The rise and fall of Bourbon Whiskey

After World War II, returning GIs made bourbon whiskey the drink of choice. But by the 1970s, everybody was drinking gin and vodka instead. By the 1990s, the market had crashed so hard that sales were down 60%. It was a bloodbath in the industry of bourbon, and experts predicted it would never recover. Starting in the 2000s, everything changed. Suddenly bourbon whiskey was hot again, and some brands were so in demand that bottles were reselling on the gray market for upwards of $5,000. People would camp out overnight at liquor stores to get drops of Pappy's, Blanton's, or Weller's. Uh, what explains this kind of crazy rise and fall of the bourbon whiskey market? And what can we learn from it? That's what this video is about. Today's video is sponsored by HighLevel. More about them later. If you're new here, my name is Michael. I make videos about the rise and fall of industries and iconic companies. Uh, if you like that kind of stuff, do me a favor, leave a comment below, and please subscribe. I'm on my way to a million subscribers. And if you stick around for the whole video, I will tell you two things. Number one, why I didn't drink any whiskey in research for this video. And number two, why I did the video in a cowboy hat. Answer may surprise you. Bourbon isn't new. When settlers came to America and settled in Kentucky in the 18th century, they brought distilling know-how with them from Europe. But when they got here, they ran into a good problem, which was in 1776, the United States government, in order to promote agricultural growth in the United States and push westward expansion, had created a model where people would get incentivized to grow corn. And because people would get free land if they grew corn, uh, that meant that there was a lot of corn on the market. And rye and barley are part of whiskey, just like they were in the old country. But here they needed something new to take advantage of all this corn, and bourbon whiskey was born. And after this new corn whiskey was made, it was shipped down the Mississippi and Ohio Rivers down to New Orleans, where they happen to have Bourbon Street. Uh, and it was all shipped also from Bourbon County, Kentucky. And the makers of bourbon whiskey would char the inside of the barrels that it was basically aged in. And this, on the long ride down to New Orleans, gave the whiskey a distinct flavor and color that was, well, uniquely American. And by the 1800s, bourbon whiskey was known as basically a distinctively American spirit and one that people started to love. Fast forward to the 20th century and in World War II, spirits and their like were actually heavily rationed. So that meant when folks came back from the war, the GIs who had gone and done greatest things as part of the Greatest Generation, they came back and they were ready to party. And whiskey, especially bourbon whiskey, was a center of what they consumed. Manhattans, Old Fashioneds, all that kind of stuff. It was in the vogue. In response, the Kentucky distillers all scaled up. You saw big names come alive at this time, things like Four Roses, Jim Beam, Wild Turkey. These were all names that suddenly went from small regional spirit brands to national brands catering to consumers across the United States. And production efficiencies as these guys got bigger with bigger stills, bigger warehouses meant better production quality and the ability to spend more money on advertising. So a lot of these brands became national. And in fact, bourbon whiskey got so popular that it outsold Scotch whiskey in the United States during this period of time. But after a great era in the 1950s, the 1960s started to turn against bourbon whiskey. You see, the lighter spirits, gin and vodka, they started to become in vogue. People were drinking gin martinis. Uh, there started to be great advertising about brands like Smirnoff that were vodka and that sort of thing. And suddenly you looked up and bourbon whiskey was an old person's drink and not one that was felt to be very modern. And remember, during the baby boom, this meant that in the '60s, those people were becoming young adults who had been born right after World War II, and they saw bourbon whiskey as granddad's drink, something the old people drank. And for a rebellious young culture, it was something they totally had no interest in. Bourbon takes years to age. So if there's high demand, that means that the distillers will go and fill a lot of barrels, and it'll take years for that to come onto the market. And just as demand started to slide in the 1960s, glut and all the supply that the distillers had put on in the 1950s started to come to market. And when there's too much supply and too little demand, well, that means prices crash. And with nothing else to do except sell this stuff into a crowded market, the distillers just kept lowering prices, which meant eventually that made the reputation of bourbon whiskey even worse, which was, well, now it's not only something granddad drinks, like it's so cheap they're giving it away. Why would I want that? I'm going to have a gin martini instead. The 1970s brought things even worse for bourbon whiskey. It was an era where people started to get worried about their health. And while things like gin and vodka were marketed as light and healthy, bourbon felt like something that was heavy and just, well, not healthy at all. People saw it as a working-class and basically outdated drink from the past. To appeal to lighter tastes, many of the distillers even lowered the typical proofs in classic bourbon, going from, say, 100 to 80 or even 60. In an effort to appeal to more people. And quality slipped, prices went down, and it just made everything worse in terms of bourbon's level of, well, just totally being out of favor. It was a working man's drink with really no prestige at all. You didn't look cool when you drank it at the bar, for sure. Brands like Jim Beam and Wild Turkey got