Thursday, October 19, 2017

The Truth About Tito's and All Vodka



As reported this week in Ad Age and many other places, Tito's vodka is now the top-selling distilled spirits brand in the United States, a position previously held by Smirnoff vodka for seemingly forever. Ad Age calls it "Tito's Handmade Vodka, a pioneer of the so-called craft spirits movement."

The 'so-called' is the only clue to what is really going on here. Tito's current advertising calls the brand 'America's Original Craft Vodka.' The product's success has made owner Tito Beveridge (pictured, above) a billionaire. It brings to mind another quotation, from H. L. Mencken, who wrote, “No one ever went broke underestimating the intelligence of the American public.”

Tito has cleverly exploited a few simple facts. First, Texans and many non-Texans love anything from Texas. Austin, the capital of Texas, is beloved as a haven of eccentricity and live music. Tito plays up the brand's Austin, Texas pedigree.

Second, words such as 'handmade' and 'craft' don't mean what you think they mean. In fact, according to most court rulings on the matter, they don't mean anything. They are considered permissible advertising 'puffery,' subjective not objective, not measurable or provable, "which no reasonable person would presume to be literally true."

The front page of the Tito's web site says this: "Texas and vodka. When you put the two together you get something oh so wonderful. We make it in batches, use old-fashioned pot stills, and taste-test every batch to make sure you get only the best."

Forbes wrote this about Tito's back in 2013. "Sometimes reality bites. That's proving to be a challenge for Fifth Generation, maker of Tito's Handmade Vodka. More precisely: how to maintain the fiction of being a small-batch brand that's actually expanding rapidly in the $5.5-billion-a-year U.S. market for the colorless liquor. Tito's has exploded from a 16-gallon pot still in 1997 to a 26-acre operation that produced 850,000 cases last year, up 46% from 2011, pulling in an estimated $85 million in revenue." In 2017, you may adjust all of those numbers substantially upward, $190 million in annual revenue according to market research firm IRI.

Vodka drinkers, of course, are accustomed to fantasy. Vodka is, by definition; colorless, odorless and tasteless. Virtually all of the vodka made in the U.S., including Tito's and Smirnoff, starts as grain neutral spirit (GNS) produced by one of the major producers: Archer Daniels Midland (ADM), Midwest Grain Products (MGP), or Grain Processing Corporation (GPC), whose headquarters and principal distilleries are in Illinois, Kansas and Iowa respectively. (i.e., where most grain is farmed.)

GNS (some people prefer 'NGS.' Same thing.) is a commodity. It is used for beverages, medicine, and many other purposes. It is simply ethanol. Mostly made from corn, it is distilled above 95% ABV. It is as nearly 'pure alcohol' as can be made. As a commodity, vodka producers buy it on the basis of price and availability. Most buy from all of the usual suspects.

Some vodka makers simply take the GNS they buy and put it directly into bottles. Others do a little bit of additional processing. Tito's runs it through some pot stills. The only discernible purpose for that step is so they can make the claims about batch production (the big GNS makers are continuous, not batch) and Texas distillation. It has little or no effect on the liquid. Charcoal filtering is another common processing step.

Not surprisingly, Tito's doesn't give tours. That's because they don't have grain silos, grain mills, mash cookers, fermenters, and the other trappings of a real from-scratch distillery.

I don't want to get into it with vodka drinkers. I rarely touch the stuff. Feel free to drink whatever you want and think whatever you want to about it. Everything above is factually correct. Do with it as you will.

Monday, October 16, 2017

Heaven Hill Is Now the World's Biggest Bourbon Distillery


Heaven Hill's humble beginning in Bardstown, Kentucky.
As reported today throughout the Louisville media, Heaven Hill's Bernheim is now the World's Biggest Bourbon Distillery. To quote Louisville Business First, "Today, at a press conference held on the premises of the Heaven Hill-owned Bernheim Distillery in West Louisville, representatives from the company, as well as local politicians and media, gathered to celebrate the latest news of the distillery’s $25 million expansion, which the company says will make it the largest single bourbon-producing site in the world."

