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Running Dry: As Bourbon Booms, Suppliers Now Hard-Pressed To Keep Up With Demand

September 9, 2014

When Trey Zoeller founded boutique American whiskey brand Jefferson’s Bourbon in Louisville, Kentucky, in 1997, he had no intention of building his own distillery. Zoeller planned to source his Bourbon and rye from surplus stocks that were commonplace among major distilleries all over Kentucky, and for the next 15 years, the formula worked like a charm. There were so many old, half-forgotten barrels to be found in the dark corners of whiskey warehouses that Zoeller was able to bottle Jefferson’s Bourbon in 21-year-old, 25-year-old and even 30-year-old expressions.

Those surpluses are all history now, and so are the Jefferson’s aged bottlings. A decade of steadily rising demand for Bourbon and rye has severely depleted stocks all over Kentucky, setting off a scramble by whiskey makers to build more capacity and boost production. In 2012, Bourbon production topped the 1-million-barrel threshold for the first time since 1973. Inventories—mostly young liquid not ready for bottling—reached roughly 5 million barrels last year in Kentucky, the highest level since 1977. Whiskey exports from the United States exceeded $1 billion in value in both 2012 and 2013, up nearly threefold from the 2002 total of $350 million. With demand advancing even further this year, most distillers predict that supplies will remain tight for at least the next two to three years while newer barrels mature.

“There are imbalances in supply and demand across the board in American whiskey,” Zoeller says. “The market has exploded as people are discovering what a wonderful product Bourbon is. The ocean of supply that the industry once enjoyed has evaporated. I plan to continue to bottle and sell Jefferson’s whiskies, but the offerings won’t be what they once were.”

Age-statement whiskies in many Kentucky portfolios are quietly being dropped and allowed to slip away. At Buffalo Trace Distillery, such venerable labels as Old Chartered 10-year-old and 12-year-old have disappeared, not to be replaced anytime soon. Heaven Hill Distilleries discontinued its Old Fitzgerald 1849 and Heaven Hill 10-year-old whiskies, with the latter replaced by 6-year-old and 3-year-old variations. Heaven Hill director of trade relations Larry Kass notes that “inventories are an issue for all of us in the industry right now.” He says recent export data shows that Bourbon shipments from the U.S. are slipping. The reason is simple: “We don’t have the supply,” Kass explains. “Domestic markets are putting such a strain on inventories that we don’t have the Bourbon that we’d like to send to international markets.”

Some distilleries have worked quietly to expand production by reducing bottlenecks in current production lines. Others are investing bigger money in new facilities. In May, Diageo revealed plans to spend $115 million on a new 750,000-case distillery in Shelby County. According to president of North American operations Larry Schwartz, the facility will “cement our commitment to expanding our share of the American whiskey category.”

Over in Lawrenceburg, Gruppo Campari has invested more than $100 million in a new distillery to support Wild Turkey, as well as a state-of-the-art visitor center that accommodates more than 50,000 people annually to take advantage of the growing throngs of tourists plying the Kentucky Whiskey Trail. Andrew Floor, senior marketing director for dark spirits at Campari, says robust planning has kept Wild Turkey’s Bourbon stocks in decent shape. He admits, however, that the popular Wild Turkey 81 rye ($24 a 750-ml. bottle) is on strict allocation until next year.

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