Betting on bourbon

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Taking a sip? Taking a trip? Kentucky hopes to capitalize
By David Holthaus

FRANKFORT - Time can seem to stand still in Bourbon Country, but change is under
way in one of Kentucky's signature industries as it works to cash in on a
growing interest in expensive bourbon and bourbon tourism.

Bourbon sales went stagnant in the last year, growing by just 1 percent. But,
even as the recession deepened, the native American spirit gained cachet among
cocktail drinkers with a taste for the expensive stuff.

The resurgence in high-end bourbons is behind some recent shifts in an industry
that maintains its rural, homegrown feel even as it's come to be controlled by a
handful of global companies.
A New Orleans company best known for lending its name to a cocktail made from
cognac recently bought several brands of Kentucky bourbon and is planning to
invest nearly $30 million in Frankfort and Owensboro.
Meanwhile, an Italian company best known for a liquor made with fruit and herbs
just completed its purchase of American icon Wild Turkey.
And that stalwart of American whiskey-making, Jim Beam, plans to pump millions
into its bourbon headquarters in Clermont, Ky., not to make the stuff but to
bring in more tourist dollars.
The moves come amid a counter-intuitive trend in U.S. sales of bourbon (and its
cousin, Tennessee whiskey). Even as Americans felt poorer, they increasingly
moved toward more expensive brands. Case sales of "super-premium" brands such as
Woodford Reserve, Van Winkle and Knob Creek, soared 16.5 percent from 2007 to
2008 as classic cocktails, many made with expensive bourbon and rye, continued
making a comeback.
"The higher end has been getting more attention, more sales and more volume,"
said Danielle Eddy of the Distilled Spirits Council of the United States.
But super-premium brands account for only a fraction - 4 percent - of all the
cases sold in the U.S.
Any other industry could ramp up production of the high-priced product to meet
the demand. But federal law requires bourbon to be aged at least two years and
the expensive brands can spend 10, 15, 20 years or more mellowing in oak barrels
before they're bottled and sold. Quick response to a change in consumer tastes
just isn't possible.
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If you want to sell high-end bourbon, you've got to buy into it.

New Orleans-based Sazerac North America bought into Kentucky bourbon in 1991with
its purchase of the former George T. Stagg distillery in Frankfort. Sazerac is a
159-year-old spirits maker that gave its name to what some say is the original
cocktail, the Sazerac, made with bitters and cognac.
Sazerac renamed the distillery Buffalo Trace in 1999 after the Buffalo that once
crossed the Kentucky River at the wide, shallow spot there. Buffalo Trace is the
oldest continuously operating distillery in the U.S., having operated legally
during Prohibition producing spirits for "medicinal use."
Some of the equipment has been there that long, so a $9 million investment in
machinery and equipment is planned, adding 39 jobs to the 270 currently working
In March, Sazerac bought more Kentucky bourbon, snapping up the Bardstown-made,
value brands such as Kentucky Tavern and Kentucky Gentleman. But with the $334
million deal with Constellation Brands came super-premium Ridgemont Reserve 1792
and the historic Tom Moore Distillery in Bardstown, a potential destination for
bourbon tourism.
The purchase also included the Glenmore Distillery in Owensboro, no longer a
distillery but a modern bottling and warehouse operation. Sazerac plans to
invest about $19 million there to expand by 300,000 feet, add new machinery and
about 50 new jobs.
"This is a first in a series of steps to become more competitive nationally and
globally," said Sazerac CEO Mark Brown.
The New Orleans company is also thinking about locating some administrative
offices in Louisville, which would bring about 50 jobs.
Overall, bourbon sales may have hit the wall, but the taste for it overseas
continues to grow. Bourbon exports grew 14.6 percent in 2007.
But limited supply and the aging requirement make it difficult to increase
exports quickly.
"We can't make as much as the world market can consume. We just can't do it,"
said Harlen Wheatley, master distiller at Buffalo Trace.

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His distillery has the capacity to produce 200,000 barrels a year, but is only
putting out 61,000. "You have to invest the money, then wait three years, or
four, or seven...." he said.

That may be why Jim Beam is planning to invest in something that could have a
quicker return. Clermont, off Interstate 65, is the western gateway to the
Bourbon Trail, and Jim Beam wants to capitalize on that with major renovations
to its visitor center. About 80,000 tourists each year pass through the center.
There are plans to spend $16 million over three years to expand and renovate, in
hopes of doubling or even tripling the number of visitors, said Fred Noe III.
"This is the Napa Valley of this part of the country," Noe said.
Noe is living proof of how time can seem to stand still in Bourbon Country. The
53-year-old is a great-grandson of Jim Beam himself and the seventh generation
of the Beam family to carry the title "distiller."
The Jim Beam brand is owned by $7.5 billion global conglomerate Fortune Brands,
which owns another well-known Kentucky bourbon, Maker's Mark.
Another iconic American bourbon brand, Wild Turkey, was just purchased by Gruppo
Campari, an Italy-based company whose namesake brand is an aperitif made from
bitter herbs, plants and fruit.
The $581 million purchase includes the Wild Turkey brands, the distillery in
Lawrenceburg, Ky. and perhaps most importantly, its substantial barrel inventory
of aging and finished bourbon.
Keeping up a tradition

Bourbon-making in Kentucky drips with tradition, even as global, billion-dollar
companies control much of the business. Maintaining those traditions is
especially important for those companies, who see it as critical to their

Jim Beam, for example, is a $2.5 billion company based in Chicago, itself a unit
of Fortune Brands, a $7.5 billion company that also sells cabinets, faucets,
golf balls and even kitchen sinks.

But there once was a man named Jim Beam, who took over the family business in
1894 and rebuilt it after Prohibition. Jim Beam Global keeps the family lineage
alive through Beam's great-grandson, Frederick Booker Noe III.

Noe, a 52-year-old Kentuckian, wears various titles, including master distiller
emeritus, bourbon ambassador and keeper of the flame.

Noe says his role is to hang on to the traditions.

"My job isn't to change anything," he says. "My job is to hold it and hopefully
to pass it on to my son down the road."

That would be Frederick Booker Noe IV, currently a college student.

Bourbon Rules

Contrary to popular belief, bourbon does not have to be made in Kentucky as long
as its production follows these rules:

- It must be made in the United States.

- At least 51 percent of the content must come from corn; the rest from grains.

- It must be aged at least two years in a new white oak barrel.

- To be labeled and marketed as "Kentucky bourbon," it must be distilled in
Kentucky and aged there for at least a year.

- To be labeled as "straight bourbon whiskey," it must be aged at least two

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