
What the Maker’s Mark dilution debacle says about corporate strategy - scottkduncan
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/17/bourbonomics-101-what-the-makers-mark-dilution-debacle-says-about-corporate-strategy/
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IgorPartola
So basically if Maker's was its own boss, this would not be happening. As is,
Maker's is propping up terrible brands that Beam, Inc. is trying to push and
in order to continue pushing those Maker's must be the sacrificial lamb.

Imagine if Maker's only had to worry about their own product. Now, a 6-7 year
shortage would buy them 100 years of legendary status. "This bourbon is so
good, for a while you couldn't even buy it!" They position themselves as an
artisan product. What's a better story to tell as an artisan than huge growth
and small batches?

As is, Beam, Inc. is like the cable networks: selling you HBO bundles with 200
channels of worthless crap, hindering HBO's ability to innovate in the
process.

~~~
tptacek
Almost all of the top-quality bourbon brands in the US are owned by large
distilling concerns. Beam, Inc. isn't an epithet in the whisky world. Go look:
think of a top-tier bourbon you like, and trace back its ownership. It's not
an indie-friendly market.

I'm also not entirely sure how your logic works here. How does reducing the
proof on Makers help Skinnygirl Pre-mixed Processed Cocktail Beverage Product
in any way? Those products are presumably already marketed to capture profits
for markets that don't care about quality.

I buy Beam's explanation of why they did this. They pivoted Makers as a global
brand, and in foreign markets (like Australia) were already marketing the
product at a lower proof. They were unexpectedly successful, and one sane
response to shortage was to unify the product line around the foreign proof.

Obviously, Makers has always controlled the final proof of its product.
Bourbons sold cask-strength are sold that way in part because it allows the
distiller's customers to buy less water and more booze. The final proof Makers
tried to choose wasn't an unusual one for bourbon, either.

~~~
IgorPartola
> I'm also not entirely sure how your logic works here. How does reducing the
> proof on Makers help Skinnygirl Pre-mixed Processed Cocktail Beverage
> Product in any way? Those products are presumably already marketed to
> capture profits for markets that don't care about quality.

TFA explains this. Beam, Inc. strikes a deal with the distributors saying "if
you want Maker's you also have to buy Skinnygirl". Once again, if they wanted
to dilute it for specific markets, why did they do it for all the markets?

I did think of an alternative explanation, though I think this is less likely.
Perhaps Maker's sells well at their current price point because there it's a
good value. However, if you raise it by, say, $10/bottle, it will now compete
with more premium bourbons where it will not hold up nearly as well. Then,
lowering the price on it after the shortage is over will even further cheapen
the brand. So perhaps Beam, Inc. was faced with a really tough choice of
whether to market Maker's as even more premium and lose, or lower the quality
and hope that the customers won't mind. However, I think TFA explains it
better, and Occam would probably agree.

~~~
tptacek
I read the article but I still don't see what selling Makers at 42% ABV
changes about Skinnygirl.

I agree with you about price vs. demand; I think if you read between the lines
what Beam already said, they're more or less acknowledging this (in that you
can always solve a demand problem by increasing the price, and they're
choosing not to do that).

~~~
pasbesoin
As I read the article, Makers Mark is a widespread first choice at their
current price point. They already face some competition at the fringes of this
leadership position (e.g. the Bulleit reference in the story).

If they allow the price to rise, bar purchasers move to alternatives. (Whether
independently or in conjunction with a shift at the distributor level.)

Currently, Beam can and does (per the article) use Makers Mark as leverage to
sell their other products. I would imagine including before the point of the
bar's purchase decision. Liquor distribution is _big business_ in the U.S.; in
many places, it is an oligopoly if not monopoly. (Illinois, for example,
currently has issues with this. And I realize that this circumstance might
argue for any potential change taking place at the distributor level rather
than the level of the individual bar, depending upon whether and how much
diversity the distributors offer.)

If you want Makers Mark, it comes as a package deal along with X quantity of
this other stuff. Being that the other stuff is targeted at less discerning
market segments (at the least, based upon price), a pretty good argument can
be made that "whatever you buy for these segments, you'll be able to move it"
(especially with a little effective marketing).

One of the first words that popped into my own mind was "bundling". Whether
the article has the situation right, this is how I understood what it is
saying. (With "bundling" being _my_ word and analogy, whether or not it would
be the proper term and analogy.)

