Kentucky’s Bourbon problem

Bourbon and Whiskey distilling is big in Kentucky and always has been. But it saw a surge in the early 2000s, as customer demand outstripped how much Kentucky distilleries could even produce. There were several reasons for this, but personally I feel like everyone was getting into "brown liquors" in the cocktail and bar scene as bourbon and whiskey were pushed at every restaurant I went to and in every lifestyle magazine I opened back then.

The thing about Kentucky Bourbon is you take corn/grain mash and cook it and then distill that and take the liquid that comes off and you put that into barrels. But then it has to sit for at least one full year before it can be sold, while anything called Kentucky Straight Bourbon requires at least two years. Most distilleries focus on their highest margin varieties, which are premium versions aged 5 to 10 years.

Aging barrels takes up a lot of space that can't be used for anything else for years on end. The last time I was back in Kentucky, a friend who works in the government told me about how the state's department of transportation spent the last few years renting out every square foot of spare warehouse space they had to dozens of distilleries, who were hungry for ever increasing storage needs to house their barrels for aging. Pretty much any building you saw near a freeway off-ramp was likely filled with bourbon barrels.

But there's a big lag between a market saying it wants more bourbon, and when a distillery can actually sell more bourbon, a gap of at least several years. That requires distilleries to leverage themselves heavily for a payday that might only come far off in the future, if market conditions and trends continue (or grow from) as they are today.

Alcohol production is a business sector that's subject to wild fluctuations in demand, thanks mostly to buyer's whims, as young people are drinking way less alcohol than their predecessors, but we've also seen the immediate effects of new tariffs that cut sales from their biggest customers by 70% almost overnight.

Imagine being in a specialized, localized, highly-leveraged business that loses a quarter billion dollars in sales over the course of just a few months. How can it ever recover from that?

I've toured Kentucky distilleries and loved seeing the old world process of how a corn & grain mash is cooked, processed, and stored into something that I can appreciate but not enjoy personally (it all tastes like rocket fuel/poison to me).

I don't know how they're going to correct for the market crash they've seen in the past couple of years. The bourbon bubble seems like it has completely burst and it will be interesting to watch the effects on Kentucky's economy as millions of barrels of bourbon no one wants can't be sold to make up for all the energy and capital that went into them.

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