through this era barely by the skin of their teeth. The original distiller that was producing now famous Pappy Van Winkle, it collapsed and had to sell for scraps. Things kept getting worse for bourbon. Between 1970 and 1990, the spirit lost nearly 50% of its market share. But even worse, the number of cases that were sent out went down by nearly two-thirds, from over 30 million to just over 13 million. But just as things looked like they would never change for bourbon and it would be forever relegated to the part of the liquor store next to Mad Dog 2020 and peppermint schnapps, something came along to save the bourbon industry. Big thanks to HighLevel for sponsoring this video and helping us pay for our editors. HighLevel is the all-in-one CRM that handles all of your emails, text funnels, and more all in one place. Think of it like the Swiss Army knife for small businesses. You can join thousands of agencies and entrepreneurs using HighLevel to meet all of their marketing needs. Use my link to get an extended free trial, which gives you 30 days free instead of the regular 14. Go to gohighlevel.com/myname Michael Girdley to sign up today. That's gohighlevel.com/michaelgirdley. Thanks to them. And now back to the video. The first thing that happened was a group of hobbyists and aficionados of bourbon started to get into the space, starting to do high-quality, small-batch, single-cask type versions of bourbons. And these were brands like Booker's and Blanton's and folks like that. Simultaneously, young people at this time, mostly folks who were younger Gen X and older millennials, started to crave a lot of the older and more authentic feeling recipes of the old days and the drinks that came with it. And that introduced something called the craft cocktail movement, where people were starting to drink high-end Old Fashioneds and those types of drinks that, well, you eventually see in Mad Men and stuff like that. The TV show. In Mad Men, you had a main character in Don Draper who made drinking Old Fashioneds based on bourbon whiskey, cool. And he pushed aside folks like Carrie from Sex and the City, who's a Gen X kind of era person. And you know what she drank? Cosmopolitans, which I think has vodka in it, but you know what I'm saying? Like suddenly, you know, bourbon was cool. And this was fueled also by the unique nature of the millennial generation. And as of 2019, the millennial generation comprised the largest generation in the post-World War II era in the United States, and they craved unique experiences with other people that felt authentic. And the craft cocktail movement and the idea of highly crafted, really good bourbon whiskey, well, it spoke to them. Around the year 2000, only about 500 distilleries operated nationwide, but by the year 2012, that number had skyrocketed to over 1,500, and by 2023, that number had reached into the thousands. The demand had come and the supply was coming online like crazy. Marketing focused on a hip aficionado type targeting a new generation of folks, just totally very different from the 1950s, 1960s, and into the '70s when this was very much a working man's drink. Things we've talked about on this channel is the power of the scarcity playbook. Brands like Nike with their shoe drops or Supreme with their gear drops, they understand that if you run a scarcity playbook, consumers will run and flock towards your brand. And a lot of the distillers of bourbon whiskey saw that they could run the same play too. And it worked almost too well. For example, Pappy Van Winkle, a highly sought-after brand, might retail one of its bottles for $200. Well, a lot of people have figured out you can buy one of those and resell it on the open market for sometimes $1,000 or $2,000 or more. There's a 23-year expression from Pappy Van Winkle that has been known to sell for over $5,000 in the resale market. Just crazy. So bad that even empty Pappy bottles have been known to trade for a high sum so scammers can buy them and refill them with fake Pappy and resell it to other folks. And so in the middle 2010s, supply just couldn't keep up with demand. You had even mid-range brands running the scarcity play and doing limited allocations to different stores, which unfortunately made some of these scarcity people and the consumers driven wild by it even more anxious to try to get their hands on the latest drop. And local retailers, they love this thing. Like, carrying and pushing bourbon is great. One friend in Ontario, where Toronto's located, told me how they have to run lotteries there at the local liquor stores so people can get allocations of brands when they come out. And in fact, one of his friends was so over the top that he actually created like a ring of all of their friends to join the lottery to increase his chances of winning. And get these drops when they happen. To show you how crazy the whole thing got, in 2013, Maker's Mark decided to reduce the proof of their vodka from 90 to 84, which in effect allowed them to produce 6% more bottles than they would have otherwise. And you can imagine what had happened, right? This was a special environment where people were delivering you a special bottle of whiskey, and here was Maker's Mark brewing it. So you can imagine what happens. The fans got absolutely pissed off, and Maker's Mark had to back off of it. The 2010s really became the era of the unicorn bottle. And folks like Pappy and Four Roses and folks like that were putting out these high-end super limited edition versions of their, their whiskey. And people were going absolutely nuts for it. I talked before about the lotteries where people would do all kinds of crazy stuff to get rare drops. I saw that kind of stuff. People would sleep in tents outside of my local liquor store. And I was like, what the hell are these guys doing? And it turned out, well, they They were hoping to get their hands on the next hot one. But here's the problem. With demand going through the roof, the suppliers faced a problem. You can only distill so quickly. It takes years from the actual fermentation to the process of aging the bottles and having something good come out on the backside. So no matter what you would do as a distiller, like you can't cheat Mother Nature in that situation. With so much demand and unable to fulfill it, The distillers had to figure out what they were going to do next. Like, do they repeat the errors of the 1960s and '70s and potentially risk a crash in the future? Or do they go all in and try to anticipate that demand will keep growing? It's a scary bet, right? You, you do the whiskey today, you barrel it, and then 3 years later you hope the demand is still there. And if it's not, you're screwed. Two of the big distillers, Buffalo Trace and Wild Turkey, have decided to go for the gold and they bet on the future big time. And they went and convinced their parent companies to pour money into expanding into even more barrels, even though they're risking that that stuff might not be ready in 3, 5, 8, or even 10 or more years. Flowtrace, for example, embarked on a $1.2 billion expansion in 2018 with the aim of pushing production to 500,000 barrels per year. Wild Turkey, who had played in the high end of the market and had been bought by the Campari Group in 2009, decided to go all in as well. Investing to grow their business and be able to produce more. 2023, Campari announced a $161 million investment designed to increase production of Wild Turkey and all the brands under their purview from 9 million a year to 14 million a year in terms of gallons. Ironically, Campari and these guys to some extent feel like they have to do this. If they were to not produce enough now and demand kept going, well, in the future they might lose shelf space at retailers and mindshare with customers. And then, well, their business wouldn't be worth much. Probably Campari went in even further. They spent $420 million to buy 70% of the Wilderness Trail Distillery, another craft maker in Kentucky, in order to expand their capacity and shelf space even more. And so as the 2020s have come together, that leaves us in an interesting place. All of this massive expansion that happened in light of the massive demand in the 2010s is now coming online. and the era of scarcity for bourbon whiskey is over. Kentucky has a record 14.3 million barrels aging in its warehouses. There's a problem. In a recent survey of Americans, only 54% of us responded that we're regularly drinking alcohol. That's the lowest rate that Gallup has found in over 90 years of doing the survey. Older folks are aging out. People like me quit drinking, which I did 2 years ago. You're seeing younger people seeing alcohol as poison in any amount. In fact, 66% of people under 34 think drinking any alcohol at all is bad for you. And inflation is not helping things. With people's wages staying stagnant and things getting more expensive, the idea of spending $70 on a bottle of whiskey seems like a bridge too far for many. Just as supply is ramping up, demand is going the other way. You can see this in the prices that are happening for bulk bourbon sales. For example, sourced bourbon barrels that used to sell for as high as $4,000 in 2022 now sell for just over $1,000 a couple years later. In 2024, retail is also taking a hit with sales down for the first time in a long time by 1.8% in 2024 alone. Craft spirit market is hitting it even worse. Uh, for the first year since 2016, Their consumption is down by over 3.4% in the year 2023. And the first to start to close up shop have been the overleveraged, the newer players. The weaker ones are the first one to go when the tide starts going out and the market starts turning to be, well, where it is today. As an example, a distillery called Garrard County Distilling declared bankruptcy in 2023 after raising $250 million, building a giant facility, They declared bankruptcy owing $28 million, and the whole thing only lasted 14 months. Look, it's unlikely that the big distillers like Jim Beam or Campari or any of the other folks are going to go out of business. They have deep pockets. They've been around for a long time. They potentially have global networks where they can push excess supply. They can put stuff into ready-to-make drinks. Like, they have options. It's the small guys. They got to worry. And the big guys, they should be fine unless demand drops even more than people expect. The lesson from the bourbon whiskey business for me is for sure that not all businesses are created equal. Some businesses are relatively easy. Investment management, different types of consulting. You don't have all these kind of challenges that you see in a business like this distilling. I mean, just as an example, they, they create their product and they don't get to sell it for 3, 5, or even 10 years down the road. Like, that's just incredibly difficult. It's like farming on hard mode. So, you know, I think that's something— doesn't mean you shouldn't get in those businesses, but you should understand what you're getting into. Before you go down these roads, because as you can tell, like, there's a lot of dead bodies on the sides of roads where people get into things like distilling and they don't understand what all the hard parts are. Oh, and at the beginning of the video, I promised to tell you why I didn't do any tasting of any whiskey for this video. Well, I quit drinking 2 years ago. I'm 50 years old and I just decided I didn't want to do it anymore. And I know a lot of people like me, they stop drinking and they've never looked back. And the hat, well, that's the other part of getting old. My dermatologist says I have to make sure I don't get too much sun because I'll get skin cancer. So, but the hat looks cool. So let me know what you think about the hat, the whiskey market, and this take in the comments below. I'd love to hear what you got to say. And, uh, I read all your comments. So talk to you next time.