Second Wines, Third Wines

For those of you who don't drink Bordeaux, let me explain what second and third wines are. The top Chateaux have their namesake labels, their tete de cuvée, that they produce every vintage without fail. Chateau Latour makes Latour and Chateau Lafite makes Lafite. There are sometimes great vintages in Bordeaux and there are mediocre ones as well. You would think that good vintages would mean plenty of Chateau Latour and in bad vintages less, but that's not quite how it works. When you're in the luxury business you can't have too many bottles available on the market. That would lower your product's perceived value! That's what second and third labels are for - "we'll just put the extra wine into a different wine called Les Forts des Latour," something Latour has been doing since 1966.

In lean vintages, the best grapes are obviously all used up in the top cuvées. In better years, you can really get some great values in the second and third labels because of the surplus in quality fruit. The point, however, is that even when they have extra juice they make sure not to let that affect their market price. Right now we're experiencing a shortage of mature whisk(e)y and prices are therefore on the rise. While I received quite a few emails from readers last night who didn't think the Bordeaux analogy held up, I think it might be dead on. Readers disagreed that whisky stocks would forever remain low and that prices would eventually go back down. However, the quantity of stock is always fluctuating in Bordeaux, yet the prices keep going one direction - up!

Let's say that the whisky industry does eventually reach a surplus after all this extra-production kicks in. Do you really think companies are going to lower their prices as a result? Make less money? Not if people continue to pay them. Everything that happens in the booze industry, or in any industry for that matter, is based on what people will pay and what they won't. I remember when people kept complaining about how major magazines were only reviewing $300 - $500 whiskies on a regular basis. "No one actually drinks that stuff! We need reviews about whiskies we can actually afford!" However, people are buying these bottles. We're selling them at K&L just by putting them on the webpage, letting internet shoppers pick from our finest selections. There's much more money to be made from $300 bottles of booze than $30 selections. A lot more, which is why Bordeaux producers put everything into their top wines. That's where the money is, so that's where their focus is.

What happens if whisk(e)y companies start focusing their best barrels and back stock into $200 and $300, or $2000 and $3000 bottles? I think this is already happening. We might see older expressions before if the distilleries had the mature whisky to bottle, but now we're seeing concerted efforts to produce luxury-status booze whether it should be luxury or not! We're currently facing a shortage of Elijah Craig 18, but Heaven Hill still found a way to release some 20 year whiskey this year. The 18 sells (or once sold) for $50. The 20 ran for $130. That's only two years difference. "Wait! You're telling me that if we wait an extra two years we can charge people an extra $80. And they'll still pay it? Gentlemen, tell me about this 20 year old whiskey we're working on!" We might see all the whisk(e)y we used to enjoy for a reasonable price start going into pricier, more luxury-focused bottles with very limited quantities. Especially when there are no age statements.

Another facet that readers disagreed with was that prices could remain high with newer producers getting into the game. This works in just about every other industry when prices get too expensive. Some new start-up will always come along, a la Jet Blue, and begin taking business from larger companies by offering discounted rates. Is this really happening with whisk(e)y though? How many new producers (in the last three years, let's say) have you seen pop up that have been bringing value back to whisk(e)y drinkers? I can tell you how many I have seen: zero. If anything, new producers are having the opposite effect! They're facing larger upstart fees, sliding scale production costs, and a need to start selling their product before it's even ready. They're coming into the market with higher prices for younger whiskies. When people start paying $40 for one-year old or even unaged whiskies it makes the larger companies scratch their heads.

If the public is willing to pay $40 for new make, then what should our 12 year old Bourbon cost? Hmmmm.....

Everything is relative to what people will pay.

-David Driscoll


Movies For Guys Who Like Movies

I'm the kind of guy who never buys the same bottle of whisky twice. I like to always keep something new in the bar. Right now I'm sipping on the new Royal Lochnagar Distiller's Edition, a whisky I have never before purchased, but am enjoying immensely.

However, I am finding that as I get older I am less interested in new music. I am less interested in new movies. I just want to listen to and watch the things I am already familiar with. They comfort me. They help me through the cold winter weather. I am getting old. That's what old people do. They're not up to speed with pop culture.

All time greatest albums?

1) Pavement - Wowee Zowee

2) Red Hot Chili Peppers - Blood Sugar Sex Magik

3) MF Doom - Mmm....Food

4) Deerhunter - Microcastle

5) Tears for Fears - Songs From the Big Chair

At least, those are the five albums that I could listen to on repeat and never get tired of.

Best movies of all time? In this order:

1) Ski School

2) Roadhouse

3) Kickboxer

4) Bloodsport

5) Rambo 4 (I am watching this right now, hence the motivation for this post)

I could put these movies on a 24 hour loop and I would never get bored. If they are on TV I will invariably watch until the end from whatever point I tune in at.

Whisky, however, is an entirely different animal for me. I do not want to taste the same thing over and over. I want new stuff. New products. New flavors. New producers.

I want more.

Pass me that unopened bottle, please. John Rambo is telling the missionaries that they have no business in Burma.

-David Driscoll


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