The slight hedge is necessary because Jack Daniel's in Tennessee is larger, but Jack is not technically bourbon, and Jim Beam is larger if you count everything produced at DSP-KY-230, but that license covers two facilities, ten miles apart.

Hedges aside, this is a remarkable achievement for a family-owned company founded in Bardstown more than 70 years ago by Joe Beam and a group of investors that included Ed Shapira, father of current company president, Max Shapira.

The five Shapira brothers (Ed, David, Mose, George and Gary) were in the dry goods business, running a chain of small department stores called 'The Louisville Store,' although they had no locations in Louisville. The business was started by their father, an immigrant from Eastern Europe. The stores did well during the Depression, selling everyday necessities at bargain prices. That gave them money to invest when Prohibition ended in 1933.

Ed Shapira, who ran the Louisville Store in Bardstown, assumed it would be an arm's length investment, as the other founders were, like Joe Beam, all experienced whiskey men. After the distillery was built and in production, Beam and the others lost money in another venture. They gave Shapira a chance to buy them out. It was either that or close the doors. Ed conferred with his brothers and they agreed to take the plunge. Joe Beam stayed on as Master Distiller, along with his youngest son, Harry.

While Beams made the whiskey, the five brothers ran the business. Ed's son, Max, came on board as did David's son, Harry. They had a unique business model, in which distributors bought the whiskey when it went into the barrel, instead of when it came out. The distributors got a deal and so did Heaven Hill, because that meant less capital was tied up in aging inventory, which allowed them to grow. As with their retail business, value was the secret to their success. The objective was to make the best whiskey their customers could afford.

At first, it was a commodity business. Their first brand was a two-year-old straight called Bourbon Falls. It did okay. Old Heaven Hill Bottled in Bond, launched a few years later, did much better. Soon it was the best-selling bourbon in Kentucky.

Other bourbon brands followed, and Evan Williams Bourbon became the company's flagship. They built the brand by steadily promoting the claim that it was older and higher proof whiskey, for less money, than the leading brands. Today, Evan Williams is third in sales after Jack Daniel's and Jim Beam, and Heaven Hill is a major, international, diversified distilled spirits producer. Its actual size is unknown because the company is still private, owned by the descendants of the five Shapira brothers.

There is no 'Heaven Hill' in Bardstown. William Heavenhill was the name of the farmer who owned the land before the distillery was built. Although its distillery is now in Louisville, the company is still based in Bardstown. Its Bourbon Heritage Center there is one of the best distillery visitor centers in the world.

Heaven Hill is a remarkable and quintessentially American success story.

Friday, October 13, 2017

Counterfeits and Unlicensed Sales in the News



Mea Culpa.

I committed one of the cardinal sins of journalism. I printed a story without corroboration. Thankfully, Chanda Veno of Frankfort's State Journal is a much better journalist than I am. She fleshed out the vague story Buffalo Trace released yesterday by finding the New York state public record identifying the Pappy counterfeiter as Charles A. Bahamonde, 32, of New York, who pleaded guilty in New York City Criminal Court to petit larceny, a Class A misdemeanor. He was ordered to pay restitution and remain arrest-free for one year, and is scheduled to be back in court on January 5th.

Veno also uncovered two other cases supporting last Friday's story about selling whiskey without a license. Both cases involved the illegal sale of Van Winkle whiskey. As Veno reported, "Wade Collingsworth, 45, was nabbed by state liquor agents after advertising a bottle of Pappy Van Winkle’s Family Reserve 20-year on Craigslist. At the meet-up, undercover agents purchased the bourbon for an undisclosed amount. The suggested retail price is $169.99. Collingsworth was charged with a misdemeanor."

In the second case, "Bob Monk, also of the Keystone State, was slapped with an $1,800 fine and misdemeanor charges after purchasing a bottle of 12-year Van Winkle Special Reserve for $59.99 plus tax and selling it to an undercover officer for $500 in December 2015."

Congratulations to Chanda Veno and The State Journal for some excellent reporting.

Thursday, October 12, 2017

Van Winkle Bourbon Takes Action Against Counterfeiters



(The following was provided by Buffalo Trace Distillery)

Pappy Van Winkle Bourbon, the bourbon that is so hard to find it has been compared to unicorns, has become so popular it's often being counterfeited with knock off bottles and illegally re-sold on the secondary market.

