 plus, and stores will have to compete for your business . . .

 

Anecdotal proof: Remember the "Bookers @ $100" noise just last year.  By the time the up-priced Bookers reached the shelves, $70-75 was the asking price at most stores and went begging, mostly, at the gougers I visit (just to remind myself that they gouge) that had priced it higher.

 

Now, I see it regularly at $70 and sometimes on sale at $60.  That's not much higher than the pre-hysteria price of $50-55 but is a lot less than the initial increase to $99 and the actual increased price of @ $70-75, and it is easier to find now than it was pre-hysteria.

 

Samuelson's supply-demand curve does seem to work sort of.

[Harry in WashDC]

15 minutes ago, RWBadley said:

Hahah this is hysterical     "Think of my bourbons as shoes for my palate" 

 

- Inferring to your lovely spouse her shoes remind of anything but Lavender and Roses sounds like.... just a bad idea.  Let us know how this all works out for ya.  

 

What?  We started dating in 1971, been married since 1974.  You think I don't know BETTER than to say this out loud?  To be safe, I said it in the basement to the cat while checking the bunker.

[BigSkyDrams]

20 minutes ago, Harry in WashDC said:

Anecdotal proof: Remember the "Bookers @ $100" noise just last year.  By the time the up-priced Bookers reached the shelves, $70-75 was the asking price at most stores and went begging, mostly, at the gougers I visit (just to remind myself that they gouge) that had priced it higher.

 

Now, I see it regularly at $70 and sometimes on sale at $60.  That's not much higher than the pre-hysteria price of $50-55 but is a lot less than the initial increase to $99 and the actual increased price of @ $70-75, and it is easier to find now than it was pre-hysteria.

 

Samuelson's supply-demand curve does seem to work sort of.

Bookers seems like something of an outlier compared to balance of the market -- at least in my area.  I suspect it was because the price jump was so blatant and not clearly tied to any quality increase or other justifiable cause.  It seemed to have turned a lot of customers off of the brand for Beam to just arbitrarily and suddenly double the price.  I make this observation because every store I've checked in my area still has the bluegill creek batch (fall 2016 I believe?) and hasn't gotten any other releases.  I further presume that is because everyone just stopped buying it at the increased price.  Now I notice it priced at $80 most places, where 6 months ago it was $100, and its still not selling here. 

[Harry in WashDC]

43 minutes ago, BigSkyDrams said:

Bookers seems like something of an outlier compared to balance of the market -- at least in my area.  I suspect it was because the price jump was so blatant and not clearly tied to any quality increase or other justifiable cause.  It seemed to have turned a lot of customers off of the brand for Beam to just arbitrarily and suddenly double the price.  I make this observation because every store I've checked in my area still has the bluegill creek batch (fall 2016 I believe?) and hasn't gotten any other releases.  I further presume that is because everyone just stopped buying it at the increased price.  Now I notice it priced at $80 most places, where 6 months ago it was $100, and its still not selling here. 

THX for the info.  Bookers likely is not a "typical" case since it is the first of the small batch bunch Beam started marketing 1987 and BeamSuntory announced the large possible price increase well before installing it rather than just incrementally adding it to the wholesale price without a public announcement.  In my own case, now that I think about it, I did load up prior to the price increase (due to seeing it on sale well before the price announcement, not primarily or necessarily to beat the increase) and have sufficient for sipping (as I don't use it in cocktails) on hand for awhile yet so have not been back in the market.  Plus, the profile is relatively close batch to batch, IMO, so I haven't felt the need to buy "new" releases for fear of missing out.

 

The MSRP for JB BIB, released recently (early 2017?  I forget) was, I think, about $25 around here and has since settled between $20-25, but I can routinely find it for under $20.  And, basic BT seems to be available here at close to its "older" MSRP rather than the drift-up I saw when BT couldn't keep up with demand.  (Was in an Ellicott, Maryland, store a couple weeks ago, and the clerk whispered, "We have some BT if you're interested.  Only two per customer."  One look at the price - $31+ - found me telling him it is all over Virginia ABC stores for $26, but I don't buy there, either, as I can find it regularly for $23.)

