I have some truly distressing news to report: We’re drinking bourbon faster than distillers can make it. Thus, unless demand abates or prices rise, we’re looking at a whiskey shortage.
As a whiskey lover, this saddens me. But as an investor, it piques my curiosity. Today, we’re going to take a look at how a whiskey shortage might affect distiller stocks.
Regrettably, for those of us who like to live out the songs that Hank Williams Jr. wrote, there is no quick fix to the whiskey shortage. Distillers can’t simply ramp up production to meet demand. In order to legally qualify as “straight bourbon,” whiskey has to be aged by at least two years, and higher-end bourbons are often aged for a decade or more.
(For scotch, the aging is generally a lot longer; see “Diageo: The Ultimate 12- to 18-Year Play.”)
Making it worse, there is a shortage of barrels needed to age the whiskey, which isn’t likely to be resolved for another two years. The barrel shortage – and the skyrocketing cost of barrels that has resulted – has led to a battle in neighboring Tennessee over the legal definition of Tennessee whiskey.
Under Tennessee law, “Tennessee whiskey” must, like bourbon, be aged in a new, charred oak barrel. Diageo (DEO), the world’s largest spirits company and the owner of the George Dickel Tennessee whiskey brand, is agitating for a law change that would allow whiskey aged in used barrels to qualify. Brown-Forman (BF-B), owner of the iconic Jack Daniels brand, views this as close to sacrilege and is lobbying for the definition to remain unchanged.
All of this is being fueled by the surge in popularity of a spirit that, up until very recently, was considered a drink for old men and backwoods rednecks.
My tastes in liquor have always been stodgy. I like a good bourbon or scotch, and I could never get into vodka cocktails when they were popular. Unless you’re James Bond – or a Russian gangster – there’s just something a little emasculating about being seen in public drinking a clear, flavorless spirit. And let’s face it, vodka doesn’t complement a cigar well.
I’m not sure I like the fact that bearded hipsters have embraced my drinks of choice. But as an investor, I’m very interested in how the whiskey shortage looks to benefit the stocks of the major bourbon distillers.
Let’s start with Suntory Beverage & Food Limited (STBFY),which recently completed its acquisition of Beam Inc., formerly the purest play on bourbon. Beam was the owner of the eponymous Jim Beam brand, as well as the higher-end Maker’s Mark and Knob Creek and the lower-end Old Crow. Suntory is Japan’s leading spirits company, though most Americans will be unfamiliar with its Japanese whisky brands, such as Yamazaki and Hakushu. (Note for booze snobs: Japanese whisky—like Scotch and Canadian whisky—is correctly spelled “whisky.” American bourbon, Tennessee whiskey and Irish whiskey are correctly spelled “whiskey.”)