Thursday, March 22, 2018

Coming Soon, Whiskey at Walmart in Texas

The 21st Amendment to the Constitution, which repealed Prohibition, gave the states unusual authority to regulate alcohol as they see fit. Although in most ways U.S. law operates to create an 'open market' within the United States, it is different with alcohol. On top of complying with federal law, producers have to navigate through a confusing web of 50 state regulatory schemes. Chain retailers who sell alcohol (or want to) face similar challenges.

Because updating alcohol legislation is always fraught, most of these schemes have changed little since they were first put in place 85 years ago.

Peculiarities abound. In Indiana, only liquor stores can sell cold beer. In Utah, bartenders have to conceal their drink preparations from underage eyes. Some states still prohibit alcohol sales on Sunday.

In Texas, only individuals and privately-owned corporations can get retail licenses to sell distilled spirits. Publicly-owned corporations such as Walmart cannot. Texas is the only state that bars public corporations from selling liquor solely because of their status as public corporations.

That will change if the decision of a U.S. District Court sitting in Austin is upheld. It ruled that the public company ban and some other restrictions are unconstitutional. The decision, filed on Tuesday, won't go into effect until all appeals have been exhausted, or in 60 days, whichever comes first.

The defendants in the suit are the Texas Alcoholic Beverage Commission (TABC) and the Texas Package Stores Association (TPSA). The TPSA is the trade association of Texas package stores. It only accepts applications from package stores that are majority-owned by Texans.

As reported by ABC News, the CEO of the TPSA, Lance Lively, had this to say about the ruling: "The Texas Legislature put a system in place to ensure safe access to alcoholic beverages in Texas, and that system has worked for over 80 years. We will appeal the trial court's decision and continue to fight for family-owned liquor store owners against the world's largest corporate entities that seek to inflate their profits by upending sensible state laws that protect both consumers and small businesses."

In business, the only profits that are ever 'inflated' are the other guy's.

Consumers, of course, are expected to benefit from the competition Walmart and other national chain retailers will bring to the Texas market.

If you think this rule exists to keep liquor retailing a 'mom and pop' business, think again. Out of a total of 2,578 active package store permits issued by TABC, 574 are owned by a package store chain (meaning, a business holding six or more package store permits). There are now 21 such chains operating in the state. The largest, Spec’s, holds 158 permits. Since 1944, the chains have greatly increased their number of stores and volume of sales, even as the total number of package stores has stayed approximately the same. The four largest chains control about 60 percent of the market.

Is anybody in Texas crying because Specs and Gabriel's may have to compete with Walmart?

Walmart did not challenge the law that will require them to build separate liquor stores next to their existing stores. They already do this in other states that have the same requirement.

The decision describes a legal tug-of-war that has been going on since the early 1990s, in which the TPSA keeps trying to limit retail distilled spirits licenses to Texans only. That triggers what is known as the dormant Commerce Clause, which says that if Congress has the power to regulate commerce among the states, then the states lack the power to impede interstate commerce with their own regulations.

Because of the 21st Amendment, state liquor laws are a little bit different but they aren't that different. The court concluded that the sole purpose of the ban was to protect Texas package store owners from out-of-state competition, which is unconstitutional.

In its arguments, TPSA was really grasping at straws. They conceded that allowing in Walmart and other national chains would lower prices for consumers, then they argued that this is a bad thing because lower prices encourage more consumption leading to more liver disease, heart disease, strokes, and cancer, and numerous other social ills such as drinking and driving, child and spousal abuse, homicides, and suicides.

Yes, consumers, our high prices are actually good for you. (But we're not inflating our profits.)

Texans, unlike most people in most other states, are fiercely loyal to their in-state champions. Texans love all things Texas. I get that and I think it's beautiful, but you gave up some of your independence when you joined the United States in 1845, a decision I know some of you now regret.

Tuesday, March 20, 2018

Does Bourbon’s Shadow Threaten Its Future?

Baudoinia compniacensis covers an aging warehouse in Cognac.

