Where Is All The Bourbon Going To Go?
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The same Bourbon barrel broker that had reached out to me two months ago, wondering if I had any clients interested in 5 year old MGP barrels, sent me another message yesterday. His price had gone down by over $500 per cask with no limits on how many I could buy. Clearly, he wasn’t having much luck finding a home for those barrels, but I still wasn’t interested in his inventory.
“Get back to me when it’s down another $1000,” I told him.
Shortly after that interaction, I got a DM on one of my social media accounts from an investment group, asking if I had received the email about the barrel auction they were holding. 2500 casks of MGP were being sold off and, after not responding to their initial request, they were now pinging me on Instagram—repeatedly.
I got the feeling their auction wasn’t yielding the response they were hoping for.
Not that I was surprised, mind you. I’ve been telling everyone I know in the industry that I think the Bourbon bubble is going to burst before the end of this year. Not only will it burst, I think it’s going to drive the price of Bourbon so low that investors might not see a return on their investment for decades—if ever.
Imagine the end of Trading Places with the Duke brothers screaming to “Sell! Sell! Sell!” That’s what’s playing in my head when I think of what lies ahead.
Why do I think the bubble is going to pop this year? Because it’s already popping and almost everyone around me is in complete denial. For the last 365 days, I’ve been keeping up with retailers all over the country and tracking their opinions about the market. Whiskies that once sold consistently have gone stale. Single barrel selections, once all the rage, are now like dead weights around a retailer’s neck. “Exciting” new releases no longer seem as exciting to a Bourbon consumer base that has pretty much tried everything at this point and is showing severe signs of buyer fatigue.
Assuming that Bourbon fever would continue forever, the industry has expanded like crazy over the last few years, laying down barrels at record levels and taking on contracts for private labels in the process. People who knew little about the business began diving in headfirst. Beyonce now has a new American whiskey, continuing the development on the celebrity side, as does Steph Curry. More concerning is the fact that groups of finance bros have been encouraging private investment in Bourbon for the last decade, pitching the growth of Bourbon as a greater return on investment than the stock market or a government bond.
With the slowdown at retail long underway, the logjam of cases clogging up distribution warehouses across the country, and barrel brokers already aware that prices are about to take a huge dive, I’ve been asking myself lately: what in the hell are these people thinking?!
Which leads me to a further list of questions I’ve been asking myself over the last nine months:
Given the amount of private equity that was funneled into new-make Bourbon over the last decade, what’s going to happen when those investors realize there’s no longer a market for their investment?
Once non-industry investors who aren’t familiar with the current market trends realize the growth they were promised is likely never to be recovered through the sale of those casks, how long before they cut the cord and start dumping, flooding the market with more Bourbon than it knows what to do with?
More importantly, how many privately-owned, contracted Bourbon barrels are currently sitting in warehouses from Indiana to Kentucky? Ten thousand? One hundred thousand? A million?
Seeing that every single day I get word of an NDP Bourbon producer looking to quietly offload Bourbon that’s already aged and in-bottle for a monster discount, will these investors even be able to sell their whiskey barrels at a loss?
With the flurry of heavily-discounted Bourbon offers currently circulating around large American retailers, at what point will customers stop paying full price for their Bourbon and simply wait out the inventory until producers and distributors have no choice but to sell it off for pennies on the dollar?
Once that doom spiral begins, how will new products come to market at full MSRP when customers have been trained to wait for another insane email offer from their local retailer? Will it just further worsen the already impacted logjam we’re currently experiencing?
With retailers already complaining about too much inventory due to slow sales, and distributors no longer placing orders from distillers as a result, where will Bourbon producers sell the whiskey that’s already packaged and ready-to-go, let alone coming of age in the barrel?
When large brands finally realize they have no choice but to dump their excess Bourbon at a huge loss, how many stores will even be able to absorb all that inventory even at rock bottom prices? Where will all that whiskey go, given that producers and distributors cannot sell directly to the public?
Even if a retailer is offered a huge swath of discounted inventory, how many of them will even be able to find the cash needed to purchase those bottles given how bad the year has been for retail sales? There’s only a handful of retailers nationally with the power to do that and they can’t buy everything.
What’s going to happen when all of these issues come to a head at the exact same time that private barrel investors realize they need to cut their losses and sell their casks for a fraction of what they paid?
Simply put: are there enough bars, retailers, and livers left in America to absorb the gargantuan amount of inexpensive American whiskey that is about to be thrust upon a market that is already bloated, saturated, and showing signs of buyer fatigue, especially seeing that many Bourbon drinkers won’t even get out of bed unless there’s a bottle of Weller or Blanton’s at MSRP?
If anyone has the answers to these questions, I’m all ears. Otherwise, best of luck to everyone out there. It’s about to get very, very ugly.
-David Driscoll