The Whiskey Industry’s Looming Crisis
In numerous conversations with industry professionals over the past few months, the pervasiveness of a longstanding trend has become increasingly clear to me: emerging whiskey brands that had previously enjoyed healthy growth are now struggling to scale.
If you ask the folks on the supply side (aka the people making and/or selling the whiskey) what’s going on, their answers range from inflation to the hot summer weather to people going on vacation, and a myriad of other post-pandemic issues. No one really seems to have a grip on what exactly is causing the lag in sales, so the problem gets treated with conjecture and generalization.
However, ask the folks on the retail side—the sector that deals directly with consumers—and you’ll get a clearer picture of what’s at play. As one retail buyer wrote to me in an email last week: “Once the early adopters tap out, we can’t be successful with a brand for much longer than the initial launch. Customers move on to the next release.”
Indeed. As someone who works directly with retailers on a number of different projects, the question I’m often asked when presenting a brand’s portfolio is: “Is this product new to the market?” In many cases, a new whiskey is better than a good whiskey.
Those of us who’ve spent the last decade in retail fully understand that fewer and fewer customers are buying any particular whiskey more than once these days. The most effective call-to-action for consumers at the moment is the opportunity to try something new and post about it on social media. Once it’s checked off the list, a whiskey’s modern utility has been used up.
For most of my time in the off-premise, the boutique sector of the whiskey market was treated as an anomaly—a small blip on the radar of the spirits industry forcasting machine. When sharing my experience with growing trends to large drinks companies, I was routinely treated to comments like: “That may be the case in your world, but it doesn’t reflect the industry as a whole.”
Ten years later, things have changed completely. The subtle signs that consumers have become less interested in everyday bottles have been evident for some time. Denying and dismissing them now is akin to ignoring the signs of global warming. It’s an inconvenient truth, but that doesn’t make it any less valid. At some point in the near future, the whiskey industry is going to wake up to find it can no longer sell its flagship brands—at least in the United States—because brand loyalty is a thing of the past.
To give you the full insight into what’s happening would require at least twenty pages of text, which I don’t imagine most readers have the patience or the stomach for in the iPhone era, so I’ll summarize as much as I can. In short, the appetite for allocated whiskey in America has become so strong, so all-consuming, and so important for the status of influencers and online reviewers that to waste one’s time (and one’s consumption volume) with anything less than a rare and difficult-to-find whiskey has become passé.
Five years ago, only a small group of serious hobbyists gathered online to compare and contrast their whiskey experiences. Today, there are numerous Reddit feeds with more followers than the combined circulation of every global whisky magazine currently in print. There are also individual YouTubers and Instagramers with far more pull than any published whiskey writer, and few of these personalities got to where they are by talking about supermarket brands, or how to enjoy whiskey.
Establishing a reputation as an online authority requires experience and access to the most coveted bottles. Hence, a post about George T. Stagg Bourbon is likely to get 200 to 300 times as much attention as a post about Maker’s Mark. As more drinkers turn to social media for their expertise, they’re left with the lasting impression that everyday whiskies are for the masses. To be taken seriously, they must drink more seriously.
Another issue is saturation. Personally, I know at least twenty guys who spent the pandemic years trying as many whiskies as they could, gathering with neighbors and friends in their backyards and forming private tasting groups. After two years of experimentation, many of these now-experts have huge collections that span hundreds of bottles. The only thing that gets them excited at this point is an older, rarer whiskey they might not have had the chance to try yet.
If you understand how the whiskey industry works, then you surely understand why this growing trend represents disaster for most producers. To start, whiskey projects are planned years in advance. From the design to the distillation to the maturation, it can take five years or longer before a whiskey is saleable and the costs can be recouped. Couple that with the fact that most business owners have been trained to scale and expand upon success, not start over and create a completely new product, and you can imagine the bewilderment.
When a new whiskey comes to market and immediately sells out, the first thing a brand owner does is prepare for a larger release to capitalize on that initial success. Yet, as I’ve watched numerous large distillers revamp supplies of incredibly successful American whiskies to distribution, the second (and much larger) rounds of sales have continually fallen flat this year. When you start to see limited edition, cask strength Bourbons show up at Costco on closeout, that’s when you know there’s a problem.
The advice I’ve given to clients over the last year has been consistent across all categories: let your product sell out and move on.
Not everyone has reacted to that advice with positivity.
“You can’t be serious,” one brand owner told me; “We can’t keep creating entirely new whiskies, over and over again. That’s not how this industry was built.”
Very true. But show someone over the age of 50 what it costs to attend college right now or buy a house in today’s market and their jaw will also drop. There are plenty of processes we take for granted in life and we’re often shocked when what has worked for previous generations ceases to be effective for future ones (hence the term “OK Boomer”).
Like it or not, the internet has changed the way that consumers purchase and consume their whiskey. The pandemic only accelerated an evolution that was already well underway. To fight against it is folly. Consumers today are taking their cues from new sources of media and their motivating factors are entirely different from what drove the last seventy years of growth.
There’s an old adage in the booze business that a number of distributers still swear by today: “The on-premise builds the off.” Meaning brands are built with bartenders who enlighten their patrons and send them off to their local retailer in search of a bottle. Win over the bartender and you win the consumer.
But talk to anyone in the industry under the age of 45, and they’ll tell you that strategy is long dead. Today, the hottest brands are succeeding in retail with almost zero presence in bars and restaurants, driven entirely by online buzz and social media prowess. With the bar and restaurant industry hobbled by the pandemic, the focus shifted entirely to the internet and it hasn’t shifted back.
So how do you create that online buzz? With a limited release whiskey that only a handful of influencers are able to try. The FOMO (fear of missing out) built by that momentum sends hoards of consumers into the retail sector, scouring every liquor store in their vacinity (and online) to find the latest, must-have bottle.
Once it’s gone and the hype begins to die down, it’s time to start over and do it again. Like any fashionable trend, the goal is to maintain that buzz for as long as possible. That is, until some new brand comes to market and steals all the attention. With thousands of new labels entering the fray every year, the ability to hold that momentum for longer than a few months is becoming decidedly harder.
Imagine repping an everyday $25 dollar Bourbon and trying to get the attention of a consumer who’s actively shopping for a very specfic set of hard-to-find bottles. Why would this person, who’s clearly motivated by the thrill of the hunt, care about something pedestrian that can be easily found at any store across the nation?
That’s what you need to be asking yourself if you’re a brand owner today.
And if you think the above example represents only a small slice of the consumer market mindset, I’d advise you to dig deeper into the data. That customer mentality may have been the minority five years ago, but I’d argue it’s become the dominant mindset today.
-David Driscoll