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tptacek
Ah, this makes sense (sorry, Igor). It's not just that Makers has a choice
between going upmarket or downmarket, but that the upmarket option has a
penalty on it.

I'll reiterate though, this is not an uncommon position for a bourbon brand to
be in. Bulleit is a Diageo brand; one can only imagine the crap Diageo might
want to bundle. Even Sazerac has a bunch of crappy mixers and vodkas in their
portfolio.

~~~
IgorPartola
No worries. I wasn't being clear. I wonder why bourbon as a market is so
unfriendly to small companies.

~~~
tptacek
Archaic regulations. Takes a long time from start to finish to produce quality
bourbon. There are technical reasons (barrel size, surface area to liquid
ratios) you might want larger batch sizes. So it's hard to start small. Which
is what you have to do, because getting a new liquor product onto store
shelves involves tremendous capital outlays.

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homosaur
Sometimes you have to make an idea public to understand how truly stupid it
is.

For anyone that doesn't understand why this is such a big deal, when you make
bourbon drinks, especially a mint julep, you want ~100 proof liquor because
you add so much ice that otherwise it becomes too watery. Makers Mark was
basically stating that they didn't care about being taken seriously as a
bourbon whiskey and their customers understandably had a cow, man.

~~~
mapgrep
1\. 42% ABV (where Maker's was headed) is fine for a mint julep. Here, Eric
Felten of the WSJ gives an appropriately glowing review to Evan Wiliams based
juleps. Evan Williams is 43% ABV. (Maker's is 45%.)
<http://online.wsj.com/article/SB120916374801546109.html> Yes you make it with
lots of crushed ice and some branch water but that doesn't mean you need "~100
proof liquor," which is 50% ABV seen in contemporary "barrel strength"
bottlings but not in any bottled whiskey available historically when the julep
became popular. In other words, the julep is meant to be a little "watery,"
and in fact has enough water to open up the bourbon so you can more fully
taste it. You might prefer it with a strong whisky but that's really an
orthogonal issue as the julep became popular when made with standard strength
bourbon (and anyone who wants a meaningfully potent bourbon will upgrade to
barrel or cask strength anyway).

2\. Other than the julep and perhaps the "whiskey highball" (not drunk nearly
as much today as 50 years ago) you should not find many "bourbon drinks" with
lots of ice.

The most popular cocktails today made with bourbon are the Manhattan and the
Old Fashioned (both arguably better with rye, but whatever). The Manhattan is
traditionally served "up" (no ice); the old fashioned is properly served with
either one very large cube or a few medium large cubes. Anyone serving with
smaller ice (bad idea) is not going to go to the trouble of serving a 50%+
("~100 proof") ABV barrel- or cask- strength bourbon. And anyway over proper
ice a 40% ABV bourbon is just fine, thank you, in an old fashioned.

Another popular bourbon drink would be the whiskey sour, served either iceless
or like an old fashioned (ice wise).

3\. In no way are whiskey cocktails particularly likely to be icey or watery
vs cocktails made from other spirits. Gin has the Tom Collins, Gin Rickey, and
Gin & Tonic, all watery enough to compete well against the julep and whiskey
highball. Rum has the mojito, for which the same holds true; vodka the Moscow
Mule and screwdriver.

Anyway, I agree that this was a dumb move on the part of Maker's Mark, but not
because it involves any actual functional issue in terms of mixing drinks.
It's dumb because the brand stood for a particular flavor profile, and people
paid extra to get that flavor profile, and you don't go changing it out from
under them. Life is complicated enough without liquor brands getting all
dynamic on us.

~~~
homosaur
For traditionalist sticklers, you can purchase Evan Williams 100 proof fairly
commonly (white label).

99% of people honestly could not care less and probably shouldn't. I only care
for traditionalism's sake that I grew up on the KY border and simply like to
do it the "right way" down to the pewter goblets, ya know? (us dirt farmers
don't mess with silver)

EW is solid, it's what most higher end bars use as rail whiskey. They make a
single barrel small batch also that's really fantastic. I'll have to give
credit to John C. Dvorak for the recommendation on that one. $25 a fifth too.

~~~
mapgrep
Had no idea about the white label 100, I bet that's even better for derby
juleps :) I will defer to the dirt farmers here. I come from a line of Texas
circus performers, I don't think they knew much about cocktails because they
tended to put the booze directly in the glass (not necessarily a good thing,
given the number of broken homes!)

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olefoo
That is some genius marketing move; although an extremely risky one. How much
earned media did Maker's Mark get over this? How many people will be buying
their bourbon rather than a competitors' because they "decided to do the right
thing"?

