Third-party spirits need more transparency

14th April, 2020 by Tom Bruce-Gardyne

Sourcing product from a third-party distiller is a big, and somewhat hidden, part of the spirits industry. The Spirits Business investigates calls for greater transparency.

Third-party spirits

Does the third-party spirits sector need more transparency?

*This feature was originally published in the March 2020 issue of The Spirits Business magazine. 

Thames Distillers has helped power the great British gin boom since the evolution began. CEO Charles Maxwell has supplied countless brands with neutral grain spirit, as well as tailor-made gins requiring just a label and a back story. However, since last summer he says: “The UK market has definitely peaked. It had to happen at some point, and couldn’t have kept growing at the same rate, not unless it cleared all the other spirits off the shelf.” Total gin domination might have suited Thames, “but even I would have got bored of that”, says Maxwell. “I do enjoy a whisky and a rum.”

Third-party distillers have always been part of the gin world. The 18th-century craze that hooked London onto gin like the US’s crack epidemic of the 1980s, was fuelled by the big Lowland whisky distillers, whose spirit was rectified into gin. “Traditionally, a gin rectifier was not allowed to distil neutral spirit on the same site,” says Maxwell. He reckons this is still the norm, even for big brands like Bombay Sapphire where the base spirit is tankered into their Laverstoke Mill distillery. “The art of a gin distiller,” he says, “is to turn that neutral spirit into a thumping great gin.”

As neutral spirit is just an ingredient like grain for making whisky, you can see why most gin producers skip the expense of a column still and stick to rectifying, especially when there is an industry set up to supply them. But there are exceptions, like the Borders Distillery in Hawick, whose Kerr’s Borders gin is “100% made in Scotland – juniper berries and botanicals gently steamed in the vapour of our own barley spirit”, to quote its website. “I think consumers know a lot more than we give them credit for,” says director and co-founder John Fordyce. “They must have worked out by now that there are 760 brands on the market and there aren’t that many distilleries.”

Transparency

Talking about distilling your own spirit, Maxwell says: “If you’re going to do it, you’d want to shout about it from the rooftops. Whether it makes a significant difference to the final product I would suggest is unlikely.” Yet many brands sidestep production in favour of using third-party distillers, and this raises the issue of transparency. What brand owners reveal is “up to them”, says Maxwell, “but what I do tell everyone is ‘be careful what you claim’. You’ve got people fossicking away, and if you start making claims that can’t be substantiated or are complete fairy tales it will come home to bite you.” Rather than hide its source like a guilty secret, Fords Gin, which is now owned by Brown-Forman, makes a virtue of being produced by Maxwell, an eighth-generation master distiller.

Blackwater Distillery

Blackwater Distillery

For Peter Mulryan, co-founder of Ireland’s Blackwater Distillery, the issue is even thornier for Irish whiskey. “We’re coming from a situation where we had three distilleries on the island and only one of them producing liquid for sale,” he says. “So, anyone jumping on the whiskey bandwagon had to create nonsense to romance copy for their labels.” The original third-party supplier was the Cooley distillery, now owned by Beam Suntory. Its founder, John Teeling, went on to set up the Great Northern Distillery in 2015, which has become the go-to source for start-up whiskey firms like the Portmagee Distilling and Brewing Co in County Kerry. With ‘distilling’ in its title, you’d be forgiven for thinking that Portmagee has its own distillery. Yet that’s just an aspiration, as whiskey blogger Stuart McNamara, who is part of the project, told listeners to Radio Kerry in January 2019. “The modern business model in whiskey,” he explained is, “you build the brand first, develop your market and then you use that funding to build your distillery.” Speaking of Portmagee’s current nine-year-old whiskey, he said: “We wanted something that reflected Kerry and the Wild Atlantic Way.” However, given that it came from Great Northern, a five-hour drive away in Dundalk, any maritime influence would be the Irish Sea.

Mulryan believes that transparency is an industry-wide concern in Ireland. “There’s a vested interest in blurring the edges,” he says of the big distillers. “Then the small guys take that licence and push it to the extreme. I’ve got absolutely no problem with people using sourced products so long as they’re straight and honest about it. We’re bringing in a sourced whiskey in March, and it will say ‘sourced’ on the back label and have a different name to Blackwater.” He sees trouble ahead for whiskey tourism, with visitor numbers set to hit the Irish Whiskey Association’s (IWA) target of 1.9 million visitors by 2025. “With people coming to distilleries that don’t exist, you do have a problem because then ‘it’s a plague on all your houses’.”

John Quinn, Tullamore Dew’s global brand ambassador, disagrees. He believes the IWA and the country’s Food Safety Authority are keeping the industry honest by calling out those who imply they have a distillery when they don’t. He also feels that as well as providing a valid business model, contract distillers kept Irish whiskey afloat after the war. Tullamore Dew’s distillery closed in 1956, and the brand survived on third-party spirits until 2014 when owners William Grant & Sons sank €100 million (US$108m) into a new distillery. “It’s a huge investment for us and it gives us a huge position of strength,” says Quinn. “If you have your own distillery you are in a beautiful place, but it’s an expensive place to be, and it takes patience and time for that to give you a great return.” Given the expense and the slow pay back, he has every sympathy with those who prefer to source their whiskey from a third party.

In the US, that tends to mean MGP Ingredients, which owns the old Seagram distillery in Lawrenceburg, now called MGP of Indiana. “Sourced whiskey was instrumental in helping the category grow so fast,” says the firm’s CEO, Gus Griffin. But it also provoked something of a media backlash, including an exposé of the craft movement’s ‘big secret’ by Eric Felten in The Daily Beast in 2014. A year later, MGP client Templeton Rye settled a class action lawsuit for US$2.5m, and agreed to remove the words ‘small batch’ and ‘Prohibition-era recipe’ from its front label, and add ‘distilled in Indiana’ on the back, having been sued for ‘deceptive marketing’.

