Never Going Back Part II

My boss has an old advertising from K&L posted to the bulletin board in his office. It's from April of 1986.

Some of the Bordeaux producers listed have become cult favorites. Others not so much. As a result of interest in the category in general, all can justify higher price tags. When people pay more for specific whiskies, it can allow for the industry to raise their prices as a whole. Take a look at what's happened in Bordeaux since the 1980's:

2010 Gloria, based on purely inflation from 1986, should cost around $20 today, according to the WestEgg Inflation Calculator. Right now, if you order on pre-arrival, it's $50, so probably more like $60 retail by the time it gets here. That's triple what inflation says it should cost and no one is really going ga-ga for Gloria. 2010 Prieure Lichine is $65 on pre-arrival, so figure about $80 retail. 2010 Brainaire-Ducru is $80 on pre-arrival, so figure $100 retail. 2010 Cos de Estournal is $330 on pre-arrival, so figure $370 or more retail. 2010 Lynch Bages is $175 on pre-arrival, so figure $200 retail. You can see where this is going.

No bubble popping yet in Bordeaux. These bottles are selling with ease.

-David Driscoll


Whisky Bubble? We're Never Going Back

I've written extensively about how escalating whisky prices are not making consumers happy. I know a good amount of customers who have been priced out by their favorite whisky companies, forcing them to look elsewhere for something they can more comfortably afford. Shortages of stock. Shortages of barley. Mass consumption. A rise in interest. Asia. There are plenty of explanations when it comes to why your favorite bottle is either impossible to get or costs an extra twenty bucks. They don't have enough to sell you and those who want it are willing to pay extra. Supply and demand. "David, I can't afford these prices anymore!" I hear it all the time.

However, most of you know this already. Many other whisky writers have covered this topic as well. What I want to consider today is the very realistic possibility that prices are never going to go back down and in all likelihood will continue to creep higher. While we're basing our bubble speculation on other historic whisky crashes, or the housing and mortgage crisis (previous examples of overextension), I'd like to suggest what is perhaps a more accurate comparison: Bordeaux wine. I read a lot of comments from whisky fans who write things like, "I can't wait until this bubble crashes so I can get my Pappy when I want it." That's what Bordeaux fans said about the first-growth wines ten years ago and guess what: it's only become worse and there ain't no crash comin' in Bordeaux. I still don't think we've seen the ceiling yet.

Back in the early 1980's people were drinking first growths and second growths without worry. They weren't inexpensive, but they weren't outrageous either – no different than what the Van Winkle or A.H. Hirsch bottles ran in comparison to other Bourbons on the market ten years ago. A bottle of Lafite might run you $40 to $50. Cos de Estournel might be $20 or less. Pichon-Lalande maybe $15-20 or so. When wine sales started to pick up in the 1990's, the prices started to pick up as well. Bordeaux fans were not happy about this. Our own expert, Ralph Sands, heard nothing but anger from his long-time K&L customers. "We can't afford these bottles anymore!" they would say. "We're being priced out by the Bordelais!" The same factors that affected the whisk(e)y market were at work in Bordeaux: supply, demand, a renewed interested, more money, better quality, Asia, all of it. Bordeaux became fashionable, trendy, and a sign of wealth. It became a status symbol again. People were willing to pay more money for wine because wine was important.

Flash forward to today. Despite a recent lull in Bordeaux sales, the prices are still higher than ever. $15 for a bottle of Pichon-Lalande? Try $230. Fifty dollars for a bottle of Lafite? Try $700. The math says that $10 in 1980 had the same buying power as $28 today. This isn't just basic inflation at work here. Prices in Bordeaux never went back down, they're not going down right now, and they're never going to go down again. There is no bubble in Bordeaux because the whole thing has turned into a luxury contest. Are Ferraris going to go down in price because there's a recession? Sales on Lamborghinis? I don't think so. Are the same customers who once enjoyed Bordeaux for a reasonable price going to ever be able to afford Cos de Estournal again? Nope. Ralph talks about it all the time. "I lost ALL my best customers when this happened," he told me yesterday. He had spent years cultivating a list of enthusiastic customers who he shared his advice with, but they soon had to look elsewhere for value. Ralph now has a totally new enterprise that he runs as a side gig to his K&L job. He flies out to Hong Kong once a year to do Bordeaux advising for enthusiastic Chinese customers. There's a gigantic Bordeaux movement going on in China with the new economy and they love their red wine.

