Whiskeys have to age for years, so how do distilleries make money?
Whiskeys have to age for years, so how do distilleries make money?
At Whiskeyauction.com, bidding for bottles happens almost year round. Many of the whiskies fetching among the highest prices are also the oldest — 15, 20 and 30 years. Aged whiskey is a subject that’s been on the mind of listener Steven Burton. A big Johnnie Walker fan, he contacted the show with a question for our series, I’ve Always Wondered:
“The first person that created it – how did they even think to make a profit in their lifetime? I mean, was it for their kid’s kids or something? It just doesn’t make too much sense to me,” he wrote. “How do you invest in something that you don’t plan on selling for like 20 years?”
But believe it or not, when Johnnie Walker founded his company in 1820, his plan was indeed to turn a quick profit.
“John Walker was Scottish, so he was in the business of making money”, said Ewan Morgan, national director of masters of whiskey, an ambassador program for Diageo, the company that now owns the Johnnie Walker brand. “He didn’t want to wait and build his own distillery. So he purchased whiskies from distilleries, so he had an immediate revenue stream.”
Whiskey for sale at the Kings County Distillery
Back then, aged whiskey wasn’t as common as it is now. People used to drink it young or even right out of the still. But that all changed in the middle of the 19th century when a great wine blight struck Europe. Morgan says a tiny aphid, called phylloxera, destroyed vines across the continent — bad news for vineyard owners but great news for distillers like Johnnie Walker.
“Cognac was out, and brandy was out and wine was out. So the aristocracy and the higher classes had to find an alternative,” he said.
That alternative was whiskey. But, in order to get their beverage to market, distillers had to put it in barrels.
“The longer the journey took, the better the spirit tasted,” Morgan said.
Storing whiskey in wooden barrels can enhance its flavor – kind of like salt. Soon, “aging whiskey became more popular just because whiskey became more popular,” said Kevin R. Kosar, author of Whiskey: A Global History. “Suddenly distilleries see a reason to hold onto spirits,” he said. “They even faked aging – adding flavorings and colorings. Pour [in] a little prune juice to add a sweetness and darkness.”
So while Johnnie Walker didn’t have to worry about delayed profits, today’s distillers do. Aged whiskey can fetch a high price. But in the meantime today’s distillers have to find another way to bring in cash. And that can be a challenge.
“When people call me, the first thing I say out the door is if you get your distillery opened in two years, I’ll fly out and take you out to dinner,” said Bill Owens, founder of the American Distilling Institute, an industry organization.
Estimating the cost of opening a distillery at up to $1 million, Owens does not make turning a quick profit on whisky sound easy.
“All the sudden you’re out $6,000 a month, negative cash flow for two years – you better be prepared for what I call the punishment. Because you’re going to spend a lot money to get those doors open.”
What does he mean by the punishment? “Losing money,” he said.
Just ordering a still, Owens said, can take a year. Then there’s finding a space, getting permits. And, of course, waiting for the whiskey to age. In the meantime, Owens has one piece of advice for those wondering how to stay afloat while starting a distillery of their own.
“It’s easy,” he said. “Keep your day job.”
The factory floor of the Kings County Distillery.
Or make gin or vodka. Spirits that don’t need to age and can be bottled up for a, hopefully, quick profit. But that’s not what Colin Spoelman did. A Kentucky native, he moved to New York City as an adult.
“People from NYC would sort of say you’re from Kentucky, you must know about whiskey,” he said.
So Spoelman began experimenting, making what you might call a young whiskey out of his apartment. There was just one problem. “Young whiskey” is just another way saying moonshine.
“It’s illegal to sell it. Obviously, it’s even illegal to make it,” he said. “So that seemed like a bad idea.”
Spoelman got some private backing and soon, with the help of a partner, made his business official. In 2011 he co-founded the Kings County Distillery in New York.
Up the stairs, past the factory floor that holds the copper stills and spirit collection tanks, “it’s very sort of Willy Wonka and sort of steam punk with all the copper,” said Spoelman.
Past what he calls the boozeum is a giant room full of barrels stacked on shelves. In this room, which looks like the hold of a Spanish galleon, but with much better lighting, there are almost 2,000 wooden barrels. Some of the whiskey here will age for years, its flavors mellowing. But Spoelman said the business has to strike a balance between romantic whiskey dreams for the future and sales today.
“We, as a business, are a little bit torn between the practicality of this, which allows us to be in business and the fun of this, which is this kind of hope for the future,” he said.
As for Steven Burton, our listener who wondered about how distilleries find the cash to get started, he said it sounds like a tough go.
“If I started a business and I wasn’t going to make a profit for twenty years, it doesn’t seem like a bank would give me a loan for that,” he said.
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