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Tuesday
Feb142012

The State of the Independents

Most of you reading this blog regularly understand what an independent bottler is and how they function. However, as we're adding more new readers here every day, I'll refresh everyone's memory just in case.  Along side the major whisk(e)y brands, there are numerous other Macallans, Caol Ilas, and Highland Parks not labeled with the standard packaging we're familiar with.  It's because, while these whiskies were still made by their respective distilleries, they are from barrels long sold off to another party.  It has long been tradition in Scotland for a distillery to sell off extra casks in times of surplus, which has allowed for independent companies to purchase whisky they did not make, create a label of their own, yet still market the single malt under the banner of the distillery that provided it. 

Chieftain's, A.D. Rattray, Signatory, Gordon & MacPhail, and Hart Brothers, just to name a few, are all examples of independent bottlers.

I've become pretty good friends with Stan Morrison from A.D. Rattray over the last few years.  We both enjoy going out to new restaurants in San Francisco when we have the time, so we met up last night at Locanda for some delicious Italian cuisine.  I ordered a cocktail, Stan wanted some rye so he asked what I would suggest.  They had Pappy 13 on the menu.  I told the waiter to bring him some of that, if they indeed had it available.  The waiter said indeed they did.  Then he came back five minutes later and said, whoops, indeed they didn't.  "Not surprising!" I said.  Stan's family used to own Bowmore distillery (along with Auchentoshan and Glen Garioch) on Islay before Suntory bought them out in 1994.  They used some of their backstock to create A.D. Rattray, where, not surprisingly, they still put out amazing expressions of Bowmore, amongst other distilleries.  We generally talk about non-whisky related topics, but naturally we're going to eventually talk shop.  Last night, Stan echoed some of the sentiment about independents that I've been hearing for a while now.  Getting new casks is currently not easy.

"Why would a distillery ever sell their casks off?" I asked at one point.  While I know there's profit to be made, a distillery probably stands to make as much percentage-wise as K&L does from Pappy Van Winkle - which is to say almost nothing.  What is really to be gained other than allowing someone else to capitalize on your name?  Stan said that the whisky industry has always been full of peaks and valleys.  Producers up their production in times of profit, and, should they ever find themselves in a glut, they can sell off excess whisky to other interested parties.  The independents are always there to keep the balance in check.  What's interesting right now, however, is that we're in the middle of a recession, yet sales of whisky are through the roof.  You would think that this would be a moment of excess, yet distilleries are finding themselves short of supply.  Stan thinks this will all right itself in a few years since most producers are currently increasing their operations, but none the less, he said that independents are all scrambling to find a way of controlling their own production.

Cheiftain's, in my opinion, is sitting prettiest at the moment.  They purchased Glengoyne from the Edrington Group in 2003 and found themselves in a wonderful position.  You see, Glengoyne is an ingredient in some of Diageo's blended whiskies, which means that Diageo needs to offer up something in exchange - be it casks of Lagavulin, Caol Ila, or what have you.  Not only has Chieftain's found a way to control its own supply of whisky, it managed to sustain its independent barrel trade as well by finding a permanent stream of access into Diageo's vault.  That's why they can make the Isle of Skye blends with Talisker whisky.  While Signatory bought Edradour and Gordon & MacPhail purchased Benromach, neither of those distilleries are nearly as successful, at least not here in the states.  Duncan Taylor tried to purchase Glendronach, which would have been a fantastic move, but they were outbid by the Benriach group.  Stan has admitted to a few inquiries into available real estate, but nothing has materialzed so far.  I think they've got something up their sleeve, but I didn't press him for what it is.

Stan also talked about how other invested groups are planning to build new distilleries in Scotland, an idea that both of us find terrible for the moment.  However, back here at home, many U.S. companies are following that model.  High West, Templeton, Whistle Pig, and Willett are all examples of independent bottlers who have recently begun, or plan to begin, their own distillation while they currently sell whiskey from other distilleries.  They're all facing the same problems here in the U.S. - not enough whiskey.  Buffalo Trace isn't selling - they've already announced that Sazerac, Eagle Rare, and Elmer T. Lee are out for 2012, so how could they have extra for anyone else?  LDI has been purchased, so the source for High West, Templeton, Bulleit, Willett, Big Bottom, Hooker's House, Redemption and other independently-bottled brands has dried up.  How else do you get more product other than by making it?

The problem with making it is time.  By the time your new product is ready to sell, the other distilleries will have caught up in their own production and will likely have extra whisky again.  Or maybe not?  How long will sales continue to grow?  What if China collapses and the Asian market shrinks as fast as it has expanded?  These are all business decisions I'm glad I'm not facing.  Meanwhile, the quality of independently-bottled whisky has proceeded to decline.  If we're in a take-what-you-can-get market, then that's what were going to be presented with.  It's the main reason that David and I decided to go to Scotland ourselves. Hopefully this May we'll still be able to find some fantastic options.

-David Driscoll