Maker's Mark Expanding to Meet Demand

FILED FEBRUARY 28, 2014

Dear Client,

For the last 30 years Maker's Mark has been growing at a steady clip, and due in part to the bourbon renaissance in recent years the brand has taken off, up 16% in 2013, per IRI data. This has left Maker's Mark in a tricky position as their supplies have not been able to keep up with demand.

Recall, around this time last year, Beam thought the way to deal with a supply shortage of its ever-growing Maker's Mark brand was to dilute the alcohol content and thus have more to spread around. This turned out to not be such a good idea as consumers threw quite the temper tantrum about their beloved Maker's, causing Beam to reverse the decision (see WSD 02-18-2013).

In a move that is bound to satisfy more customers, Maker's Mark announced yesterday that it will begin a $67 million expansion project in March that is expected to double capacity over a period of years. This move represents the brand's second significant expansion ever, and will see the addition of a third still, which they claim will be exactly like the other two. The new still is expected to be completed in June 2015, Rob Samuels, Maker's Mark coo, tells WSD. In addition, they will continue to build new warehouses.

Since the average age of a bottle of Maker's Mark is 6.5 years, none of the whiskey from the new still will hit the market for a while. In the meantime, Maker's Mark still has to deal with the demand. To do that, the distillery has increased capacity with a barrel-rinse process, which Rob says is a "traditional industry process of putting water in the barrel after its empty to get whatever is left in the barrel." That's in conjunction with cranking up the output of its two current stills and some new warehouses they recently built. "Those investments will allow Maker's to continue to grow within the range of the historical growth of Maker's until the bourbon from this next expansion becomes available. It's been part of our master plan and growth vision for a number of years," he says.

SAZERAC EXPANSION COMING SOON: Meanwhile, Beam competitor Sazerac is having its own supply shortage issues. The Herald-Leader reports that Sazerac will also be announcing expansion news soon. In fact, the Kentucky Economic Development Finance Authority gave preliminary approval yesterday for $1.62 million in incentives for a $20.5 million project for a new distribution center and improving existing buildings to expand capacity. And earlier this month, Buffalo Trace received preliminary approval from the Kentucky Tourism Development Finance Authority for a $2.2 million expansion of its gift shop, tasting area and meeting space.

TRADE GROUPS INCREASE INVOLVEMENT IN OREGON'S PRIVATIZATION PUSH

Although the organization claims to be officially neutral on the topic of privatization, DISCUS has donated $100,000 to the Oregonians for Competition, the political group that is pursuing the ballot initiative to privatize Oregon, according to state records. Pat McCormick, a spokesman for the Oregonians for Competition, says the money could help jump-start a signature-gathering drive when the campaign gets an approved ballot title.

This marks a significant move in the push for Oregon to privatize because the majority of the industry was opposed to privatization in Washington before it became a reality. In fact, you may recall, DISCUS took out newspaper and online ads claiming Initiative 1183 "contains some flaws" before it passed in 2011 (see WSD 11-20-2011).

DISCUS isn't the only trade group getting involved in Oregon though. The Presidents Forum of the Beverage Alcohol Industry is "extremely concerned" with what's happening in Oregon, Forum president Vicky McDowell recently told WSD. "We are not a lobbying organization, but I will tell you that with what's been happening in the North West, we are going to revisit that. We think we might need to hire someone full-time or part-time because there's so much going on in the states right now."

JUDGE FINES DIAGEO FOR CONCEALING INFORMATION IN JACKSON FAMILY WINES' CASE

You may recall that Diageo Chateau and Estates and Jackson Family Wines (JFW) have been locked in a trademark infringement dispute since 2011. At the heart of the matter, JFW believes Diageo's Creme De Lys wine label is too confusingly similar to their La Crema brand. The latest news from this case is that JFW filed a complaint in January that Diageo withheld and destroyed evidence they were ordered to turn over.

BACKGROUND: Jennifer Josephson is a former Diageo employee who was the main contact for a research firm called Northstar Research Partners, which was hired to do the consumer testing on Creme de Lys. In 2012, the court ordered Diageo to produce all documents concerning the "selection, adoption, and/or use" of the trademark in question, but neither Jennifer, nor the documents she kept about the brand, were produced for the court. Moreover, Diageo admitted later that year they had deleted documents from Jennifer's laptop.

The problem with that is JFW claims there was an email on the laptop from Jennifer to Northstar Research Partners asking why their reports "didn't include anything about potential confusion with La Crema," an issue the firm had discovered during its research. "This critical email, which [Diageo] never produced presumably due to spoliation, establishes that [Diageo] knew of potential consumer confusion between the parties†marks before they adopted Creme de Lys," writes JFW. Thus, JFW requested monetary sanctions for Diageo's discretion.

In its defense, Diageo claims JFW "muddled the relevant chronology and alleges sinister intent where none exists." Diageo claims it is not true that it held off on Jennifer-related discovery until JFW raised the issue in court. At the time, "neither Diageo nor Jackson considered [Jennifer] to be 'an essential witness and document custodian,'" and only a year later did JFW notify Diageo it was seeking any discovery. As for the alleged document destruction, Diageo says the documents on Jennifer's laptop were treated like those of any other former employee (i.e destroyed) before they were aware that it might be relevant. Once they realized her laptop was relevant they "went to extraordinary lengths starting in June 2013 to search for and recover every possible relevant document," from her files.

JUDGE SIDES WITH JFW: The judge sided with JFW on this particular issue. He rules that Diageo already knew Jennifer's hard drive had been deleted by the time JFW requested her backup tapes, but "consistently maintained in communications with [JFW], in fielding with this Court, and at oral arguments from June through November that there was no issues with the production and preservation of [Jennifer's] documents." Their efforts to "conceal the spoliation plainly delayed and disrupted the litigation and therefore a finding of bad faith supporting monetary sanction is appropriate." In light of the ruling, Diageo was ordered to pay the JFW's fees and costs associated beginning in June 2013. The court will determine how much that will be after the trial.

This drawn out case may be coming to an end soon though. As of February 21, the two companies filed a settlement brief that said they are expected to complete formal settlement in two weeks.

WSD BRIEFS:

MIAMI-BASED BESO DEL SOL SANGRIA is spreading outside the states beginning March 1. Beso Del Sol has chosen to partner with MS Walker
for Massachusetts, Rhode Island, New Hampshire and Maine; Georgia Crown in Georgia and Tennessee, Prestige Imports in Maryland, Delaware and Washington D.C. and Southern Wine & Spirits in Florida. The 3L bag-in-a-box Sangria retails for approximately $20.

OREGON-BASED SAKEONE IS LAUNCHING A KEG PROGRAM FOR its Momokawa Organic Junmai Gingo sake. Momokawa will be distributed in a 19.5 liter keg that features a Nitro Keg system - 75% nitrogen, 25% carbon dioxide. It is currently on tap at restaurant locations in Oregon, California, Washington, Illinois, Nevada and New York.

Until Monday, Emily

"I ask people why they have deer heads on their walls. They always say because it's such a beautiful animal. There you go. I think my mother is attractive, but I have photographs of her."
- Ellen Degeneres


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