Is A Repeat of The Bourbon Collapse of The ’70s Coming
Bourbon has been in a booming market for the last decade. People often ask me, “How long is this going to last?” I don’t know, but I do know what caused the decline in the late 1960s and 70s. It is worthwhile looking at the causes of the decline to learn from those bad times in the Bourbon industry.
It all started over a decade before, in the 1950s. During the Korean War, Louis Rosenstiel of Schenley Distilleries thought the Korean Conflict would be another World War and did not want to be caught without whiskey to sell if the government forced distilleries to make industrial alcohol for the war effort. This was what happened in the last World War. After World War II, there was a Bourbon shortage for years because the distilleries had not been making beverage alcohol.
At the onset of the Korean War, Rosenstiel ordered all of his distilleries to go to a 24/7 production schedule and filled the warehouses. He even built additional warehouses at that time. He did not convince the other distilleries that this was a problem, and they continued with regular production schedules based on projected growth. Of course, the Korean War did not result in distilleries being ordered to shut down production, and Schenley was the major cause of the overproduction that would become a problem for the industry.
Rosenstiel knew that at the end of the 8 years bonding period, he would have to pay taxes on all of that whiskey. The resulting tax bill would have forced Schenley out of business because he had a lot more whiskey than he could hope to sell in those eight years. Thus, Rosenstiel led the effort to raise the bonding period from 8 to 20 years. In 1958, the bonding period was increased, and Schenley was saved.
However, there were still a lot of whiskeys to get rid of. Schenley introduced older expressions of some brands, such as Old Charter 10 and 12-year-old Bourbons, but that was still just a tiny portion of what they had in the warehouses. They kept the price of Bourbon cheap in the market because they did not need to raise prices due to overproduction. They decreased production and were closing distilleries every year. Lower prices made it hard for many small distilleries to compete in the market and forced them to sell out to larger companies or simply go out of business. It was a lousy time for distillery workers since jobs were lost yearly.
As the effects of overproduction were felt, the 1960s also brought a cultural change. Young people rejected their parents’ spirits and experimented with other spirits – beer, wine, vodka, and tequila. Vodka also got a considerable boost when people started complaining about the “three Martini lunch” and drunk driving. Smirnoff came out with their “It leaves you breathless” marketing campaign. In other words, no one will smell alcohol on your breath if you drink vodka.
The industry shot itself in the foot. Vodka sales soared as whiskey sales declined. Their answer to declining sales was to lower prices even more. It cheapened the reputation of Bourbon to that of the alcoholic’s drink of choice because it was so cheap. Sales began to decline even more. More distilleries closed.
The industry responded by trying to increase export market sales. They were moderately successful in some markets, such as Japan, but Bourbon’s cheap reputation followed it overseas, and many markets did not meet their expectations. They also started to sell ceramic decanters, which helped sales and added to the air of desperation surrounding the product. The one thing that distillers should have done was promote their products’ quality and taste. It would take the Scots to bring such marketing to the United States.
In the mid-1970s, Scotch sales declined worldwide because of the cultural change in America. The Scots decided to combat this change by bringing Single Malt Scotch to the market. They already had a few Single Malt brands in the market, but they never really promoted the differences between single malt and regular Scotch whisky. They started promoting Single Malts by hosting Single Malt tastings where they would pair it with cheese and other foods and cigars. They discussed the taste of the whisky and how it could be enjoyed on many different occasions. Once people started drinking the single malts, they would often try a blended Scotch based on their favorite malt. Sales of Scotch Whisky started to increase across the board.
The Bourbon industry was slow to catch on, but it eventually did. Bourbon distilleries started introducing “super-premium” brands of single barrel, small batch, and extra aged Bourbons. They, too, hosted tastings and paired Bourbons with food and cigars. As sales increased of these premium brands, people started looking at the existing brands again, and sales increased. It took over a decade, but Bourbon sales leveled off and began to grow by the beginning of the 21st century.
There are things to learn from looking at what happened in the 50s, 60s, and 70s to cause the decline.
Though there is currently a bourbon shortage, overproduction could quickly become a problem for the distilleries in the future. As the larger distilleries produce huge amounts of inferior liquid, the smaller distilleries must learn how to differentiate themselves from the marketing of the larger and more powerful brands. To avoid suffering the fate of the 70’s.
It is not all smooth sailing for the future. Overseas sales are fragile, as we have seen in the last year or so, as tariffs have decreased the sales in those markets. Prohibitionists are still active. Let us hope the industry does better responding to these challenges than in the past.