2013: Money Changes Everything

Since we're all taking turns on the whisky blogosphere exchanging summaries and rehashing the year that was, let me add my own observation to the mix. For me, the big story of 2013 was that whisky producers began to realize how much their product was actually worth. It was also the year that whisky enthusiasts realized whisky companies don't produce whisky for the fun of it, but rather with the intention of making money. If people were willing to pay more money for their product, then why would they offer it for less? With the exception of a few old-school producers, any company with whisky to sell probably sat down, had a meeting, and explored the idea that they could all be making a lot more coin than they were currently earning. Prices had been creeping up for the past two years, but 2013 was the moment that everyone realized this whole whiskey explosion wasn't a bubble--prices were here to stay, so long as the inventory remained low.

Money has a strange way of affecting the way we think as humans. When the profits begin to roll in there's a certain complacency that tends to take over--a laziness that eventually ruins those who allow it to consume them.  I won't lie. There were moments in 2013 where David OG and I tasted casks, looked at the price, and said, "we could sell this for double what we paid and no one would care." There were moments in 2013 where we began to think about profit projections and total gross sales rather than how we could find something new and exciting. But thank God we quickly came back down to earth. There isn't a retailer out there who didn't experience a huge boost in spirits sales during 2013--the world is simply rediscovering its love affair with liquor and they've got no choice but to buy it from a licensed retailer. But if you let those dollars cloud your judgement, ruin your customer service skills, and trick you into thinking your customers need you more than you need them, you're headed for certain doom. For this reason, David and I made sure never to mark any product up more than our standard margin, no matter how much more we could have sold it for, and we upped our customer service hours to make sure we were communicating directly with this new influx of customers.

Nevertheless, there were plenty of producers, distributors, importers, and retailers who saw the potential cash grab available to them in 2013 and decided they were going to milk this baby for everything it was worth. I won't name names (because ultimately I still have to do business with all of these people), but you know who they are. They're the companies who abandoned any devotion to their core constituency and began catering to those who were willing to pay. Who's to say that a company shouldn't look out for its shareholders? And who's to say what any one company can or cannot sell their products for? As consumers we can simply choose not to buy them. Nevertheless, the idea of selling whisky for large sums of money made some people very upset. When those high-priced bottles actually sold out those people were even more incredulous. Why? Because it confirmed what they didn't want to admit was the case--there actually was a market for $350 bottles of Bourbon and $2000 bottles of Scotch. And if there's a market for something there will always be someone out there to profit from it.

Money changes everything, and change tends to scare people into mad fits of bitter rage. We're seeing it here in the Bay Area right now with the anger being directed towards the tech industry. Rents are going up. But who's actually raising them? Not the tech workers, but the landlords renting to them. Why are they raising them? Because they know they can get more money. Housing prices are going up. People who bought in for $200,000 are cashing out for a million. Why? Because they can. Whisky collectors are choosing to send their beloved bottles of Pappy to the auction houses. Why? Because who doesn't want a $3000 check when you've got extra bottles laying around unopened? Money, money, money, money, money!!! Who can say no when it's being thrown right there at your feet? 2013 was the year when many producers simply said, "If you can't beat 'em, join 'em." Even the "fiercely independent."

But you know who could have cashed in and didn't? The Van Winkles. There are people out there paying $500 for a bottle of Pappy 20 on the black market, yet Sazerac sold us our allocation for about the same price as they usually do. And we sold our bottles at K&L for $120 -- about 1/4 of what we could have sold it for. The Van Winkles could have tripled the price and millions of people would have gladly paid it. We had plenty of email offers from customers willing to shell out if we would forgo the raffle and sell directly to them. In fact, most of Kentucky kept their pricing relatively the same despite a shortage of product. We got the vibe this past October that there was a sense of pride among producers in remaining traditional and creating a product for the working class. The numbers show that customers responded to this philosophy by increasing their business with these companies, but you don't need to check the stats to know that more people are crossing over to Bourbon than ever before. While there is a bit of anger about decreased availability and the rise of trophy-hunting consumers, there are still more than thirty quality selections of Kentucky whiskey on our shelves at K&L for less than $30 a bottle.

Normally when prices rise it creates the opportunity for new companies to come in and undercut the margin to win over new consumers. The craft whiskey industry, however, used 2013 to prove they were completely inept in their ability to offer consumers a better value. We mostly just got whiskey that was actually more expensive and tasted worse. Whoops! But some of it sold nonetheless and that's the real message we were confronted with in 2013 here at K&L: vendors repeatedly telling us that quality was less important than potential profit. How many times did I hear: "But David, you and I both know you can sell this! People will buy it!" And that's when I would shake my head, shrug my shoulders, and say, "You really have no idea what's going on at this store, do you?" We know what we could sell, but at what cost? At the cost of our reputation for selecting quality products? At the cost of ruining the rapport we have with customers who trust our advice and council?

"Uhhh......yes. You want to make money, right?"

And that's when I think of the old mantra made famous by our former president George W. Bush:

"Fool me once, shame on..........you? If you fool me you can't get fooled again."

2013 was the year that many a whisky producer were able to sell their exclusive, old, rare, mature, once-in-a-lifetime bottles for record prices. But, the question is, will the public return again to buy another in 2014? Maybe we were the ones being fooled into thinking whisky should be less expensive than it is. As long as the customer feels like they got their money's worth, who can really argue? I get ridiculed every now and again for hyperbolic statements concerning my excitement for good whiskey, but ultimately our customers return again, and again, and again, and again. Why? Because the booze is good, well-priced, and it meets our customers' expectations.

How many new whiskies in 2014 will meet those three criteria? We'll have to wait and see.

-David Driscoll

David Driscoll