It looks like a shadow and is casting a pall over the otherwise brilliant revival of American whiskey in the 21st century.

Tourists find it an amusing curiosity. Producers decline to talk about it. Distillery neighbors call it a nuisance and worse. There have been government actions and civil lawsuits.

Nobody knows what to do about it.

‘It’ is baudoinia compniacensis, more commonly called the ‘whiskey fungus.’ It looks like dirt. The black mold can be found clinging to the outer walls of whiskey warehouses in Kentucky, Tennessee, Canada, Scotland, Ireland, Japan, etc. It was first observed in France, in Cognac, more than 150 years ago.

Cognac wears it proudly as an ensign of prosperity. In other places it is less esteemed.

In the new issue of The Bourbon Country Reader (and the next one), we take a deep dive into all things baudoinia, the history of its discovery, the current state of scientific knowledge, and how it may be affecting the ability of American whiskey-makers and other spirits producers to take full advantage of the recent, ongoing spectacular growth in the popularity of spirits, especially American whiskey.

Baudoinia is a potential threat to all producers of barrel-aged spirits, from the largest to the smallest.

Although there is no evidence that baudoinia is a health threat, and a great deal of evidence that it is not, these days it takes more than facts to keep people from claiming all sorts of dangers.

Current Reader subscribers should receive their copies of the new issue in the next few days. New subscribers can get on the bandwagon by clicking here.

Founded in 1994, The Bourbon Country Reader is the oldest publication devoted entirely to American whiskey. It is a charming mix of news, history, analysis, and product reviews. Do you worry that advertising spending influences coverage in other publications? No chance of that here since The Bourbon Country Reader is 100 percent reader-supported. It accepts no advertising.

To experience The Bourbon Country Reader for yourself, you need to subscribe. Honoring history, The Bourbon Country Reader still comes to you exclusively on paper, in an envelope, via the USPS.

A subscription to The Bourbon Country Reader is still just $20 per year for addresses in the USA, $25 for everyone else. The Bourbon Country Reader is published six times a year, more-or-less, but your subscription always includes six issues no matter how long it takes.

Click here to subscribe with PayPal or any major credit card, or for more information. Click here for a free sample issue (in PDF format). Click here to open or download the free PDF document, "The Bourbon Country Reader Issue Contents in Chronological Order." (It's like an index.)

If you want to catch up on what you've missed, bound back issue volumes are available for $20 each, or three for $50. Each volume contains six issues. That's here too.

If you prefer to pay by check, make it payable to Made and Bottled in Kentucky, and mail it to Made and Bottled in Kentucky, 3712 N. Broadway, PMB 298, Chicago, IL 60613-4198. Checks drawn on U.S. banks only, please.

Go ahead and subscribe. It's fungus!

Thursday, March 15, 2018

What Is Sazerac Doing in Tennessee?

A rendering of Sazerac's proposed Tennessee whiskey distillery in Murfreesboro.
Last fall, Sazerac announced its interest in a 55-acre parcel of land in Murfreesboro, Tennessee, on which to build a new Tennessee whiskey distillery. Nothing was said at the time about how this might affect Sazerac's existing distillery in Newport, Tennessee, where distillers John Lunn and Allisa Henley have been making Tennessee whiskey since last June. On March 1, USA Today reported that even as Sazerac's plan works its way toward approval by the city council, local residents are up in arms about traffic, industrial zoning so close to residential, and the dreaded 'whiskey fungus.'

But that isn't what caught my eye in the article. Baudoinia compniacensis will always be with us. What struck me was this: "Sazerac will relocate its Tennessee operations from Newport in East Tennessee." The article doesn't identify a source for that claim, and Sazerac says its plans for Newport are not finalized, so they won't comment.

'Newport' is the distillery formerly known as Popcorn Sutton. At the very end of 2016, Sazerac bought the distillery but not the Sutton brand, nor any of the spirit made there up to that point. Popcorn Sutton was a notorious moonshiner who died in 2009. Shortly after his death, his widow and one of his buddies launched a legal distilling venture in Sutton's name. In 2013, it was acquired by Mark and Megan Kvamme. He is a successful venture capitalist, close to Ohio Governor John Kasich. She became Popcorn Sutton Distilling's new CEO. The Kvammes still own the brand, which appears to be quiescent.