 

SO, I've started leaving the price stickers on my bunker bottles as I am curious whether things are creeping up while my back is turned.  So far, they seem to be stable to slightly down. But, that's just my experience and, frankly, could be due to being more careful when shopping.

 

OR, due to how "they" price what I am buying.

Edited October 20, 2017 by Harry in WashDC

[smokinjoe]

1 hour ago, Harry in WashDC said:

What?  We started dating in 1971, been married since 1974.  You think I don't know BETTER than to say this out loud?  To be safe, I said it in the basement to the cat while checking the bunker.

You trust a cat?  

[mdband]

Just browsing the forums and will try to share my 2 cents on original topic. I do not think the bourbon boom is close to over for a few reasons:

 

1) Production/Capacity - I think there is a shortage of production/storage at the moment. BT announced a $200M expansion, HH $25M expansion at Bernheim Distillery, Stoli with $150M for new distillery in Btown, etc. I read an article last year saying the combined planned projects are at $1B right now. I think it's obvious the industry is playing catch-up at the moment. 

 

2) Overseas Demand - Read an article indicating that american whiskey exports have more than doubled over the past decade with the largest demand growth for super-premium whiskey's. Maybe Trump can start a trade war with the EU or China so they can slap on some bourbon tariff's.  My wife has a close friend who works for Brown-Forman, and she was over in China for a week working on some plant project, only about 2 weeks ago. The potential demand from the Far East is scary.

 

3) US Taxes - Per KDA website, 60% of cost of bourbon goes to taxes or fees - "barrel tax". Which, surprise, is at all time highs. In 2016, tax-assessed value of all barrels aging in KY was $2.4B or a 135% increase over past 10 years. Thank you, Uncle Sam.

 

4) Distributors - Ah, the dirty middlemen. I saw this year Southern Glazer's Wine and Spirits distributor was slapped with a class action lawsuit with claimed, among other things, "refusing to sell products to class members without them purchasing "tie-ins" and "threatening to cut off supplies to customers who do not buy a sufficient quantity of liquor, or liquor of select varieties". Basically, this type of practice stacks the decks against the small-to-mid mom and pop liquor store and favor the big box stores. A lot of us average joe's depend on those personal relationships with the smaller stores to try to be able to get our hands on the limited release stuff but they can't get it because they haven't sold those 50 cases of that crappy vodka nobody wants. Big box stores could care less of our patronage and usually reserve that stuff for the highest end clients or use it to drum up more business via raffles, lotteries, etc.

 

5) Brand Volume - I guess this goes back to #1. Every year it seems like a dozen or more new offerings come out, which seems like a good thing. However, I'd think all these brands cause a bottleneck with bottling capacity. BT has Ancient Age, Blanton's, BT, GTS/BTACs, Hancock's PR, McAfee's, OC, VW line, EHT, ETL, ER, OT, Rock Hill, WLW line, Sazerac, etc. (I saw they are now pushing Wheatley Vodka  in the gift shop ) I'd think all these offerings cause distribution shortages/rationing like Weller because of bottling capacity restraints and the production time to dedicate to any one offering. I could be wrong. 

 

6) Marketing - I give the bourbon industry credit. They've hired some really smart marketing folks. Now, I wish they'd get fired or go apply their craft in another industry. As I saw one internet poster comment one day, marketers can claim "they found a lost barrel in Bigfoot's Cave at the end of Rainbow Road" and charge who knows what...and people would buy it. Just when you think you've seen all the marketing gimmicks, the bourbon industry will top it. Why can't they come up with a creative story and push AA, EW, VOB, KT, KG, ET, and other bottom shelf items! 

 

I'm sure there are a few other points I missed such as re-sellers/secondary market and the hoarding effects when faced with limited supply.

