[Whiskey Decision] Inflation, Investments, & Barrel Proof

Just when you thought your cask-strength bourbon was the hottest thing, a Frenchman runs the 100-meter dash while ablaze - all for the record books! Meanwhile, Canada is channeling its inner Islay, with wildfires creating a smoky ambiance that could rival a peaty Scotch. Pour yourselves a dram, and welcome to another round of our spirited newsletter.

In today's dispatch, we're diving headfirst into:

• Inflation vs. Premiumization - top-shelf after years of raising prices

• Whisky Investments: When the FBI Calls 'Last Orders'

• Technically Legal - Barrel Proof & Cask Strength Whiskies

• Cocktail: A taste of campfire and summer 

🥊 Inflation vs. Premiumization 🥊

Inflation is changing how people buy alcohol in the U.S., a market worth $280 billion. According to a 2023 report from Drizly, 66% of people are changing how they buy alcohol because of inflation. Some are buying cheaper brands (17%), and others are switching to less expensive types of alcohol (14%).

Even with these changes, whiskey still remains in demand. On Drizly, whiskey costs an average of $37.78, more than vodka's $21.78. But tequila, which tops all spirits coming in at $48.60, is starting to show signs of a decline.

Why is whiskey retaining its pricing power? A key driver of whiskey's enduring allure is the trend of premiumization, emphasizing quality and craftsmanship. Also, the number of craft distillers has exploded in recent years.

And let's not forget whiskey tourism, which drives popularity even higher. The Kentucky Bourbon Trail had 2.1 Million visitors in 2023. Up 370% over the past ten years. Despite market changes and inflation, premium whiskey's appeal is likely to maintain prices.

🕵️‍♀️Whisky Investments: When the FBI Calls 'Last Orders'

Social media feeds are awash with whiskey investment opportunities promising 500% returns. It's tempting to view it as a wise long-term strategy, not a gamble.

As the FBI marks its 115th anniversary, we revisit a June 2022 case. The FBI, not usually involved in the world of rare wines and whiskies, unearthed a $13 million scam. The plot involved over 150 victims, mostly elderly. British citizen Casey Alexander, the mastermind was arrested and charged with conspiracy to commit wire fraud.

The fraudsters, operating through three Delaware-based LLCs, cold-called victims, promising up to 50% returns on investments in collectible wines and whiskies. The lure? Rare dessert wines and vintage 2017 Craigellachie Scotch. The catch? Aggressive sales tactics, British accents, and promises of high-end parties in Scotland. We were looking forward to breaking out our kilts.

The scam surfaced when an 89-year-old Ohio resident's son reported a fraud of over $300,000. The FBI stepped in. By May 2020, they had a cooperating witness and halted over $450,000 in check deposits by the suspect companies.

Vigilance is key - always scrutinize the details. In the world of whisky and wine, not everything aged is fine.

💪"Barrel Proof or Barely Proof? Whiskey Labeling ⚖

'Barrel Proof' and 'Cask Strength' are strategic marketing terms. Designed to increase perceived value and rationalize premium pricing. Yet, how much law truly lies behind these labels?

If you want to look up labeling laws in the US, there is one place to go - the Electronic Code of Federal Regulations (e-CFR). Yes, we read it so you won’t have to. Title 27, states that 'Original Barrel Proof' or 'Original Cask Strength' can only be used if the proof of the spirits entered into the barrel and the proof of the bottled spirits are the same. But here's the kicker: what if a distiller decides to play a game of musical barrels?

Imagine this: a distiller takes whiskey from one barrel, waters it down, and then ages (or technically just has it pass through) a second barrel. Could this watered-down whiskey still strut around under the 'Original Cask Strength' banner? The rulebook is no help.

This regulatory vagueness is akin to a chef presenting a dish as 'fresh from the garden', when in fact the ingredients have been frozen, thawed, and then reheated. It's not exactly a lie, but it's not the whole truth, either.

