Did the Jack Daniel’s owner overpay in spending £285m on BenRiach, GlenDronach and Glenglassaugh?
Brown-Forman, the company that owns Jack Daniel’s, Woodford Reserve Bourbon and, since earlier this year, BenRiach, makes its own barrels. A lot of barrels. About 600,000 barrels a year, to be precise.
Why so many? Because, whether each barrel is filled with new make Jack Daniel’s Tennessee Whiskey, or with Woodford Reserve or any of the company’s other Bourbon brands, it can only be used once. By law.
American whiskey is on fire right now. Spearheaded by Jack, it’s sexier than ever in its home US market, but also finding new fans around the globe, from Berlin to Brisbane. More demand means more production, and more new barrels from the Brown-Forman cooperage.
Both financially and environmentally, it makes obvious sense to recycle these once-used casks and find a fresh purpose for them once they’ve been emptied of Jack, or Woodford: typically, that means selling them on to Scotch whisky distillers to mature their own spirit.
This is a nice extra source of cash for Brown-Forman and other US distillers; nice enough for the sale of used barrels to account for about 2% of the company’s revenues in its last financial year. If my sums are correct, that’s about US$80m.
But there’s a problem: just as Brown-Forman is producing more barrels to surf the whiskey renaissance, the makers of blended Scotch are buying fewer of them because their own market has softened.
Brighter prospect: Falling cask prices offer good news for distillers like Glenmorangie
It’s a lesson in the rigours of supply and demand: more supply of used whiskey barrels coinciding with less demand from the Scotch whisky company. Result? Used barrel prices down more than 10% over the past year, and still falling.
It’s concerning enough for Brown-Forman executives to spend some time discussing the issue at the company’s recent second quarter results announcement – hardly surprising if several million dollars has been wiped off your top line.
It’s also a commentary on the current fragility of the blended Scotch market around the world, thanks to a number of issues including macroeconomic factors and, in some countries, an unhelpful pro-malts, anti-blends prejudice.
But it’s not all doom and gloom. Bad news for Brown-Forman means a brighter prospect for Diageo, Chivas Brothers and the Scotch whisky industry in general. There’s a plentiful supply of casks out there, they don’t cost as much as they did – and it’s a buyer’s market.
Something to be cheerful about at the end of a trying year…
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