Wholesalers, Retailers, and The Aftermark - Who's profiting from skyrocketing whisky prices?

 Written in collaboration with Mike Di Caro. 

With murder, theft, and bribery highjacking the whisky news, this year’s headlines have read like they were ripped straight out of the latest Netflix crime drama. Just last week, there was a fatal stabbing over a box of bourbon. Earlier in this year trucks carrying Pappy Van Winkle were stalked as they left wholesalers with drivers being offered bribes for cases of whisky. There’s some serious hysteria over rare whiskies and it has real world consequences. But what’s underlying the hysteria isn’t just a chance to drink the limited releases of top shelf bourbon, it actually has a lot to do with how whiskey is distributed and sold.

Second-Hand Market Tilts Whisky Prices

Despite it being completely illegal in the United States, the second-hand whisky market is more vibrant than ever. We’re in the midst of a period where interest in whisky, especially bourbon, has exploded over the past handful of years. That has created a situation where demand has edged out supply and nowhere can the squeeze be felt more than rare high-end whiskies which can often take a decade or more of aging to come to full maturity. This is leading to a situation where long time and budding whiskey lovers who are eager to try these limited release top shelf whiskey are competing for what was already a very limited supply. Rare releases are disappearing from retail shelves as fast as they can be stocked.

Those lucky enough to snag a bottle can enjoy it, but what’s increasingly tempting is selling it on second-hand market for a very large profit. Just how much profit are we talking? In some cases it’s enough to fund the rest of your whiskey drinking for the year or pay for a vacation. Pappy Van Winkle 15 Year Old retails for about $79, but sells on the secondary market for anywhere from $600 to $1000. Colonel E.H. Taylor Cured Oak retailed for about $70, but sees prices fluctuate between $300 and $1000 per bottle. W.L. Weller 12 retails for approximately $30, but on the secondary market and even some retailers it has been seen for as much as $150.

Retailers aren’t blind to this and have increasingly faced an ethical dilemma. They can either match the inflated secondary market prices and face scorn from long time customers and whiskey lovers, or forfeit the potential windfall profit and have customer buy these whisky at suggested retail prices and resell them on the second-hand market for many-times what they paid.

Retailers aren’t charities and exist to make as much profit as possible, but go too far in that pursuit and they risk alienating their customers who keep them in business. So what’s a fair approach to both retailers and whisky lovers in this hot market with high demand and low supply?

Resellers Struggle in Merky Waters

With 21 years of experience in the wholesale business and 7 years in retailChris Zaborowski of Louisville’s renowned Westport Whiskey & Wine has a unique perspective on the retail vs. second-hand market dilemma. “People were being berated for supply,” he says, referencing how earlier this year he other retailers were being asked non-stop if, how much and what would be the cost of the 2015 release of Pappy Van Winkle they would be receiving. Zaborowski falls on the side of wanting to keep retail prices at his store in line to with what they have been historically, but the current situation putting pressure on him. As a fellow bourbon lover we feels the frustration of customers who want these rare whiskies but can’t get them because of supply, but he’s also equally frustrated on the retail side because he isn’t being given the supply to meet their demand. Enter wholesalers.

It’s not just consumers and retailers that are feeling this frustration of this supply and demand pressure, it’s the distillers too. Buffalo Trace Distillery has many high-demand whiskies particularly its Antique Collection which includes the highly sought after George T. Stagg and rare bottling of long-aged Weller, Sazarac Rye and Eagle Rare. Heaven Hill Distillery is in a similar situation with its exclusive brands like Elijah Craig Single Barrel and Parker’s Heritage. But the most well known and sought after limited release bourbon is the Pappy Van Winkle line, which is also distilled at Buffalo Trace. Knowing the frustration consumers were facing trying to get a bottle of his family’s bourbon Pappy’s President Julian Van Winkle went on the record to say that Pappy has not raised its prices to wholesalers. Likewise, Buffalo Trace has kept their wholesale prices relatively stable.

Despite limited supply and a high and increasing demand distillers are holding their prices to wholesales, so this should mean retail prices should be stable. But there’s actually another layer to wholesale retail relationship that affects whether you can get a bottle and price of the tag on the shelf.

Wholesaler Deals Don't Always Benefit Whisky Makers

Although this varies from state to state, whisky companies tend to sell their product through wholesalers. Once the whisky leaves the distillery, the wholesaler has the power. Wholesalers do not control the price of the whisky, but they do control something just as important: where the supply goes.

Wholesaler tactics can range in severity. “Some wholesalers use allocations as a carrot and stick approach. If you’re not doing this brand, we’ll cut you off,” says Zaborowski before adding, “some are more blatant than others.” In some case sales representatives from wholesalers have been known to make deals with retailers for exclusive whiskies. In exchange for getting the rare highly-demand whisky, retailers are asked to put installations on their floors advertising unrelated products. As an example, if a reseller puts up a big display and sells plenty of flavoured vodka from a certain company, that retailer is more likely to get a rare bourbon that the wholesaler sells. All of a sudden that bottle of rare bourbon has hidden costs and strings with the retailer having to stock and sell a product it may not have planned to so it can get its hands on the bourbon its customers want.

Interestingly, distillers for the rare Bourbon aren’t necessarily benefiting from these backroom deals, because acting in self interest a wholesaler sales person will push whatever product makes them the most money or gets him/her ahead at work.

Is There an End in Sight?

Whether retailers are selling at suggested retail prices, or inflating their prices to match secondary markets, whisky drinkers and collectors are paying big money for bourbons and ryes that were affordable five years ago. Unfortunately, this trend is likely to continue.

Current demand for bourbon is outstripping supply and given that many rare releases can take a decade or more to mature there won’t be change until either the supply is increased or the demand decreases. Most bourbon distilleries are increasing capacity but that doesn’t mean the rare expensive releases will increase too. Many of these rare bourbons require long aging and in particular conditions to develop their desired flavour profile so simply ramping up production and jamming more barrels in a rick house for aging won’t necessarily yield more Pappy Van Winkle.

There’s also unfortunately no guaranteed trick for whiskey lovers to get their hands on rare releases. Having a good relationship with a whisky retailer and being a frequent customer can certainly go a long way, but, if your favourite retailer doesn’t get bottles or very few you might be out of luck. Westport Whiskey & Wine, for example, received under ten bottles of Buffalo Trace Antique Collection total. Instead of selling the bottles to a lucky few Zaborowski and staff will have them available in the store’s tasting room so more life-long and aspiring whiskey lovers can enjoy a taste. If you ask a distiller getting these rare top-quality whiskies in the hands of as many people who will enjoy them as possible is really the entire reason for making them.