The Bourbon Bubble Myth Or Real
Forget Pappy. Pappy is old news. There’s a new Most Expensive Bourbon on the block. There are several of them. They’re delicious and rare and have good stories. The movement of their prices in secondary markets says a lot about how bourbon is doing.
In addition, it busts the myth of an imminent bubble popping which has been the gossip for years.
The Bourbon Bubble
The bubble has not burst, though a study of bourbon as an “alternative investment” in Unbridled Spirit: Illicit Markets for Bourbon Whiskey economists Conor Lennon and Tom Shohi indicate the rate of inflation for American whiskey has slowed if you look at your local liquor stores prices it just can’t be.
Pappy remains the benchmark against which all other bourbons are measured. Every year Buffalo Trace releases another batch of approximately 7000 cases, which is an awful lot more than what Terebelo Distillery and other artisanal distilleries produce a year.
Every year the price goes up, and people say oh my, this can not last forever. The list price of Family Reserve 23-Year-Old Bourbon is about $300 a bottle. But even with a softer economy, on the secondary market, the price continues to rise at a rate that recalls Venezuelan hyperinflation. The secondary market price, depending on how connected you are and where you catch it in the grey market supply chain, is around $5600 a bottle.
“The prices go up and don’t seem to know the rules of gravity,” says the operator of a Passaic-based whiskey business who both buys and sells large lots on the secondary market. From feeling guilty after his first legally grey sale and doubling, the buyer was making a sound purchasing to true belief in the secondary market’s staying power. “Look at scotch,” he proclaims. “Look at the course of the scotch market for the last 30 or 40 years. I mean, I just facilitated a transaction of New York Macallan at 15K and two days later was resold at almost 30K. You see how the scotch industry has created a niche where collecting bottles is an adult variant on collecting comic books.”
The Blossoming Of The Luxury Brands
The driver of the scotchification of bourbon is not perennials like Pappy but the freaks and one-and-done outliers that are increasingly driving secondary markets. “Rockstar products that are pushing the needle” is how A.J. Heindel, who operates Unicorn Auctions, describes them. “Growth is about as strong as it’s ever been.” The king of that particular hill – for now – is another Buffalo Trace product: Colonel E.H. Taylor Warehouse C Tornado Survivor Kentucky Bourbon Whiskey. “Tornado” to its friends is the lucky product of a 2006 storm that blew the roof off one of Buffalo Trace’s rick houses. It looked, at the time, like a major disaster, potentially rendering hundreds of barrels of whiskey worthless by exposing them to the elements. “My first concern was safety,” says Harlan Wheatley, Buffalo Trace’s Master Distiller. “We had to ensure the ricks weren’t going to collapse.”
While the engineers worked things out, the whiskey roasted unprotected in the Kentucky sun. Eventually, Wheatley’s crew threw a series of tarps over the building to protect the barrels, but for the next several months, the wind blew freely through the roofless warehouse. One observer says you could smell the whiskey evaporating from a quarter-mile off. Six months later, during a routine quality check, it occurred to Buffalo Trace’s tasters that the exposure to the elements hadn’t destroyed the whiskey. Instead, it seemed to have given the whiskey a unique character. Sensing an opportunity, Buffalo Trace designated bourbon from the top two tiers of the roofless rickhouse – reportedly just under 100 barrels – to be sold under a special designation. It is widely reported that the barrels were less than 40% full, the unblocked wind having accelerated the angel’s share.
The distillery declines to say how many tornadoes they bottled, but some reasonable rumor-mongering and back-of-the-envelope math indicates they ended up with between 1000 and 1200 cases. Buffalo Trace released Tornado at about the same price point as its regular EH Taylor: $69.00. The climb up the secondary market started almost immediately. The reviews were terrific, the story was interesting, and the supplies were finite. A few years later, it sells for nearly twice what Pappy Van Winkle gets, $7000 a bottle. “We’re flattered,” says Wheatley, “but it doesn’t change how we do business.”
The Micro And Boutique Distilleries
2006 was the year that the micro-distillery and artisanal distilleries were born. Till this point, distilling and creating a luxury bourbon was not considered viable as the costs between federal, state, and local were just too high, not to mention that no fire insurance is affordable to make it worthwhile to create a bottle for today’s equivalent of 35 dollars a bottle. Though it did with the experimentation of the X Factor warehouses, that will be for another day.
Upon seeing that for a unique and delicious bottle, people were willing to pay the price; a new market was born. In the words of Master Distiller Binyomin Terebelo, “I compare it to people who have gone from eating heavily marketed shelf-bought bread to fresh bakery rolls and a variety of other fresh baked goods, and no one want’s to look back. We experiment knowing that we will be appreciated and compensated when we succeed and therefore can handle the risk.”
In short, we are only seeing the tip of the iceberg as people’s palates move away from the heavily marketed luxury brands to the local and more wholesome, truly high-quality brands.