 

Anyway...I really, really, really hope I'm wrong about all of this. Cheers.

Edited October 24, 2017 by mdband

[The Black Tot]

1. There is more production and storage already, right now, than there has ever been in history. Know when it was this high last time? About ten years before the massive glut of the 80s/90s. And although we're already at peak, you are correct - $1B of expansion scheduled to come online in the next few years. The industry may be playing catch-up, but it's also playing overcorrection.

 

2. Overseas demand is an old saw, mostly mentioned by those who have not been overseas. Go to China (or anywhere in the world that isn't Canada, Australia, the core EU, or Japan) and try and go bourbon shopping. I wish you the best of luck. The exports you speak of are almost all Jack Daniels and JBW, and if people were going to develop a taste for better or more aged stuff, they'd have shown signs of it by now.

 

3. The boom is not yet close to over because there are taxes on whiskey?  I don't understand this argument.

 

4. The boom is not yet close to over because distributors are dirty?  I equally don't understand this argument.

 

5. A bottleneck in bottling capacity (pun intended?) is the fastest of the capacity constraints to address. A new bottling line takes what, a year to install (being generous on that estimate, it's probably less than 6mo)? Whereas most of the mid shelf whiskey takes 5yrs minimum to mature? Bottling limitations are the least difficult challenge for distilleries to address, so if they have that issue, it's addressed pretty fast, and doesn'r stay a problem.

 

6. The marketing seems well placed. Most of the marketing is focused on product that would not otherwise sell itself out. Weller used to take out magazine ads - you can find them on ebay. When is the last time you saw a Weller promotion? What you see in the marketing world is stuff like Fireball, and Woodford Reserve (which is having to work hard to get established, since none of the blogging enthusiasts are raving about it). Jack and Jim Beam still advertise, but that's because there is always too much Jack available, and Beam advertises stuff like white label, their flavored bourbons, and Devil's Cut. In short, things for which there is no shortage, and likely never will be. You won't see a billboard for Booker's.

 

As an aside I think Wheatley vodka is a good idea for them, especially at the gift shop.

 

A lot of wives and girlfriends (and probably a few husbands and boyfriends) who drink vodka get dragged through that gift shop.

 

I used to buy Rain vodka because it was cheap, perfectly good, I like a White Russian from time to time, and I got to support a distillery I like in the process.

 

I'm likely to do the same with Wheatley. I think I've seen it for $26 for a 1.75L or something silly cheap like that. 

 

Highlighting the number of times it's been re-distilled though is a bad idea. It hurts their credibility broadly, and Harlen probably takes a lot of shit about it from his peers. I know I'd be teasing him about it if I knew him, personally

 

 

[mdband]

3 minutes ago, The Black Tot said:

1. There is more production and storage already, right now, than there has ever been in history. Know when it was this high last time? About ten years before the massive glut of the 80s/90s. And although we're already at peak, you are correct - $1B of expansion scheduled to come online in the next few years. The industry may be playing catch-up, but it's also playing overcorrection.

 

2. Overseas demand is an old saw, mostly mentioned by those who have not been overseas. Go to China (or anywhere in the world that isn't Canada, Australia, the core EU, or Japan) and try and go bourbon shopping. I wish you the best of luck. The exports you speak of are almost all Jack Daniels and JBW, and if people were going to develop a taste for better or more aged stuff, they'd have shown signs of it by now.

 

3. The boom is not yet close to over because there are taxes on whiskey?  I don't understand this argument.

 

4. The boom is not yet close to over because distributors are dirty?  I equally don't understand this argument.

 

5. A bottleneck in bottling capacity (pun intended?) is the fastest of the capacity constraints to address. A new bottling line takes what, a year to install (being generous on that estimate, it's probably less than 6mo)? Whereas most of the mid shelf whiskey takes 5yrs minimum to mature? Bottling limitations are the least difficult challenge for distilleries to address, so if they have that issue, it's addressed pretty fast, and doesn'r stay a problem.

