Bourbonomics 101: What the Maker’s Mark dilution debacle says about corporate strategy
By Neil Irwin, WashPost, Updated: February 17, 2013
The main message being drawn by the decision by the producers of Maker’s Mark bourbon to reverse track and undo plans to reduce its alcohol content is: Don’t mess with bourbon drinkers.
But behind the decision is an interesting lesson in how the overarching strategic needs of big global companies can lead to bad decisions for lovers of the products under their umbrellas.
One of the tricky things about making and selling good whiskey is that it takes time; Maker’s is a blend that is around six years old. Which means that the fine people at the Maker’s Mark distillery in Loretto, Ky., and their corporate overlords at what is now called Beam Inc. were having to make decisions back in 2007 that determined how much Maker’s Mark they have to sell now.
And, it would seem, they guessed wrong. They didn’t properly foresee the booming worldwide demand for the supple, nectar-like perfection of Maker’s. Sales of the bourbon rose 14 percent in 2011 and 15 percent in 2012. This is part of a broader trend: Some 16.9 million cases of Kentucky and Tennessee whiskey were shipped in 2012, according to the Distilled Spirits Council, up from 14.9 million cases in 2007; the revenue earned on that whiskey soared more than 28 percent in that span.
That is normally a problem — too much demand for a product — that a company loves to have. The simple answer to that problem would be to raise prices to whatever level will make the market clear. Maker’s didn’t do that, and the result was predictable: Shortages of the bourbon in some markets.
(More here.)
The main message being drawn by the decision by the producers of Maker’s Mark bourbon to reverse track and undo plans to reduce its alcohol content is: Don’t mess with bourbon drinkers.
But behind the decision is an interesting lesson in how the overarching strategic needs of big global companies can lead to bad decisions for lovers of the products under their umbrellas.
One of the tricky things about making and selling good whiskey is that it takes time; Maker’s is a blend that is around six years old. Which means that the fine people at the Maker’s Mark distillery in Loretto, Ky., and their corporate overlords at what is now called Beam Inc. were having to make decisions back in 2007 that determined how much Maker’s Mark they have to sell now.
And, it would seem, they guessed wrong. They didn’t properly foresee the booming worldwide demand for the supple, nectar-like perfection of Maker’s. Sales of the bourbon rose 14 percent in 2011 and 15 percent in 2012. This is part of a broader trend: Some 16.9 million cases of Kentucky and Tennessee whiskey were shipped in 2012, according to the Distilled Spirits Council, up from 14.9 million cases in 2007; the revenue earned on that whiskey soared more than 28 percent in that span.
That is normally a problem — too much demand for a product — that a company loves to have. The simple answer to that problem would be to raise prices to whatever level will make the market clear. Maker’s didn’t do that, and the result was predictable: Shortages of the bourbon in some markets.
(More here.)
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