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

David Driscoll