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A whiskey sour for the distilled spirits industry.
Consumers are souring on drinking alcohol.
And that’s one of a host of complex reasons why Jim Beam is placing its main distillery in Clermont, Kentucky, on ice for at least a year.
Claudia Coffey knows Kentucky bourbon country as well as anyone. She’s a podcaster and bourbon insider.
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“Bourbon is Kentucky, right? We love horse racing in Kentucky. We love bourbon in Kentucky. It’s the reason that 2.7 million people come to visit the Commonwealth every single year,” said Coffey. “It’s some of the biggest news to come out of Kentucky in quite some time, and this is one of the most iconic brands in bourbon.”
Not everyone has heard of Willett or Four Roses when it comes to bourbon. But Jim Beam is Americana. Ubiquitous. Kind of like McDonald’s or Coke.
Americans are imbibing less — down 6% from just two years ago. And more than 16 million barrels of Kentucky spirits — including bourbon and rye — are aging in warehouses across the state. Distillers are paying taxes on those barrels while they age.
It’s an issue of supply and demand. But the problem is not exclusive to Jim Beam.
“It’s not a question of who’s shutting down production,” said Charlie Prince, who runs the Drammers Whiskey Club. “It’s a question of who is admitting it.”
Barrels of bourbon are stacked in a barrel house at the Jim Beam Distillery Feb. 17, 2020 in Clermont, Ky. U.S. whiskey exports have fallen by 27% to the European Union, the product’s largest export market, caused by retaliatory tariffs imposed by the 27-nation alliance, a trade group said last week. (Bryan Woolston/Getty Images)
Overseas distillers like Midleton in Ireland, which makes Jameson, and Highland Park in Scotland all reduced production recently because of a glut of bourbon, whiskey and Scotch on the market.
However, observers say tariffs and the trade war with Canada hit Jim Beam especially hard.
“Ten percent of Kentucky bourbon sales were going to Canada, and that has dropped to almost zero,” said Prince. “In Canada, that has been taken on as a kind of a national mission for Canadians, saying, ‘Let’s buy Canadian’ and push back against the politics they don’t like coming from the U.S. And, so, you see stores just pulling all American products and banning them in some provinces. So, that’s definitely a political response.”
Democrats quickly latched onto the tariff argument.
“Thousands of Kentuckians power the bourbon industry. We will all feel the impact of this,” declared Rep. Morgan McGarvey, D-Ky. “It’s hard to overstate just how devastating Trump’s tariffs are for America’s signature spirit.”
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But one industry observer believes that tariffs are a single ingredient in a complex economic cocktail. Jessica Spector is a professor at Yale who studies the history and culture of liquor and spirits.
“Anybody that tells you that they have an explanation, ‘Oh, it’s tariffs,’ or ‘Oh, it’s post-pandemic retraction,’ is giving you a too simplistic explanation,” said Spector. “It’s unclear what impact the tariffs are having and will have in the future. People have argued over tariffs for a long time. As long as there has been trade, there have been arguments over tariffs. It’s unclear whether the tariffs are sort of the coup de gras to an industry that was already suffering.”
Spector says yes, Generation Z drinks less and uses cannabis more. There are also health concerns. But the spirits industry has witnessed shifts before. She says people moved from brown liquor to vodka in the 1970s because it was seen as healthier.
“They also jogged more and did a lot more cocaine because that was seen as more health conscious. So, it gets really complicated when you break things down generationally,” said Spector.
But the tariffs remain extraordinarily controversial. The Trump administration says tariffs are here to stay.
Bottles of alcohol sit on shelves at a bar in Houston June 23, 2020. Moderate drinking was once thought to have benefits for the heart, but better research methods starting in the 2010s have thrown cold water on that. (AP Photo/David J. Phillip, File)
“Tariffs are going to be part of the policy landscape,” United States Trade Representative Jamieson Greer said Fox. “We know they’re successful.”
But the tariffs may also evaporate.
The Constitution grants Congress the authority to tax and impose tariffs. President Trump used emergency powers to levy global tariffs earlier this year. That’s why this issue wound up at the Supreme Court. Attorneys argued the case in October.
“Canada is one of our closest allies. I think it would be hard to find Canada engaging in unfair trade practices because we have what used to be called the NAFTA agreement, between Canada, the United States and Mexico to bring down all the trade barriers between the countries,” said University of California law professor John Yoo.
Based on the oral arguments, Yoo believes the high court will halt the Trump-imposed tariffs under the premise that the U.S. faces a national emergency.
“Canada will immediately benefit, and you’ll be able to find your choice of American bourbons on Canadian store shelves,” said Yoo.
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In fact, Yoo believes the Supreme Court could issue its ruling sooner rather than later — especially if it nixes the tariffs. That’s because of all the duties and fees that might be levied on products for months — and then reversed.
It’s important to note that Jim Beam will continue operating two other distilleries for the time being. And Spector says Generation Z prefers cocktails. So, that could force the industry to shift what it produces.
Now here’s a little tidbit you probably won’t learn any place else.
Roam any distillery in Scotland, be it Dalwhinnie in the Highlands, Glen Scotia in Campbeltown, GlenGrant in Speyside or Bowmore on Islay, and you will find distillers aging Scotch in Jim Beam barrels.
It’s not just Jim Beam barrels that you will find in Scotland. It’s also Buffalo Trace. Heaven Hill. Woodford Reserve. Wild Turkey. Congress only allows American distillers to use American oak barrels once for producing bourbon. So, Scotch distillers overseas love to get their hands on a good bourbon barrel to age their spirit.
The barrels may partially impart a vanilla flavor into the expression, stemming from “vanillans” in the wood.
The Jim Beam Distillery Feb. 17, 2020, in Clermont, Ky. (Bryan Woolston/Getty Images)
The trend of using American bourbon barrels for Scotch began in the 1940s after the U.S. market came back online following the end of Prohibition. Distillers in Scotland began using sherry barrels to age their spirits prior to that (hence, the rich meaty flavors you get from Macallan). Sherry is still prevalent despite a decline in people consuming sherry these days. But fewer bourbon barrels from a big producer like Jim Beam now could alter the taste of Scotch in about 15 to 20 years.
That said, demand for Scotch is down like bourbon. So, some of these may even out.
It’s worth noting that Suntory Global Spirits owns Jim Beam. It was known as Beam Suntory until recently. Suntory also owns major Scotch labels like Bowmore, Admore, Laphroaig, Auchentoshan and Glen Garioch. The pipeline of barrels from Jim Beam was a good proposition for Suntory to age Scotch.
So, it’s possible that, down the road, Scotch distillers may age some of their expressions in barrels that once contained something else — other than Kentucky bourbon. And that’s where the flavor profile will evolve.
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It’s also impossible to know the market trends and what people will be interested in drinking in 15 to 20 years. And, so, whatever distillers put into a barrel now might not match market trends in the future.
In fact, perhaps people will revert to drinking bourbon and Scotch. And the market glut now may switch into a spirits famine where products consumers want are hard to find.
Chad Pergram currently serves as Chief Congressional Correspondent for FOX News Channel (FNC). He joined the network in September 2007 and is based out of Washington, D.C.