The Van Winkles, along with partners Buffalo Trace Distillery, have taken action and successfully provided evidence of counterfeiting which resulted in a resident of New York pleading guilty for his sale of two bottles of counterfeit Pappy Van Winkle bourbon, which sold for $1,500 last year. The defendant will be sentenced in January 2018.

Although this case is the first successful prosecution for counterfeit Van Winkle Bourbon to date, other cases are under investigation. Buffalo Trace Distillery has spent over a half million dollars over the past year alone, to curb online marketplaces potentially selling fake bottles.

With the annual release of the much anticipated Van Winkle bourbons coming up soon, Buffalo Trace would like to take this opportunity to remind consumers to buy Van Winkle bourbons only from licensed retailers.

"Sadly, the Van Winkle bourbons are the latest victim of counterfeiting where innocent consumers are duped," said Mark Brown, president and chief executive officer, Buffalo Trace Distillery. "Avoid buying any bourbon or whiskey, especially the highly sought after ones, from anyone in the secondary market, which includes online private sellers, or in these social media groups that claim to offer genuine products. The only legal and reputable source you should be buying from is a licensed retailer." 

Scam artists have been operating in a variety of ways, some of which include taking empty Van Winkle bottles and refilling them with a variety of other liquids, sometimes cheaper bourbons, sometimes mixtures of products only known to the deceiver.

Nowadays, the con artists have gotten more sophisticated with the ability to print counterfeit labels on home printers and other technological advances. "It's disheartening to see this happening and to see innocent consumers being swindled," said Julian Van Winkle, president, Old Rip Van Winkle Distillery. "We cannot stress enough to be careful, and do not buy your Van Winkle products on the secondary market. The old adage of if seems too good to be true, it probably is, definitely applies here."

Van Winkle cautions that if you see a bottle that does not have a matching face label with a capsule on top with the proper corresponding color, that's a sure sign of fraud. Any consumers that run across suspicious looking bottles or may have purchased a bottle from a source other than a liquor store are urged to call their local law enforcement, their state's Attorney General, or their state Alcohol Beverage Control Board.

Friday, October 6, 2017

Sell Whiskey On the Internet and Spend Six Months in County



Whisky Advocate Magazine devoted most of its Fall 2017 issue to whiskey collecting and whiskey collectors. It is hard to collect seriously if you can only obtain whiskey through retail channels. In virtually all forms of collecting, most acquisitions come from the secondary market, either directly from other collectors, or indirectly through dealers.

But there is a problem. While secondary sale of beverage alcohol is permitted in much of the world, in the United States, with a few small exceptions, it is not. Both state and federal law prohibit the sale of any alcoholic beverage to any person unless you have the appropriate license or licenses. Penalties vary by state. In California it is a misdemeanor, punishable by a $1,000 fine and/or up to six months in county jail.

The exceptions are few. One is auctions, which only a few states allow. The owner of a collection can consign it to the auction house for sale. The auction house has a license from the state that allows it to auction the bottles, paying the proceeds to the collector, less the auction house's fee. Are those sales taxed? I'm not sure, but it's hard to imagine they're not.

Another is states that allow retail license holders to buy 'vintage spirits' from collectors for resale either by the drink or by the bottle. 'Vintage' is usually defined as a product that has not been available on the retail market for some span of years. The District of Columbia allows this. Kentucky recently passed a law to allow it but it won't take effect until January 1.

That's about it. Peer to peer sales are all illegal.

The other side of the coin is that these laws are rarely enforced against collectors. They are really aimed at bootleggers and unlicensed bars. That doesn't mean it can't happen. The laws are on the books.

The legality of buying from an unlicensed seller is less clear, but most people who buy also sell. It doesn't matter if you only trade and no money changes hands. It is the same thing.

Some people will be mad at me for writing this. They always are. Do they think I wrote those laws? Or that the people who are supposed to enforce them wouldn't know about them if I would just stop mentioning it? At the very least, if you sell alcohol without a license, you might want to ask the Google machine what the penalty is in your state.

