Kicking. Squealing.
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.
Via Pizza Comedy
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.
Via CNN Money
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.
Missing something, I think: western booze is big in affluent parts of Asia, but Asians may not have the same alcohol tolerance.
The ideal proof for sipping any good whiskey is about 64 (32% abv), and most people dilute the bottle proof before consuming it.
So for the B-schoolers, the lesson is to develop greater forecasting ability in order to monitor supply channels.
The lesson for B-schoolers is figure out a way to make something statusy for SWPLs, and riches await you.
But as has been said here many times, SWPLs have good taste. Targeting affluent people with good taste means you need a quality product, but it also means that quality will sell itself. Really, if you open a genuinely excellent restaurant in New York, from the moment word gets out you will have every seat filled every night going forward. It’s amazing. Even Monday nights places are jammed if they are good. (BTW, the best non-insider strategy to getting in someplace in NYC is get there before 6:00).
Whiskey is now a status drink, and because there really are good whiskeys and bad whiskeys, and a tremendous palette of variety among the good whiskeys, it becomes statusy in and of itself and also because it plays to the specialists knowledge: “oh you don’t want that xyz 10 year old, that’s crap, you want the abc 20. Oh you’ve never heard of it? Well it has…..”
The less discriminating (or less affluent) SWPLs will buy stuff like Maker’s Mark while others will flaunt both their discrimination (good for judging everything but people!) and their wallets. But the lower end of the market feeds off the buzz from the high end.
There’s money in premium vodkas, too. (although that market may be getting saturated).
Sidney Frank started the Grey Goose brand from scratch in 1997 and then sold it to Bacardi in 2004 for $2 billion, with most of that being his own profit.
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Off topic. From the obituaries I like to glean from the outliers.
A Black man, age 40 dies; he went home to be with the Lord. No mention of any employment history, but he “enjoyed basketball and hanging with his friends.” There is no listing of cherished wives nor girlfriends, but he leaves behind 13 children with five different surnames. His daughters’ names include mostly consonants and few vowels. He is also survived by three grandchildren. Among his own five brothers there are three different surnames. May us taxpayers rest in peace.
I soaked my cheap vodka with Halloween candy corn which colored it a festive bright orange.
For all the rightful nostalgia of America’s past glory, at least it gives me great pleasure to note that we are now living in the golden age of beer, officially kicked off twenty years ago with the introduction of Sam Adams.
My thing last year was IPAs as an escape from generic sweetness of many beers. I quickly tired of its grapefruit juice effect and drank clean no-frills breed like Stella. Now I am going through a taste for hefeweisens.
Quality brew pubs with sampler offerings are a particular delight.
Camlost,
I can’t believe that Grey Goose only began in ’97. These brands come out of nowhere and now 15 years later it feels like they’ve been around forever. That’s a testament to their marketing.
What contributed most to the rise of vodka in the 90s? Did the fall of Communism and a wave of wealthier Eastern Europeans and Russians have anything to do with it?
I think that Vodka’s popularity is partly due to its flexibility, but moreso due to the feminization and hiphop-ization of American social life (making marketing-heavy name brand fads and sports/flavored drinks popular — especially the now iconic vodka/red bull combo and the myriad of vodka options from bubble gum to fruit loop to peach).
I must admit that I do primarily drink vodka (and clear rums) and I’m not as big on beer or the fine whiskeys. Also, 30 years ago I doubt that any server ever asked their customer “what type of vodka” when they sat at a bar and ordered a vodka and tonic. Now you’ve got hip hoppers giving all sorts of free advertisement to Ciroc vodka by showing off the labels in every rap video.
Also, I’m not sure why the fat chick is drinking poured Makers in a lake. That’s hardly the ideal spirit of choice for drinking outdoors on a hot sunny day, both due to cost and taste.
Vodka pretty much can mix with everything which kind of defeats the whole premium Vodka experience. Grey goose is great because I can get someone a bottle as a gift for $30 and they think it’s premium.
I don’t like Vodka much. It doesn’t give you that warm feeling that other liquors do. I find it odd that it’s so popular in Russia. You would think whiskey would be better at keeping them warm.
@Lara
People in Soviet Russia probably didn’t have the long term timelines to make the darker liquors and people drink what they have around so it probably passed from parents to kids.
he “enjoyed basketball and hanging with his friends.”
So, um, he was lynched?
These booze makers are idiots for pissing off (on) their devoted customers. If market expansion was the goal, they should have introduced cheaper, lower-proof bottles, while keeping the original product alone.
That’s pretty much it. Any easy to mix drink calls for vodka and middle of the road brands like Smirnoff are actually the better ingredient because the popularity of mixed drinks is based on the large group of people who like intoxication but don’t like the taste of alcohol.
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http://www.usatoday.com/story/news/nation/2013/02/17/makers-mark-restore-proof/1926081/