 

6. The marketing seems well placed. Most of the marketing is focused on product that would not otherwise sell itself out. Weller used to take out magazine ads - you can find them on ebay. When is the last time you saw a Weller promotion? What you see in the marketing world is stuff like Fireball, and Woodford Reserve (which is having to work hard to get established, since none of the blogging enthusiasts are raving about it). Jack and Jim Beam still advertise, but that's because there is always too much Jack available, and Beam advertises stuff like white label, their flavored bourbons, and Devil's Cut. In short, things for which there is no shortage, and likely never will be. You won't see a billboard for Booker's.

 

As an aside I think Wheatley vodka is a good idea for them, especially at the gift shop.

 

A lot of wives and girlfriends (and probably a few husbands and boyfriends) who drink vodka get dragged through that gift shop.

 

I used to buy Rain vodka because it was cheap, perfectly good, I like a White Russian from time to time, and I got to support a distillery I like in the process.

 

I'm likely to do the same with Wheatley. I think I've seen it for $26 for a 1.75L or something silly cheap like that. 

 

Highlighting the number of times it's been re-distilled though is a bad idea. It hurts their credibility broadly, and Harlen probably takes a lot of shit about it from his peers. I know I'd be teasing him about it if I knew him, personally

 

 

I should have made the distinction on points #3 and #4 - when I think of a boom or bubble burst, you think of decreasing price and wider availability. Just tried to throw out some counter points as to why I think that you will not see price decreases and increased availability. You are correct - it doesn't make sense when applied directly to "is the boom over or not".

[Harry in WashDC]

On 10/23/2017 at 8:41 PM, mdband said:

     * * * * *

 

3) US Taxes - Per KDA website, 60% of cost of bourbon goes to taxes or fees - "barrel tax". Which, surprise, is at all time highs. In 2016, tax-assessed value of all barrels aging in KY was $2.4B or a 135% increase over past 10 years. Thank you, Uncle Sam.

     * * * * *

 

I'm pretty sure the federal tax per proof gallon has been fixed at $13.50 since January 1, 1991.  Hence, this 135% increase in revenue likely reflects increased inventory of aging product (taxed yearly IIRC) as well as increased annual production of unaged product and of product destined for aging.  To your point, however, this revenue increase reflecting the increase in distillate production and increase in aging product indicates that the persons making the product think the boom is not over.  

 

Tax lawyers out there - have at me.  I avoided tax law like the plague it is.

 

EDIT - As several people subsequently posted - the excise tax per proof gallon is NOT assessed annually.

Edited October 25, 2017 by Harry in WashDC
to correct an error - excise tax is NOT annual.

[The Black Tot]

So, would I be roughly correct with this matchbook math?

 

An OWA 750ml bottle is 53.5% alcohol so 401.25ml pure alcohol

 

A US gallon is 3.7854 or 3785.4ml.

 

So 401.25/3785.4 x $13.50 = $1.43 per year of age tax on a 107 proof 750ml bottle of whiskey.

 

In practice probably more, maybe closer to $1.75 when evaporative losses are considered, although that might also be a writeoff, REDUCING the overall tax burden in the form of lost potential revenues?

Edited October 24, 2017 by The Black Tot

[mdband]

1 hour ago, Harry in WashDC said:

 

I'm pretty sure the federal tax per proof gallon has been fixed at $13.50 since January 1, 1991.  Hence, this 135% increase in revenue likely reflects increased inventory of aging product (taxed yearly IIRC) as well as increased annual production of unaged product and of product destined for aging.  To your point, however, this revenue increase reflecting the increase in distillate production and increase in aging product indicates that the persons making the product think the boom is not over.  

 

Tax lawyers out there - have at me.  I avoided tax law like the plague it is.