Thursday, September 28, 2017

Is Stoli Building a New, $150M Distillery for Kentucky Owl Bourbon?



Janet Patton, the best bourbon reporter in Kentucky, has a story in today's Lexington Herald-Leader headlined, "Stoli plans $150m Bardstown distillery for Kentucky Owl Bourbon."

The gist is that the Kentucky Economic Development Finance Authority (KEDFA) has approved $2M in tax incentives for the project.

These KEDFA announcements usually are the first we hear of new distillery projects in Kentucky. The tax incentives are 'if come,' meaning that they only receive the benefits if they actually do the project. This is just a proposal at this point, by no means a done deal. Incentive recipients don't appear to be under any time pressure. Angel's Envy, for example, received its KEDFA approval several years before the distillery was actually built.

Although they are now doing some contract distilling at Bardstown Bourbon Company, everything Kentucky Owl has released to this point has been sourced from an undisclosed Kentucky distillery or distilleries. Earlier this year the brand's creator, Dixon Dedman, sold Kentucky Owl to the parent company of Stolichnaya Vodka. It is Stoli's only brand in the American whiskey space.

Although well-aged bulk bourbon has been in very short supply for the last decade or so, small caches can still be had for the right price. That is why most new non-distiller producer (NDP) brands are very limited availability and super premium. The main way Kentucky Owl differs from other NDP bourbons is it debuted at a price about twice what similar brands charge. That was their bold innovation and it succeeded. Each release has sold out quickly and Kentucky Owl commands a high price on the underground secondary market.

Why? The product is good, too woody for my taste, but many people like that sort of thing. Equally as good bourbons are available for much less, but Kentucky Owl has developed a cachet.

Although the new Bardstown distillery is just a proposal at this point, it is no doubt a serious one. For that kind of money, it will be a plant on the order of Bardstown Bourbon Company or Lux Row. It will join those two newcomers plus Barton 1792, Heaven Hill, and Willett as tourable bourbon facilities in the immediate Bardstown vicinity, with Jim Beam and Maker's Mark each about a half hour from town. All of these new distilleries are a huge deal for the economy of Bardstown and Nelson County.

One assumes Stoli will pay particular attention to the international market for bourbon and whether or not they pull the trigger will depend on continued strong export growth. Stay tuned.

Monday, September 25, 2017

'Tales of the Cocktail' Does It Again



Here is my take on the whole Tales of the Cocktail controversy, as an interested but very much outside observer.

If you are unaware of this controversy, you might want to keep it that way. If not, Tara Fougner gives a good account of it on the 'Thirsty' blog.

The news that has the hospitality industry roiling is the announcement that Ann and Paul Tuennerman are 'stepping down' from their role in Tales, but no one seems to know what 'stepping down' means.

Although Tales is ostensibly produced by the not-for-profit New Orleans Culinary & Cultural Preservation Society (NOCCPS), the Tuennermans are sole owners of a for-profit entity, Mojo 911 LLC, that owns valuable intellectual property such as the names 'Tales of the Cocktail' and 'Spirited Awards,' without which Tales cannot be produced. Mojo 911 also is paid a large fee to run the event. Although the announcement said Melissa Young will become president of Mojo 911, it was silent about the entity's ownership. If the Tuennermans continue to have a large financial stake in Tales, it is hard to see how their 'stepping down' changes anything.

Although the NOCCPS is required by law to file an annual tax return, called a Form 990, which reveals some financial information related to Tales, and which is public, Mojo 911 is under no such obligation. The way Tales is actually funded and run, who benefits, and how much, is a closely guarded secret.

Whoever controls Mojo 911 controls Tales, regardless of titles. Everything else is smoke and mirrors.

This controversy stems from the notorious blackface incident from earlier this year. The behavior of the Tuennermans then was so tone-deaf it appeared that Tales might collapse, but Paul Tuennerman 'stepped down' and Tales created a 'Diversity Council,' moves that induced many people of good will to give them another chance.

The events of this past weekend look to many like the Tuennermans have been simply and clumsily engaged in cynical damage control intended to protect their personal financial interest in Tales, and these 'resignations' are more of the same.

Will there be a Tales 2018?

Should there be?