Jack Daniel’s Faces a Whiskey Rebellion; Diageo Presses to Relax Rules on What Makes a ‘Tennessee Whiskey’

Jack Daniel’s Faces a Whiskey Rebellion

Diageo Presses to Relax Rules on What Makes a ‘Tennessee Whiskey’


Updated March 17, 2014 7:34 p.m. ET

A feud has erupted among distillers over a seemingly simple question: When is a whiskey “Tennessee Whiskey”?


On the one side is Brown-Forman Corp.BFB +1.41% , maker of the top-selling American whiskey, Jack Daniel’s.

At the company’s urging, Tennessee passed legislation last year requiring anything labeled “Tennessee Whiskey” not just to be made in the state, but also to be made from at least 51% corn, filtered through maple charcoal and aged in new, charred oak barrels.

As it happens, that is the recipe for Jack Daniel’s, which traces its Tennessee roots back more than a century and today sells more than 90% of the state’s whiskey.

On the other side of this feud is U.K.-based Diageo DGE.LN -2.25% PLC, the world’s largest liquor company and owner of George Dickel, the distant No. 2 Tennessee Whiskey. It is lobbying Tennessee lawmakers to relax the rules so area distillers don’t have to copy Jack Daniel’s.

Some small craft distillers in Tennessee also say they want to be free to experiment and complain new wood barrels are in short supply amid growing thirst for American whiskey here and abroad.

Legislators in Nashville plan to debate axing some of the rules Tuesday in House and Senate committees ahead of possible floor votes. Proposed amendments include rolling back the requirements on new barrels and maple charcoal filtering.

“I think we should wipe off the books what we did last year,” said Rep. Ryan Haynes, chairman of the state government committee, which is weighing changes. If distillers make whiskey in Tennessee, they should be allowed to call it Tennessee Whiskey, he added.

Brown-Forman—which is based in Kentucky—is casting the debate in near-apocalyptic terms, saying in a news release Friday that Tennessee Whiskey was “under attack.”

It accused Diageo of trying to undermine the designation by watering down regulations that would “dramatically diminish the quality and integrity” of Tennessee Whiskey and make it inferior to bourbon.

Bourbon, the most famous type of American whiskey, is made with a recipe similar to Jack Daniel’s. Under longstanding federal regulations, any whiskey labeled “bourbon” must be distilled in the U.S. using at least 51% corn and aged in new oak barrels that have been charred. Unlike Tennessee Whiskey, bourbon doesn’t require maple charcoal filtering. It can also be made in any state, although more than 90% of bourbon is produced in Kentucky.

There is no federal regulation governing the term “Tennessee Whiskey.”

Diageo says the George Dickel brand is in compliance with the new law, and that it has no plans to change the way it is made. But the liquor giant says last year’s law puts a lid on innovation and that Brown-Forman shouldn’t be allowed to define the only path to high-quality Tennessee Whiskey.

“We’re in favor of flexibility that lets all distillers, large and small, make Tennessee whiskey the way their family recipes tell them,” said Alix Dunn, a Diageo spokeswoman.

Part of what makes bourbon and Tennessee Whiskey unique is the substitution of barley and other grains with corn, typically making them sweeter than other whiskies such as Scotch. Brown-Forman says new barrels are another important difference, delivering unique flavor and turning the spirit orange-brown without caramel coloring. Charcoal filtering produces a smoother sip, it says.

“If you don’t want to use new barrels or charcoal filtering, you can’t call it ‘Tennessee Whiskey.’ You can call it ‘whiskey from Tennessee’ or ‘whiskey made in Tennessee’ or any other combination,” said Phil Lynch, a Brown-Forman spokesman.

Charles Cowdery, the author of several books on American whiskey, also says easing rules for designating Tennessee Whiskey would be a mistake. Reusing barrels “is like using a tea bag twice, you don’t have as much flavor,” said Mr. Cowdery, who writes a popular whiskey blog.

Diageo owns the two top-selling global liquor brands, Smirnoff vodka and Johnnie Walker blended Scotch whisky, which like all Scotches is made in Scotland. Also the leading spirits company in the U.S. by revenue, Diageo booked £11.43 billion ($19 billion) in global sales in fiscal 2013, roughly five times that of Brown-Forman.

But Diageo is a small player in American whiskey, which has experienced a renaissance over the past decade. U.S. sales of bourbon and Tennessee Whiskey rose 6.8% in 2013, compared with 1.9% for all liquor, according to the Distilled Spirits Council, an industry trade group. American whiskey exports also topped $1 billion last year for the first time.

Diageo’s George Dickel Tennessee Whiskey sells about 130,000 cases annually, barely 1% of Jack Daniel’s shipments, which rose 6% in the nine months ended Jan. 31.

Diageo says not all American whiskey aged in new barrels is terrific and that there is plenty of outstanding Scotch aged in reused barrels. It says such barrels can be “rejuvenated” through a process that exposes and chars the wood.

Popcorn Sutton Distilling LLC, one of a growing number of small distillers in the state, also wants the rules relaxed. The Nashville distiller recently began aging whiskey without charcoal filtering—a recipe it says it inherited from Marvin “Popcorn” Sutton, a legendary Tennessee moonshiner who died in 2009.

“Popcorn Sutton naturally wants to call their product Tennessee Whiskey,” said William Cheek, an attorney for the company, which began distilling in 2012 and last year produced about 10,000 cases of so-called white whiskey that wasn’t barrel-aged.

State Rep. Bill Sanderson says he wants to roll back last year’s legislation after some small distillers also told him they are struggling to secure new barrels because of booming demand. “I’m not doing it for Diageo. I’m doing it for the little guy,” said Mr. Sanderson.

Major distillers including Diageo say they haven’t experienced barrel shortages. Unlike many competitors, Brown-Forman makes its own barrels. It announced plans in 2012 to double its capacity by building a second cooperage in Alabama.

Mr. Cowdery said any supply bottlenecks for small distillers are temporary and that scratching the requirement for new barrels is like “killing a fly with an atom bomb.” America, he added, “isn’t running out of trees.”

Eric Wilson, whose Chattanooga-based Rocky Top Distillery LLC plans to start making whiskey this year, said it would be a “sacrilege” to relax rules for making Tennessee Whiskey and that all of the state’s distillers should be grateful for riding Jack Daniel’s coattails. “I can hear the Kentucky bourbon industry laughing at us for thinking about changing this,” said Mr. Wilson, who plans to ferment, distill and age Tennessee Whiskey in boxcars on an abandoned rail spur.

State Sen. Janice Bowling has proposed last year’s label rules not enter force for five years to give everyone more time to reach an agreement. Meanwhile, “I’d just invite everyone down to Tennessee and they can enjoy Jack and George,” said Ms. Bowling, who lives in Tullahoma, home to the George Dickel distillery. That’s 19 miles northeast of Jack Daniel’s Lynchburg distillery.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

<span>%d</span> bloggers like this: