G.L.Piggy [at] gmail.com
Error: Twitter did not respond. Please wait a few minutes and refresh this page.
It’s almost like by jiggering with the alcohol content of their whisky, Maker’s Mark and their parent Beam Inc. are purposely setting out to create the most popular B-school case study of all time.
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 limiting the spread of their brand, the company has decided to decrease alcohol content. Essentially, they are trading off a few purists for a more diverse customer base.
Plenty of people are speculating on why Maker’s Mark decided to lower its ABV from 45% to 42% (90 proof to 84 proof). Megan McArdle came up with an original argument – that corn futures prices have increased dramatically over the past few years. Corn ethanol subsidies are also a possible culprit. Being the main ingredient of whisky, the doubling of corn prices since 2010 has done its damage.
But the COO of the company, Rob Samuels (whose family began bottling whisky in the 1950s) claims that they didn’t envision their brand and the bourbon space growing so dramatically:
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.
Nobody here with our team at Maker’s Mark envisioned six, eight years ago that the growth would be at the level where it is today, which is significantly faster growth than the brand had experienced through the ’80s and ’90s and early 2000 years. 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. Dad’s intention when he created this brand was to make good-tasting bourbon accessible and to bring more fans into the fold, not to make it exclusive. And, with regard to the price, the value of Maker’s Mark isn’t set by alcohol volume. It’s about the quality of the recipe and ingredients that go into it, all the handcrafting that goes into the production and how it tastes.
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 its roots.
Other booze makers have tinkered with 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, just as the company predicted.
The comparison to whisky as a craft rather than just some commodity is worth some discussion. 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 new-comers. Newcomers throw the market off kilter, and the purist lashes out like a mating rattlesnake at both producer and newcomer. The purists are sensitive to the integrity of the product whereas newcomers are attracted to the brand attached to the product (immigration can be thought of in similar terms). The problem is that it is the joy and satisfaction communicated by the purists themselves which creates newcomer demand.
Guinness went threw a similar predicament a couple of years ago*. It became fashionable and young frat guys were drinking the dark brew. The company decided to employ an old fogey known for his goofiness, former NBA player Bill Walton, to drive these whipper-snappers away from the brand. If it 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. In a sense, Maker’s Mark is facing this same decision.
*I’m more sympathetic to Guinness now than I was when I wrote that post.