I'm no tax expert either...or bourbon for that matter. I agree that the federal excise tax is unchanged since 1991. However, aren't individual states able to regulate additional taxes on alcohol - sales taxes, enforcement taxes, handling taxes, bailment fees, markup, on-premise taxes, etc. (whatever they can squeeze from the consumer) and those are subject to change? I guess that was my point but didn't do a good job elaborating. I agree with your original point of increased inventory can explain off increased tax-assessed value of bourbon.

 

There's got to be a tax expert who drinks bourbon on these forums. 

Edited October 24, 2017 by mdband

[flahute]

2 hours ago, mdband said:

I should have made the distinction on points #3 and #4 - when I think of a boom or bubble burst, you think of decreasing price and wider availability. Just tried to throw out some counter points as to why I think that you will not see price decreases and increased availability. You are correct - it doesn't make sense when applied directly to "is the boom over or not".

Your points 3 and 4 are symptoms of a boom in full bloom. Hard to say if there's more boom to go or if it's near the zenith.

[VAGentleman]

9 hours ago, The Black Tot said:

So, would I be roughly correct with this matchbook math?

 

An OWA 750ml bottle is 53.5% alcohol so 401.25ml pure alcohol

 

A US gallon is 3.7854 or 3785.4ml.

 

So 401.25/3785.4 x $13.50 = $1.43 per year of age tax on a 107 proof 750ml bottle of whiskey.

 

In practice probably more, maybe closer to $1.75 when evaporative losses are considered, although that might also be a writeoff, REDUCING the overall tax burden in the form of lost potential revenues?

The tax is $13.50 per proof gallon, which is a gallon of 100 proof liquor

[The Black Tot]

2 hours ago, VAGentleman said:

The tax is $13.50 per proof gallon, which is a gallon of 100 proof liquor

Wow, that's way worse.

 

So OWA with 750ml in it has 401.25ml of alcohol in it, which is considered 802.5 "proof ml", which is 802.5/3785.4 = 0.212 proof gallons x 13.50 = $2.86/yr of maturation. 

 

So a 7yr OWA has $20.03 of tax paid on it? I'm not sure this can be right - it gets through a distributor and a liquor store owner and still hits the shelves for 26 bucks? Nuh-uh.

 

30% liquor store mark up must mean a LS distributor price is 70% of that 26 bucks which is $18.20. Unless the distributor is doing it for free and BT is selling every bottle at a $2 loss to taxation, this ain't right.

 

Hell, OGD114 hits the shelves at 7 higher proof than THAT and up until recently it still could be found at retail for $19.99

Edited October 24, 2017 by The Black Tot

[flahute]

5 minutes ago, The Black Tot said:

Wow, that's way worse.

 

So OWA with 750ml in it has 401.25ml of alcohol in it, which is considered 802.5 "proof ml", which is 802.5/3785.4 = 0.212 proof gallons x 13.50 = $2.86/yr of maturation. 

 

So a 7yr OWA has $20.03 of tax paid on it? I'm not sure this can be right - it gets through a distributor and a liquor store owner and still hits the shelves for 26 bucks? Nuh-uh.

 

30% liquor store mark up must mean a LS distributor price is 70% of that 26 bucks which is $18.20. Unless the distributor is doing it for free and BT is selling every bottle at a $2 loss to taxation, this ain't right.

 

Hell, OGD114 hits the shelves at 7 higher proof than THAT and up until recently it still could be found at retail for $19.99

Nobody told me there’d be math. 

Edited October 24, 2017 by flahute

[The Black Tot]

5 minutes ago, flahute said:

Nobody told me there’d be math. 

 

I haven't had a drink since October 1st. Math is all I got out here...

[lcpfratn]

The federal excise tax is not an annual tax on barrels being matured. It is a tax on proof gallons at the wholesale level...I believe at the time of bottling. The annual taxes while barrels are maturing are state and local property taxes on personal property business inventory. I believe KY also has a state income tax credit to help offset the local property taxes assessed on inventory, but that just encourages more local taxation. The property tax rates are nowhere near the one time federal excise tax rate, but they still add up over time.


