Will watering down their whisky water down Maker’s Mark’s reputation? The premium whisky distiller becomes a case study in branding.
By jiggering with the alcohol content of their whisky, Maker’s Mark and their parent Beam Inc. appear to be purposely creating a B-school case study that business writers and whisky fans can’t stop talking about.
We know the official story: the makers of Maker’s are facing too much demand for their product. Instead of raising prices and running off customers and hindering the spread of their brand, the company has decided to water down their hooch. Essentially, they are trading off a few purists for a more diverse customer base, a bunch of newbies.
Plenty of people are speculating on why Maker’s Mark decided to lower its alcohol by volume (ABV) from 45% to 42% (90 proof to 84 proof). The Daily Beast’s Megan McArdle came up with an original argument—that because corn futures prices have increased dramatically over the past few years and because corn is the major ingredient of whisky, the company was forced to either increase prices or decrease alcohol content.
But according to Rob Samuels, the COO of the company which was founded by his grandfather back in the 1950s, Maker’s Mark didn’t envision their brand and the bourbon space growing so dramatically in such a short period of time:
The bourbon category has accelerated tremendously, and as the bourbon category has grown. That has accelerated Maker’s Mark growth to a point where the demand for Maker’s Mark is significantly greater than our distillery’s ability to produce it. With demand greater than supply, we thought about many, many different options and the way that we’ve decided to extend our supply to ensure that there are not more out of stock shelves across the county with liquor stores and bars is to slightly reduce the alcohol volume. …
The growth is far ahead of what we envisioned. As a single source of supply—which means we don’t buy whiskey or bring whiskey in from the outside—we’re left with only the bourbon that we produce at our historic national landmark distillery here in Loretto, Ky. …
Premium bourbon in particular is growing at an unprecedented level. American whiskey and bourbon as a category for decades was the most sluggish, tired category within all of spirits—and that’s changed dramatically. In 2012, in this country bourbon sales were measured to grow at seven-and-a-half percent, which is significantly faster than the rate of the category. And it’s premium bourbons that are driving the majority of the growth—and it’s the bourbon culture that is taking root in a lot of the big cities around the country. You see it with bartenders creating cocktails that showcase handmade bourbon with their own handmade creations, you see it with chefs who are choosing bourbon to incorporate in their creations.
Samuels notes an interesting trend: the increased demand for quality over quantity and the valuation of the craftsmanship of the product. Perhaps the American customer is developing a more sophisticated palate. The demand for premium beers has increased, and Americans have been turned on to wine now for a solid decade.
Bill Samuels Jr., the company’s chairman emeritus and former company president, explained further:
Since we’re a one-brand company that’s never purchased bourbon from other distillers when supplies are short, forecasting is very difficult. Over the years, our one variable that helps us avoid market shortages has been the age of the whisky in the Maker’s bottle. That range is between five years nine months and seven years. Because Maker’s Mark is aged to taste, Dad never put a specific age statement on the bottle. It wasn’t the age that mattered; it was the taste, the quality and the consistency.
Some people are asking why we didn’t just raise the price if demand is an issue. We don’t want to price Maker’s Mark out of reach.
So for the B-schoolers, the lesson is to develop greater forecasting ability in order to monitor supply channels. That presents a dilemma for an outfit that wants to be seen as a throwback to a previous era when products weren’t developed according to focus group responses.
Some observers have wondered if Maker’s are working harder to craft excuses rather than whisky.
Chuck Cowdery writes on the whisk(e)y business and seems to have coined the term whiskirexia nervosa to describe enthusiasts who have an obsessive fear of whiskey stock outs. So this seems to be a ‘thing’ among whiskey drinkers. Cowdery accepts that Maker’s has limited capacity and supply to meet its demand, but he points out that the company has not acted on plans to increase its number of distilleries. It built a second distillery in the late 1990s but has not yet acted on plans it set in the mid 2000s to build a third.
Kentucky bourbon maker Knob Creek actually suffered through a stock out back in 2009. Also owned by Beam Inc., brandkeepers explained that because of such high demand for its product it would be out of supply from July until November. The same thing happened to the company in 2000. Like Maker’s, Knob Creek’s short supply was a function of the products long barrel-to-bottle lead time. Maker’s aims for an aging process which lasts up to seven years while Knob Creek has married itself to exactly nine years. But unlike Maker’s, Knob Creek refused to mess with any of the numbers. Instead, the company ate its losses and embarked on a clever PR campaign calling attention to The Great Drought of 2009.
Some whiskey makers have tinkered with the integrity of their products.
Jack Daniels has watered-down their No. 7 twice in their history. First in 1987 and again in 2002. They decreased proof from 90 to 86 to 80. Though some were very angry about the most recent decrease—explained by JD’s corporate owners as a response to demand for a lower-proof product—the brand’s sales have not suffered, even as some enthusiasts and loyalists hold tight to the belief that lower alcohol proof creates an inferior product.
Via CNN Money
Purists Versus Newbies
Certain types of goods—music and booze are the biggies—have their purists. They are also apt to hosting that perilous dance between those purists and newcomers. Newcomers throw the market off kilter, and the purist lashes out like a mating rattlesnake at both producer and newcomer.
Guinness went through something similar a couple of years ago. The dark Irish beer became fashionable and young frat guys began drinking it. The company decided to employ an old fogey known for his goofiness, former NBA player Bill Walton, to drive the whipper-snappers off the lawn. If Guinness became seen as the drink of frat guys then its core base might leave. It was an executive decision that had to be made because demand had increased so rapidly in such a short period of time.
The purists are sensitive to the integrity of the product whereas newcomers are attracted to the brand attached to the product. The problem is that it is the joy and satisfaction communicated by the purists themselves which helps creates newcomer demand.
If the purists weren’t imbibing, the newcomers wouldn’t be arriving.