Whisky prices may never go back down again. Personally, I think this is a certainty because, like the Bordeaux market, there are other people out there willing to pay. Just because we're getting priced out doesn't mean that whisky isn't advancing into an entirely different socio-economic bracket, rife with money and the ability to throw it around at will. I haven't gone into much detail here, simply because I'm writing this while eating cereal before work – I don't have much time for specifics right now. However, I've been listening to Ralph talk about the changes in Bordeaux over the last two decades and it all sounds very familiar. It sounds exactly like what's happening in the whisky business. The same changes, the same complaints, and the same end result.

Bordeaux prices are more expensive than ever. No going back.

-David Driscoll


Bowmore Tasting in SF Cancelled

Due to illness our Bowmore representitive will not be able to make the tasting tonight in San Francisco. We as a retailer cannot pour the spirits ourselves as stated in California law, so unfortunately we will have to cancel tonight's tasting in San Francisco. Sorry for any inconvenience.

-David Driscoll


Introducing Our New Handy-Dandy Whisky Brochure

After such great adventures and fantastic visits with so many friendly and interesting Scottish whisky producers, we thought we should go one step beyond the blog this year. We wanted to do something in print that was easy to understand and could reach a broader audience than the already initiated. We decided to write a big, fat brochure, fresh with color photos and descriptions of where we went, who we met, and what we bought. For those of you who don't shop locally here in-store and don't get our mailers, I've attached a PDF version here that you can download and read at your own leisure.

This document breaks down single malt whisky, why single casks are different, and how we look for barrels while we're traveling. I would appreciate any feedback as well. I'm always hoping to come across as easy-to-understand and clear, so hopefully we accomplished that our first time around.

Let us know what you think!

Download the new 2012 K&L Whisky Brochure Here!

-David Driscoll


Business Before Pleasure, Ego Before Business

Sometimes change makes people upset - especially older people. I had my 33rd birthday yesterday and I'm definitely less comfortable with change than I was last year. That being said, I've learned to reign in my temper for any discomfort that change tends to cause because what good is anger going to do? Instead of going ballistic last weekend when we got to the movie theater 45 minutes early only to find that Lincoln was already full, I didn't let it phase me. That's how it works these days. You've gotta get there hours ahead of time to hold down a seat. When I found out recently that Jack in the Box no longer sells carrot cake (and hasn't for some time, I guess), I didn't take it out on the attendant. I just said, "oh, bummer."

That's not always what happens, however. Not everyone has trained themselves to deal with change, especially booze customers. Not the guy who had been buying handles of Ballantine's from us for ten years ("I'm sorry, sir, that's not really our deal anymore"). Not the guy who's stopping in to look for Bombay Sapphire ("What the hell kind of liquor store is this that you don't have Sapphire?"). Not the guy who got the email earlier in the day, only to drive over and find it's all sold out ("But I just got that email earlier this morning!!!!"). The booze world is changing. It's always been in flux, but today's boutique market is a far cry from what most shoppers are used to seeing. Niche products, smaller producers, and online inventory with will call ordering? What the heck happened to to stopping by for a fifth of Jack?

No subject is more sensitive, however, than the Pappy Van Winkle supply. "I remember when I could just walk into K&L and get it whenever I felt like it!" Those were heady days, indeed. When those days suddenly came to an end back in 2010, things got a little tense around the store – for me included. I was so caught off guard by the reduced allocations we received for Pappy Van Winkle that year that I didn't know what to do. I was really upset. Partially because I knew my customers were going to freak out. Partially because I thought we deserved more. Partially because it was such a smaller number than it had ever been previously. In 2010, however, I had not trained myself properly for change. I still spoke with my ego first. I cared more about my needs than about K&L's business. I fired off one humdinger of an email.