Why isn't this more tightly controlled? Why can distillers potentially overcharge consumers for products that aren't technically true? Not convinced? Let's dive a little deeper.

Picture a 53-gallon barrel of whiskey at a respectable 125 proof. If a distiller wanted to increase the yield by dropping to 123 proof, they'd need to add a splash of water. All within the guidelines of being within 2% of the exit proof during the dumping of the barrel. The interesting part? This minor change nets an extra 4 to 5 bottles (750ml) of whiskey per barrel. Not much you might say. Ah but this is where it becomes interesting.

In whiskey production, small tweaks can yield big results. Consider a hypothetical Heaven Hill, Barrel Proof batch of 100,000 bottles. For our example, this includes 2% water not present at barrel dumping. This minor addition significantly boosted the final yield.

Here's the breakdown for our example: each barrel yields ~260 bottles of whiskey. With 2% water added, the yield increases to around 265 bottles per barrel. Across the ~377 barrels used for this batch, this small addition resulted in an extra 1,885 bottles. And this Barrel Proof Bottle's hypothetical average retail price of $102. Just a modest $70 premium above the "small batch" offering.

'Barrel Proof' and 'Cask Strength' labels can be misleading due to regulatory vagueness. Distillers can add water, increasing yield and profits, while still benefitting from these terms. For instance, a minor 2% water addition to our hypothetical batch could generate an extra $192,270 at retail price. Not that we are opposed to making money but lack of transparency is frustrating.

 📰 Worthy Whiskey News (a.k.a. our favorite reads)

• Gordy Hue & the Greatest Bourbon Story You’ve Never Heard - We don’t want to spoil it, but Pappy & Michter’s in the same story.

• Macallan makes its mark in Nigeria's exploding whiskey market, projected at $251m (2023-2027).

• An interview with Chief Heretic, John Glaser, founder of Compass Box. Defender of common sense when it comes to whisky.

• Picking favorites. Uproxx decides to kick the hornet’s nest by naming the best whiskey from each state.

📈 Top 5 Pour Decisions: The Priciest of Whiskeys 📈

Biggest five-year price surges among our featured whiskeys for 2023

1. Springbank 21 y/o Single Malt Scotch Whisky +397%

2. Stagg Jr Barrel Proof Bourbon +306%

3. Hancock’s President’s Reserve Single Barrel Bourbon +293%

4. Colonel E.H. Taylor Single Barrel BiB Bourbon +191%

5. Springbank 18 y/o Single Malt Scotch Whisky +173%

📸 Small Batch of Previous Spotlights

Biggest five-year price surges among our featured whiskeys for 2023

• Across the Spiderverse and into Scotch: Ardcore

• The best bourbon for self-defense? Frank August Small Batch

• Single, Barrel, or Gold? Blanton’s spotlight

🔥 Cherry Whiskey Sipper (a.k.a. Smell something burning?) 

Ingredients:

• 0.75 oz Ardbeg 10yr Scotch Whisky

• 0.5 oz High West Campfire Whiskey

• 8 ripe cherries

• 5 fresh lemon thyme or regular thyme sprigs

• 1 oz lemon juice

• ¾ oz blackberry or vanilla simple syrup

• 2 oz club soda or sparking water

• 2 dashes ginger bitters

• Garnish: candied ginger & cherry

Instructions: Shake & double strain into a coupe

Muddle the cherries and thyme springs in a cocktail shaker.

Add ice, whiskey, lemon juice, and simple syrup. Shake.

Strain the cocktail into a Collins glass or a wine glass over ice, add garnish, and top with soda water.

Remember to enjoy responsibly!

What a ride it's been this week, huh? Thanks for joining us on this journey through the world of good spirits at great prices.

Got friends who love a well-priced bottle as much as we do? Share this newsletter with them and let's make our merry band of spirited enthusiasts a little bit bigger.

Thanks again for being here. Let's raise a glass to the week ahead.