Sent from my iPad using Tapatalk

[The Black Tot]

Thanks. That makes a LOT more sense.

[VAGentleman]

1 hour ago, lcpfratn said:

The federal excise tax is not an annual tax on barrels being matured. It is a tax on proof gallons at the wholesale level...I believe at the time of bottling. The annual taxes while barrels are maturing are state and local property taxes on personal property business inventory. I believe KY also has a state income tax credit to help offset the local property taxes assessed on inventory, but that just encourages more local taxation. The property tax rates are nowhere near the one time federal excise tax rate, but they still add up over time.


Sent from my iPad using Tapatalk

Correct, at the time of bottling and moving it from the bonded area of the distillery

[RWBadley]

Good points being made here...

 

As for point 6 re: marketing- A casual observation I'll chime in with having watched the small pamphlet/magazine Malt Advocate blossom through the years into what is now the Whiskey Advocate; the adverts, articles and reviews  easily set up a driving force to find and sample the highest rated whiskeys and LE's

 

Interesting with the advent of the Auction Values section in 2010 it seems to allow for many to view the whiskey market as a wealth creation device. Articles about "what to collect now" and "Pad your portfolio" also create a feeling of disconnect from what used to be a consumable into what is viewed now as income or retirement moneys.

 

Jim Murray has grown his book into another driver of desire. Many with little experience of bottom and mid shelf want to dive right into the 'good stuff'.  With Paypal and the internet it's much easier than back in the day when you depended on your local retailers stock, went in with whatever few bucks might be left in your wallet after a long week and that was about it...

 

I don't know if the market is near the top, has topped or is at the beginning of decline point, but as long as disposable income is there to chase the 'best' or the 'rarest'; and our avocation is viewed more as a generator of income rather than enjoyment of 'the find' -  we are bound to not get much chance at the LE's

 

Cheers,

 

RW

 

 

 

 

[flahute]

12 minutes ago, RWBadley said:

..... but as long as disposable income is there to chase the 'best' or the 'rarest'......

 

 

 

This right here. And for some, they don't even need disposable income if they have a credit card.

[Harry in WashDC]

10 hours ago, The Black Tot said:

Wow, that's way worse.

 

So OWA with 750ml in it has 401.25ml of alcohol in it, which is considered 802.5 "proof ml", which is 802.5/3785.4 = 0.212 proof gallons x 13.50 = $2.86/yr of maturation. 

 

So a 7yr OWA has $20.03 of tax paid on it? I'm not sure this can be right - it gets through a distributor and a liquor store owner and still hits the shelves for 26 bucks? Nuh-uh.

 

30% liquor store mark up must mean a LS distributor price is 70% of that 26 bucks which is $18.20. Unless the distributor is doing it for free and BT is selling every bottle at a $2 loss to taxation, this ain't right.

 

Hell, OGD114 hits the shelves at 7 higher proof than THAT and up until recently it still could be found at retail for $19.99

Indeed.  As VaGentleman and others posted, the excise tax per proof gallon is NOT assessed annually.  That's a pretty glaring miss-statement on my part.  I'm sorry.  Subsequent to reading all the comments here, I did find a ttb.gov page that says the current excise tax adds about $2.14 to the sale price of a 750ml of 80 proof distilled spirit.  SEE https://ttb.gov/tax_audit/atftaxes.shtml

 

I did not check on state law taxes.

Edited October 25, 2017 by Harry in WashDC

[flahute]

12 hours ago, The Black Tot said:

 

I haven't had a drink since October 1st. Math is all I got out here...

How's your snack supply holding out?

[The Black Tot]

Just now, flahute said:

How's your snack supply holding out?

Let's not talk about it!

[PaulO]

Here are a couple observations.

  Elijah Craig is supporting a financial news program on NPR radio.  They do a short promotion beginning the show.

  I saw a television commercial for Wild Turkey on one of the major networks during Sunday NFL football.