The Kvammes poured a lot of money into building a new distillery in Newport, near Sutton's home, and also not far from Gatlinburg and other Smoky Mountains attractions. The place is big, 50,000 square feet. The three solid copper pot stills are true alembics (no rectification section), built by Vendome. The two beer stills are 2,500 gallons each. The spirit still is 1,500 gallons. The operation also includes a 5,000-gallon mash cooker, three 10,000-gallon fermenters, and a small bottling line.

The Kvammes scored their biggest coup in 2015 when they hired John Lunn and Allisa Henley away from Diageo's George Dickel Distillery to run the place. When Sazerac bought it, they kept Lunn, Henley and their crew in place. After a few months of planning and experimentation, Lunn and Henley began production of a Tennessee whiskey of their own creation.

Then came the Murfreesboro announcement. Nothing was said about Newport, but USA Today in its recent reporting says Henley will run the Murfreesboro operation.

What Sazerac seems to be doing is logical. Newport only made sense when the distillery was all about the legend of Popcorn Sutton. That remote location might be good for tourism, but without Sutton there is no obvious tourism hook. Sazerac doesn't want to make 'moonshine.' They want to make regular, bourbon-like Tennessee whiskey to compete with Jack Daniel's and George Dickel. Murfreesboro is close to Nashville and the home of Middle Tennessee State University. It is reputed to be a great place to live and will be an easy stop for tourists on the way to visit Jack and George.

Stay tuned.

Sunday, March 4, 2018

Remembering a Family Champion

When Booker Noe, Jim Beam’s grandson, retired as Beam's master distiller and became a brand ambassador for the company, the image makers seemed to decide there were no Beams except for Jim Beam and his descendants.

They found their plan stymied by a tiny woman filled with family pride. She was Jo Ann Beam, daughter of Harry Beam, and granddaughter of Joseph L. ‘Joe’ Beam.

The Beams were prominent Kentucky whiskey-makers even before Joe and Jim came along, and there are other whiskey-making branches too.

Jim Beam had one son, Jeremiah, who joined him in the business but was not a distiller. He had no children. Booker was the son of Jim Beam's daughter, Margaret.

Joe Beam had seven sons who all became distillers, touching nearly every company in the industry. Jo Ann Beam’s father, Harry, was the youngest of the seven brothers. Although not a distiller herself, Jo Beam made Beam whiskey for 38 years as a bottling line worker at the James B. Beam Distillery in Clermont, Kentucky. After she retired in 1995, she devoted herself to serving as a volunteer at the Oscar Getz Museum of Whiskey History in Bardstown, and to researching her family’s heritage. She especially championed the ‘forgotten history’ of her grandfather, father, and uncles.

Rifling through the attics and basements of her relatives, Jo uncovered rare bottles, hand-written bourbon recipes, and other priceless objects associated with all of the whiskey-making Beams. Many of her finds are now on display at the Oscar Getz Museum. She compiled two books of Beam family press clippings, personal documents, and family tree diagrams.

I got to know 'Aunt Jo' during the last few years of her life. She generously shared her research and stories, and took great delight in doing so. She was funny, salty, boisterous, irreverent, all of my favorite qualities. In 2001, Malt Advocate Magazine (now known as Whisky Advocate), published an article by me about the Beam family, prominently featuring Aunt Jo's 'forgotten Beams.' She was thrilled and showered me with praise, but the real credit belonged to her.

In 2002, Jo Beam achieved some notoriety when she and her twin sister, Jean Hall, appeared on national television in the two-hour History Channel documentary, “Rumrunners, Moonshiners and
Bootleggers.” In a segment near the end of the program they revealed that their father, Harry Beam, was caught making illegal liquor in 1949. They were teenagers and remembered the bust vividly.