As our insider email list has grown over the years I've come to realize that not everyone on it actually shops at K&L. There are plenty of industry people who have added their emails as a way to keep tabs on what we're doing. So when my ego got the best of me and I vented my frustration about the situation (I don't remember exactly what was said – something about "making me want to puke" and "looking forward to selling more Four Roses"), the dookie hit the fan. That email went viral. It circulated throughout the booze industry and it wound up in the inbox of every Buffalo Trace employee who mattered. It would become known around K&L as "The Sazerac Incident."

After a brief exchange of blows and a small attempt on their part to get me in trouble (no hard feelings, guys), I eventually apologized for my outburst. Sazerac had pushed for a public apology, but K&L ownership wasn't really all that upset. I hadn't lied about the decrease in allocations, so while my language had been colorful, the message had been all truth – we were getting less Pappy than ever. Nevertheless, I wanted to apologize because I knew deep inside that I was being a total prick. I was playing the holier-than-thou role, the way a hot-head diner blows up at the waitress for spilling a glass of water. "How dare you do this to me!" There was actually a very good reason as to why these allocation cuts happened and if I had stopped to think about this first, I might have spared everyone this hot mess.

BevMo is the largest liquor retailer in California, but they're a bulk-item store. They never really dabbled in the boutique market. When their Sazerac rep would come around every year, offering them a a few cases of Van Winkle Bourbons, they looked at both the price and the quantity and said, "Why would we want these?" As a retailer, there's not much profit in the Van Winkle portfolio. They're more of a status symbol or a way to reward loyal customers. BevMo could make more on daily sales of Gordon's gin, than in Van Winkle sales. Most of their Bourbon selections were around twenty bucks. Who in the hell was going to pay seventy? In 2010, however, with the retailer market changing and the rise of consumer interest in Bourbon, BevMo decided they wanted in on this whole Pappy thing, as did many new retailers who had for years had paid little attention to the items. That meant the unused allocations for 100+ BevMo stores plus every other Sazerac account, which previously had been given to smaller boutique retailers, was now actually going where it was supposed to go. That meant no more thirty bottle allocations of Pappy 15 for K&L. It was going to be more like six.

(CORRECTION HERE: Sazerac has been selling Pappy to BevMo for more than 10+ years, but not all accounts took their full allocation. It was a combination of this, plus other accounts, plus lower yields)

Since BevMo is clearly Sazerac's biggest account in California (remember that they also make things like Fireball Cinnamon Whiskey and Rain Vodka), it only makes sense that they should get the largest allocation. It wasn't so much the principle that made me mad as much as it was the instant change. Change was freaking me out because I had more people asking about Pappy than ever (now it seems like nothing) and I was getting fewer bottles to cover that spread. Imagine all the heat that they were getting, though. Imagine the phone calls, the pissed off vendors, the bars, the restaurants, the customers – all bitching about not getting their Pappy. What a mess! It wasn't their fault, however. It was the way the market was heading. Times were changing. More people wanted Pappy, but there weren't any more bottles being produced. We needed to understand this coming market trend and adapt to it.

In the end, a few people from Sazerac reached out to me. We made our peace. I did a podcast with master distiller Harlen Wheatley. We started a robust single barrel program. I became closer with my new rep Dennis Tobin, who I now try and bother as little as possible because I understand what he's going through. When I have customers going to Kentucky, I call Amy Preske (who is incredibly helpful and works around the clock to set up appointments for K&L shoppers) and she makes sure they're taken care of. We've got a pretty good business relationship going right now because we realized that our anger wasn't going to solve anything. In the end, we wanted to put bottles in peoples' hands and we wanted them to be happy. Having a spirits buyer with an overblown sense of entitlement wasn't going to help K&L or Buffalo Trace. Neither was getting him canned.

Doing business requires us to see beyond our anger and look at the big picture. In the case of Buffalo Trace, they're being bombarded by requests for products they don't have. They're having to spread the wealth as far as possible, which means it's being spread thinly. Unlike another company I know of, however, Sazerac has always been up front with us and answered the phone when we needed to chat. They've been adamant about keeping things positive and moving forward with our relationship. I've learned that, unless I've completely thought through every angle, I need to keep any knee-jerk reactions to a minimum. I should have called Sazerac first before sending out an email. They would have wanted to explain why this was happening and work something out.

Talking things through makes good business sense. I'm wondering why another large company won't do the same.

-David Driscoll