Dreaming in Brown

By Jeffrey Klineman

Dave Pickerell, the founding distiller at Whistle Pig Rye has described the sunset over the hills on owner Raj Bhakta’s Vermont farm as a place where, with a glass of the product, the cares of a business day fade away.

 At this rate, there are a lot of distillers who will soon be in need of sunsets of their own.Investment in craft whiskeys – bourbon, rye, straight whiskey – is trending up, paralleling the growth of craft beer and leading the way in the craft distilling movement. There are now more than 180 craft distillers in the U.S., according to DISCUS (the Distilled Spirits Council of the United States) – about 20 percent of the overall 860 licensed distilleries in the country. Many of these craft distillers are producing brown liquors like rye, bourbon, or uniquely American whiskeys made from a Scotch-like barley mash but aged in bourbon or white oak barrels.Together, they are becoming a subcategory in what has turned into over-the-top demand for bourbon and whiskey overall. Last year, revenues for Kentucky bourbon and Tennessee whiskey were up 7.3 percent, to $2.2 billion. But the demand for aged, independent, super-premium brands (those selling, on average, for more than $30/bottle) that include craft and high-end strategic offerings accelerated at twice that rate, 14.4 percent, to a little more than $220 million, according to DISCUS.The organization cited global fascination with American Whiskey as the reason that exports set a record for the third straight year.Most of the craft boom is happening at home, however, driven by the so-called ‘premiumization’ trend and a lot of the local, agricultural movements that have helped fuel the craft beer boom, as well.  DISCUS noted 46 new bourbon brands – but that’s just part of the growing whiskey mash. There were also 22 new ryes; new, unclassified “American Whiskey” brands are also emerging, and attracting investors.In the industry, craft distillers have a reputation for selling a bit more readily than their beer brethren, according to F. Paul Hetterich, the executive vice president of business development and corporate strategy for constellation brands.Whereas the purchase of a Goose Island by an Anheuser-Busch InBev seemed to be a one-off, historic deal, larger strategics in the spirits world have track records of buying early and often. A company like Constellation Brands has much more experience purchasing emerging companies, having averaged about two transactions per year in the past (albeit largely in wine). A fast-growing bourbon brand could dream of pulling in the $100 million-plus that the relatively young St. Germain brand pulled in from Bacardi. And Bourbon royalty Jim Beam Brands has bought 10 or 12 brands in just the past few years.

That might illustrate a key difference between craft beer and craft whiskey: the larger brands seem to play better with the smaller ones. The “craft vs. crafty” debate that has plagued the high end of the beer industry lately isn’t taking hold because even the largest whiskey companies have been trying to innovate at the high end of the bell curve, as with Brown Forman’s Woodford Reserve brand, which has been turned into a variety of ‘expressions,’ or Beam Brands’ Knob Creek and Basil Hayden’s. Large independent distiller Buffalo Trace’s success of late – it’s the oldest continuously operating distillery in the country – has largely been built by issuing new aged and small-batch bourbons under a variety of labels, and Heaven Hill, the largest family-owned distillery in the country, has rolled up several large labels and issued award-winning small batch versions to build interest.

That’s generated an entry point for many new brown liquor consumers, who have been trained by the craft beer movement to seek an even higher-end, independent or local series of brands.

To meet the demand, many of the new companies are taking advantage of new technologies that allow them to age whiskies more quickly, enabling them to mitigate costs while waiting for newer, better batches to emerge. This is a hedge against one of the key assets for older distilleries, which have years’ worth of larger batches maturing in big barrels, gathering flavors and smoothing rough edges.

There’s also plenty of ‘juice’ available for craft distillers to buy up and work with on their own from contract distillers. Take a product like Angel’s Envy, a young company whose chief distiller, Lincoln Henderson, worked for brands like Woodford Reserve and Old Forester for decades. Louisville Distilling, which make’s Angel’s Envy, bought up a batch from a contract distiller and, to impart a note of difference in its product, finished it in port wine casks instead of charred oak barrels. Even a brand like Whistle Pig, which will eventually have production vertically integrated on Bhakta’s farm, had to get started by procuring Canadian rye while it waits for its first homegrown batch to mature.

There are some other major barriers to the creation of a craft whiskey movement that can fully rival that of craft beer. For one, all distillers face the same excise tax, and recent legislative attempts to carve out a lower rate for smaller manufacturers have failed. Also, the well-established “crafty” brands could create a confusing learning curve for consumers.

Beyond that, however, the availability of novelties like “white whiskey” – think Dukes of Hazard and Junior Johnson style moonshine – has helped stoke interest in younger whiskey formats. As long as these craft whiskies are available in the right package and with the right branding elements, they can create the personal expression that can carry a growing distillery into the later rounds of the fight.