~~~
mmanfrin
They didn't decide to do the right thing, they decided to do the _wrong_ thing
and backtracked. They've hurt their branding. They announced they were
_watering down_ their product. That hurts the image of 'high class'. To call
this a PR move is to be blind to the enormous amount of backlash that has
occurred due to the announcement.

~~~
tptacek
In the sense that all bourbon distillers control the final ABV of their
product (cask-strength bourbons being swung the opposite direction, bottled at
undrinkably high ABVs so customers can dilute them to taste), the term
"watered down" is both strictly true and not very descriptive.

Lots of bourbon is sold at 80 proof.

~~~
mmanfrin
This is not a comparison of Makers Mark vs all other Bourbons, this is a
comparison of Makers Mark vs __literally* watered down* Makers Mark.

~~~
tptacek
All bourbon is "watered down". Literally! It comes out of the barrel at an
undrinkable ABV. When you say things like "literally watered down", you sound
like that might be news to you.

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r0s
> a growing number of bars in D.C. using Bulleit bourbon, a bit cheaper and
> rougher on the finish than Maker’s

Bulleit is better, frankly. Maker's is overrated.

~~~
tptacek
Bulleit is also just a name Diageo puts on Kirin product, for whatever it's
worth.

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nasalgoat
If you want to relate this to the web, imagine that you have more traffic than
you expected, but can't bring up more capacity right away - if you do your own
hosting, this is one of the only drawbacks.

So, you have the choice of throttling traffic, making things worse for
everyone but at least everyone gets served, or you traffic shape and most
people get full speed but a percentage don't get anything at all due to packet
drops.

Looks like Beam decided to traffic shape!

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ScottBurson
I'm not a drinker, so maybe this is a stupid question, but why can't they
dilute their stock with ethanol instead of (or in combination with) water, so
the proof is unchanged? They'd be diluting the flavor, of course, but that
would happen in any case. No?

~~~
homosaur
You can do that but then you're not Maker's anymore, you're McCormick.

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philoye
In Australia, Maker's Mark lowered the proof a while ago. The bottle I have in
my pantry is 40% (80 proof). Not to mention, bottles run ~$40 (1 AUD ~= 1
USD), so I suspect the branding/marketing considerations are different.

~~~
bradleyjg
IIRC that has something to do with your taxation of alcohol (or maybe import
tariffs on alcohol).

~~~
philoye
This article[1] suggests excise tax isn't that high ($1 or $2), though GST is
10% so that's certainly part of the overall price.

I rather suspect it is pure price discrimination. I saw Pabst Blue Ribbon for
AU$49 a case. PBR! Sierra Nevada Pale Ale is around AU$75 a case. These prices
are at a huge discount retailer (Dan Murphy's).

[1] [http://theconversation.edu.au/calling-time-on-alcohol-
taxati...](http://theconversation.edu.au/calling-time-on-alcohol-taxation-in-
australia-6585)

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kyllo
I believe they did this to make more money off the Chinese market. While
whiskey drinkers in China mostly drink scotch, they recently have warmed up to
bourbon. They mostly buy alcohol not for enjoyment of the drink itself, but to
impress business clients. So they are buying lots of Maker's Mark for the
famous brand name and distinctive bottle, and they couldn't care less that
it's being diluted--they might actually enjoy it more that way.

~~~
IgorPartola
If that's the case, then why did they dilute it state-side? Wouldn't it be
more prudent to just dilute it in China and not piss of customers in the US?

~~~
philoye
I can't speak to China, but here in Australia they already diluted it to 40%.
I'm not sure when it happened, the bottle I have is at least 4 months old.

~~~
justin66
The new, diluted stuff has been spotted on store shelves here in the US as
well.

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fencepost
I thought part of the original reasoning was that by dropping to a slightly
lower proof they could also sell in locations where the current alcohol level
was too high (states with tight liquor laws), but I'm not hearing any of that
now.

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bencollier49
Hmm, deliberate marketing ploy?

~~~
cyanbane
As soon as I heard their recant the first thing I thought of was some smug
marketing high up grinning at their office that 'his/her plan had worked'.
That being said it doesn't sound like that is the popular opinion (esp from
this article). More that they were actually going to do this for business
reasons.