The incident had long been an open secret in the community, but never admitted to. When it happened their grandmother used her influence (and $1,000) to keep it out of the newspapers.

No family is more important to the heritage of whiskey in the USA than the Beams, and no one did more to preserve that legacy than Aunt Jo. Next week, on her 85th birthday, join me in a silent tribute and toast.

Wednesday, February 28, 2018

Hoosiers May Now Buy Liquor on Sunday

This Sunday, for the first time ever, Indiana's liquor stores will be open for business. Indiana becomes the 41st state to allow Sunday liquor sales, according to the Distilled Spirits Council.

You might expect liquor store owners to celebrate the change, but they won't. Such is the peculiarity of politics in the highly-regulated world of alcohol.

Consumers, of course, almost universally favor Sunday sales. Those with religious objections are mainly the ones who don't. Also unhappy about the change are liquor retailers in Illinois, Michigan, Ohio, and Kentucky who enjoyed a little extra business on Sundays from thirsty Hoosiers.

So why did Indiana liquor store owners oppose the change? Let's call it unenlightened self-interest. Enlightened self-interest would dictate that, as a retailer, I should favor anything my customers favor. That is the essence of a customers-first business philosophy, isn't it?

Most Indiana liquor store owners didn't see it that way. Naturally, the new Sunday sales law applies to every type of retailer licensed to sell alcohol, which includes supermarkets, drug stores, convenience stores, etc. (Alcohol by-the-drink in bars and restaurants has been legal for many years.) It is expensive for a liquor store, normally closed on Sunday, to open for an additional day, whereas those other stores are already open on Sunday. Their additional cost to sell liquor on Sunday is minimal.

Indiana's liquor store interests spent at least $150,000 lobbying state lawmakers in recent years, on this and other issues, and have donated more than $750,000 to those lawmakers since 2010, according to research by the Associated Press.

One privilege retained by liquor stores is the sale of cold beer. Indiana is the only state that regulates beer sales by temperature. In Indiana, only liquor stores can sell cold beer.

And now they can sell it on Sunday.

Sunday, February 18, 2018

Here Is What You Need to Know About WNS

For the last ten years, I have been trying to raise awareness about Whiskirexia Nervosa Syndrome, or WNS.

WNS is a whiskey buying disorder characterized by a false whiskey inventory image and an obsessive fear of running out of whiskey. Individuals with WNS tend to already own more whiskey than they can ever drink, even as they continue to buy more. News about whiskey shortages and out-of-stocks aggravates the condition, leading to imprudent case lot purchases. Persons with WNS have been known to empty store shelves of particular products they fear will soon be scarce, thereby producing the very scarcity they dread.

A typical WNS sufferer can be told repeatedly that he or she (although most sufferers are men) has plenty of whiskey, really more than enough, by persons who they ordinarily trust, and they may even in moments of clarity acknowledge that fact intellectually, but still they can't stop buying.

Many marriages are at risk.

Whiskey manufacturers have not addressed the problem. Instead they release more and more line extensions and new brands, more than ever before. New producers are proliferating. WNS, which had only a few sufferers when my campaign began a decade ago, has reached epidemic proportions.

As WNS takes hold, sufferers tend to seek comfort from other similarly afflicted individuals, but rather than supporting recovery, these groups tend to enable the condition.

What can you do? If you do not have WNS yourself, find someone who does. Help them drink their whiskey. It's the least you can do.

Wednesday, February 14, 2018

Do You Have a National Distillers Dusty?

Jim Beam Brands Co. recommended Bourbon Section shelf set for 1989-90.
Start talking about old whiskeys and pretty soon someone will mention National Distillers, usually in the context of Old Grand-Dad Bourbon or Old Overholt Rye. But National had a lot of bourbon brands including Old Crow, Old Taylor, Bourbon DeLuxe, Bellows, and other regional cats-and-dogs.

In 1987, the James B. Beam Distilling Company, a subsidiary of American Brands Inc., acquired the spirits division of the National Distillers and Chemical Corporation for $545 million. Included were three Kentucky distilleries, two of which were still active, although Beam immediately shut them down. The sale also included a lot of aging whiskey stock, at a time when American whiskey sales were in the doldrums and everyone had too much, what we call today 'the glut era.'

Enthusiasts of National Distillers whiskeys distilled before 1987 are constantly trying to figure out if bottles they have are National-distilled or Beam-distilled. It isn't easy, but some context might help.

One of the costs in whiskey-making is the cost of moving whiskey around while it is in the barrel. In a perfect world whiskey is barreled at the distillery and the barrel is moved to a nearby warehouse where it remains undisturbed until it is withdrawn years later for bottling, also nearby.

The point is that Beam's determination as to what whiskey went into what bottle was based primarily on the location of the whiskey to be bottled and the location of the bottling plant to be used. After the National acquisition, Beam bottled whiskey at two locations, its existing Jim Beam Distillery at Clermont, Kentucky, and what had been National's Old Grand-Dad Distillery at Forks of the Elkorn just outside of Frankfort.

In those days, the same bottling crew spent a few days at Clermont, followed by a couple at Frankfort. They did that because it is cheaper to move people than whiskey. The whiskey distilled by National was aging at the distillery where it was made, either Old Grand-Dad or Old Crow, which was also in the Frankfort area. Some of the whiskey distilled at Old Crow was aging in warehouses at Old Taylor, right next door. Some Beam-distilled whiskey was sent to Frankfort to age, but little if any went in the other direction.

To this day, those are Beam Suntory's two bottling plants. Each one has been substantially upgraded over the years. They run full time now and have their own crews, but the fact remains that what is aged at Frankfort is bottled at Frankfort and what is aged at Clermont is bottled there. Beam Suntory's Maker's Mark has its own bottling plant at the distillery in Loretto. The company's largest Kentucky distillery, Booker Noe at Boston, has warehouses but no bottling. Whiskey aged there is bottled at Clermont.

For reference, the distance between the Clermont and Booker Noe plants is about ten miles. The distance from either of them to Frankfort is about 75 miles. Beam has several other maturation facilities but most of them are close to Clermont, not Frankfort. Consequently, most of the whiskey bottling happens at Clermont. Frankfort bottles other things, such as DeKuyper liqueurs.

After Beam stopped distilling at Frankfort, it started to make the high-rye Old Grand-Dad recipe at Clermont, so Old Grand-Dad would have been bottled at Frankfort until the Frankfort-distilled Grand-Dad ran out, and thereafter it was bottled at Clermont. For everything else, Beam used Frankfort-distilled and Clermont-distilled whiskey interchangeably, without regard to brand, depending on where it was being bottled. This was even true of Old Overholt, as Jim Beam has always made rye whiskey in addition to bourbon.

Nothing has been distilled in Frankfort since 1987 so everything in those warehouses now comes from either Booker Noe or Clermont, but if it is aging in Frankfort it will almost certainly be bottled there too.

I know more about the period following the National acquisition than most people because I was in the room for some of it. Two years after the acquisition, Beam was still struggling to integrate the two product portfolios. I was part of a team that developed the document above, a comprehensive manual for off-premise retail merchandising of the combined Beam-National line.

The manual explained the principles of effective merchandising and where to place each major Beam brand. It included advice like this:

"The Jim Beam shelf set should begin immediately to the right of the Jack Daniels set. Jim Beam White Label should be first, immediately to the right of Daniels. Place Jim Beam Black Label to the right of White Label. Place Beams Choice to the right of Black Label.

"The Old-Grand Dad set should be placed to the left of Daniels, with all three proofs on the shelf, from left to right: 86°, 100° and 114°. This is the ideal shelf position for Jim Beam's two most important bourbon brands."

That's right. In 1989-90, Old Grand-Dad was second only to Jim Beam in importance in Beam's portfolio. That is because Old Grand-Dad still commanded a premium price and was, therefore, one of the most profitable brands on the market.

No one then could have predicted how different the bourbon landscape would look 30 years later.