MGP_Barrels

Maturation: MGP Ingredients

“There was a little bit of a ‘gotcha’ phase a couple of years ago and a sport of outing brands that had sourced their whiskey,” Griffin concedes. “I think we’ve moved beyond that, and it’s really about appreciation, enjoyment and continual learning, and less about who owned the still it came off.” MGP is one of the five largest Bourbon producers and suppliers in the industry, making more than a million cases of the spirit. Its customers range from tiny boutique brands to major players – including Bulleit, until 2015 when its owner, Diageo, built a US distillery. Griffin explains how MGP operates, saying: “At the most extreme you could come to us with a final recipe that we would make to that specification. More common is someone who wants to blend a bespoke product from our existing mash bills, and we have 14 of them.”

Statement of quality

On the issue of transparency, he says: “It was certainly a cry several years ago, but I think most of the brand owners are being transparent. In the early days some people were trying to hide the fact, but as acclaim for our quality became better known it really pivoted 180 degrees, where people were very proud to say they got their product from MGP. It was a statement of quality.” However putting Indiana on your label doesn’t pack the same punch as Kentucky or Tennessee, as Colin Spoelman, co-founder and head distiller   New York’s Kings County Distillery, explains: “MGP is less than a mile from the Kentucky border, and Lawrenceburg and the greater Cincinnati area have deeper whiskey history than many parts of Kentucky, but like Scotch whisky, French wine and Wisconsin cheddar, the primacy of Kentucky Bourbon will be forever.” He suspects the firm has lost business to some of the new contract distillers in Kentucky, which may partly explain the recent fall in MGP’s stock price.

But whatever trickery you may find in the west, it is nothing compared with Japanese whisky, whose lack of rules have been exploited to the maximum. Japan has long imported bulk Scotch for blending with its own whisky – which is then labelled as ‘Japanese’. “Mostly it was used for low-end, locally sold blends, as Japan never had the capacity to supply domestic demand,” explains whisky writer Dave Broom. “The problems started when Japanese whisky became popular internationally, coinciding with the industry’s inventory hitting the massive hole caused by low or no production from the 1980s onwards. It’s then that you see the chancers taking advantage of the lax regulations to create Japanese brands, or re-labelling aged shōchū as whisky.” Amazingly, the latter can be sold as whisky in the US, but not in Japan. Suntory has been pushing for tighter rules before the category’s reputation is tarnished for good.

For the most part, the trade may appreciate the role of third-party distillers in creating a buoyant spirits industry. What is evidently needed, however, is better communication and greater openness so consumers never feel duped by the products they buy.

Creamy Creation

Creamy Creation is a leading cream liqueur brand

Creamy Creation

Creamy Creation was established in 1979, and has grown into one of the world’s leading suppliers of creamy liqueurs. As the company has grown, so too have consumer demands. So what will be the big trends and innovations coming from cream liqueurs in 2020?

“Consumers continue to explore more diverse milk alternatives that do not compromise indulgence and mouthfeel,” explains Jeroen Huiskes, global innovation manager. “A great example of this movement is the increased popularity of coconut, almond and oat milk products. We definitely expect this to transition into the cream liqueur category within the coming years. We offer numerous dairy alternative cream liqueurs, but are continuing to innovate with new ingredients.

“The no- and low- trend is here to stay. This category definitely has the attention of the industry, as an increasing number of companies are adding no- and low-ABV products to their portfolios. This trend is no stranger to the cream liqueur segment, as we are seeing more indulgent mocktails and low-ABV coffee with cream products hitting the market.”

“Consumers are still looking for products that are more ‘natural’ and premium, with minimal artificial ingredients. We responded to this trend by recently launching a line of concepts containing botanical and herb oleoresins. This line extension taps into the better-for-you trend while still offering a rich flavour profile, without using additional flavours.”

One Response to “Third-party spirits need more transparency”

  1. Hi Tom.

    James here from the English Spirit Distillery. Really enjoyed this article – great feature. Of particular interest was the following:

    Talking about distilling your own spirit, Maxwell says: “If you’re going to do it, you’d want to shout about it from the rooftops. Whether it makes a significant difference to the final product I would suggest is unlikely.”

    I just wanted to share an opinion with you incase you found it of interest off the back of writing this article. At English Spirit, we distil a wide range of spirits from our own base alcohol: for our English Spirit collection as well as under contract as a third party distillery for approx 30 other brands. We make vodkas, gins, rums, brandies, single malts, sambuca, liqueurs and more: all from scratch.

    One of our core beliefs is the opposite of the opinion listed above: making your own base spirit, if you do it properly, makes an overwhelming difference to the final product. We think there’s a strong correlation between the trend of using a third party spirit as a base for your gin, and rarely opting to drink gin neat (requiring lots of tonic instead to make it appetising) as well as needing to leave a whisky or rum in a barrel for 3+ years to let the wood do the work of making it palatable. We are unusual in that we believe in distilling an extremely high quality base alcohol, before extra flavouring or ageing – which means the gins we produce can be sipped neat, or that our dark spirits require very little ageing to be fantastic. We think this makes our distillery one of a kind and represents the future of quality distilling and premium spirits.

    Not sure if any of this is of interest, but if you’d like to have a chat and trade notes on anything then you are welcome to drop me an email or call, I’d be happy to catch up.

    Best,

    James Lawrence
    General Manager, English Spirit

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