How long will demand outstrip supply in American whiskey?

The widely reported shortage of American whiskey has consumers stocking up on their favourites, but it seems distillers are nothing but confident.

American whiskey producers have been struggling to balance supply and demand for a number of years

*This article was initially published in the January 2015 issue of The Spirits Business magazine

More than four decades separate the last time American whiskey experienced the kind of sales success it had in 2013.

According to figures from the International Wine and Spirit Research (IWSR), American whiskey sales increased by 6.8% in volume in that year. Its revival has been attributed in part to the renaissance of classic cocktails, aided further by the craft distilling movement and a stronger focus on quality and heritage across many brands.

But the unforeseen rise in popularity has blighted some producers with worries over whether there are adequate supplies to meet the demands of thirsty American whiskey drinkers. In 2013, Buffalo Trace Distillery warned of a shortage of flagship Bourbons such as Eagle Rare and Buffalo Trace, resultant of the category’s escalating popularity. Back in May last year, Mark Brown, CEO of Sazerac (Buffalo Trace’s parent company) admitted the distillery was still around “100,000 barrels short of where it needed to be”. Elsewhere, in a controversial move, Maker’s Mark announced plans to lower its abv in order to stretch supplies, but quickly retracted the decision after a backlash from furious fans.

Balancing the books

For small distilleries in particular, it seems the shortage is a real cause for concern. The challenge now for distillers like Paul Hletko, founder of Few Spirits, to avoid calamitous deficiencies all boils down to “balancing the books”.

“I definitely think we have more demand than we have supply,” he says. “We have to balance what we can make against what we can sell. Part of it is the ebb and flow of the market, and historically it tends to refigure. But it’s going to be a little bit like growing pains – for us there’s only so much volume out there.”

For the main part though, it is expected larger producers should be able to weather the storm and come out the other side relatively unscathed. “The larger players like Beam Suntory and Brown-Forman have got what they need today to address the shortage woes and intercept growing demand,” remarks Frank Coleman, vice president for the Distilled Spirits Council of the United States (DISCUS). “There may be some tensions of a particular product within brands but overall the big companies have done what they need to address the growing phase.”

A number of brands, including Diageo’s Bulleit Bourbon, are increasing capacity with multi-million dollar expansions

“Media hype”

So is this a problem solely rested on the shoulders of small craft distilleries? And is there really a need for the industry to be concerned that demand will greatly outpace supplies? Recent rumours have played down the severity of the situation, blaming the matter on “media hype”.

But it’s a view contested by Kris Comstock, brand manager of Buffalo Trace, who says his brand is still very much in the thick of struggles with stock shortages. “There’s American whiskey to be had – the shelves aren’t bare by any means,” remarks Comstock. “Our production’s increasing and it has been increasing for over a decade, and each year we make a bit more than we did the previous year. In theory we will catch up at some point.”

The fact of the matter is there is just no telling how long producers and consumers will have to endure the shortage for. While forward-thinking distillers are able to activate measures to cater for stocks years from now, achieving the right balance for the near future is no easy task for a category that has a time gap of several years between production and sales.

While little can be done in the present moment to alleviate the strains on stocks, companies are formulating contingency plans to fully equip themselves for future demands.

Last year saw several large investments in expanding and building new American whiskey distilleries. Diageo coughed up US$115m (£74m) into building a new distillery in Shelby County, Tennessee, while Buffalo Trace bought an enormous 233 acres of land to create single estate Bourbon and rye whiskey, nearly tripling the size of its landspace in Frankfort, Kentucky to 378 acres.

Yet while Diageo’s US$115m may seem like an eye-watering amount of money, in reality it is short change compared to the £1bn pledged for Scotch in 2012. But devastating declines in Scotch whisky sales last year forced Diageo to put its Scotch investment plans on ice. In order to avoid a case of history repeating itself, despite the category’s progression, American whiskey producers are being especially cautious about the investment routes they take. 

Buffalo Trace is managing its stock levels, but admits there is some faith involved

Faith needed

“It will be careful growth over several years,” reasons Comstock. “We don’t want to get to 2022, 2024 or 2026 and all of a sudden we have copious amounts of whiskey just sitting there not selling.

“We are very careful about how we expand, but there has to be some faith.”

Regarding Scotch declines, the industry seems torn as to whether American whiskey is cannibalising Scotland’s native spirit by taking sales from the segment. Balcones brand ambassador, Winston Edwards, is inclined to see some truth in the possible correlation between Scotch’s demise and American whiskey’s ascent.

“It would seem that way,” he suggests. “American whiskey isn’t just trendy, it’s far more inexpensive than Scotch, which makes it more accessible for the average imbiber. American whiskey is also penetrating a younger demographic, opening up a whole new generation of customers that previously favoured clear spirits.” Other industry professionals are dubious, arguing the styles are two different entities, capable of “building on each other”. Instead, the finger is pointed at white spirit drinkers jumping ship to enjoy the “fuller flavours that American whiskeys have to offer”. “There are a lot of people who are becoming bored with white spirits,” says Hletko. “Many consumers are looking for quality, well-crafted spirits that have rich, robust flavours with brands that have authenticity and provenance. Bourbon and American whiskey producers have done a nice job in telling that story and being transparent and open about how they go about crafting these fine whiskeys.”

In the year to come, many producers are envisaging “much of the same” for the American whiskey sector, with forecasters predicting the category to grow by a compound annual growth rate (CAGR) of 4.6% between 2013 and 2019. While the US remains the sector’s largest country based on consumption levels, producers are eyeing potential in Asian markets such as Japan, Hong Kong and Singapore. But as Comstock concludes, if demand continues to outpace brands’ inventory supplies, the harsh reality is the category may never be able to catch up.