Maker’s Mark, “Bourbonomics 101”, and a lesson in supply and demand

I’m sure a lot of readers of this blog have been following the strange saga of Maker’s Mark and its “overlords” at Beam Inc. and their decision — followed by a reversal of that decision — to slightly reduce the alcohol content of the bourbon crafted on a gorgeous, relatively small plot of land in Loretto, Kentucky.

The decision to dilute Maker’s was made because of a booming demand that wasn’t anticipated when the distillery made its plans six years ago for sales this year. (Maker’s is aged six years, so demand has to be estimated far in advance.)

The Wonkblog at the Washington Post has a fascinating piece about this today:Bourbonomics 101: What the Maker’s Mark dilution debacle says about corporate strategy | Wonkblog

From that post by Neil Irwin:

Most companies would simply raise the price of Maker’s until the market cleared. But Beam Inc. depends on Maker’s Mark to be one of its mainstay products — and if it raised the price too quickly, it could lose that status. Many higher-end bars now use Maker’s Mark as their standard go-to bourbon for mixed drinks, and at many mid-tier places it is their standard premium option. If the price of Maker’s gets too out of whack with other bourbons of similar quality, they might rethink that practice and turn to less pricey options. I’ve already noticed a growing number of bars in D.C. using Bulleit bourbon, a bit cheaper and rougher on the finish than Maker’s, as their standard bourbon for Manhattans and Sidecars.

And if that kind of change happened on a large enough scale, it could cost Maker’s its status as that go-to powerhouse brand that helps underpin a company that sold $3.1 billion worth of liquor last year.

So you can see why it might have been a little wary about raising prices further. It also doesn’t do if you have a “power brand” that people can’t get hold of. Hence, the decision last week, now reversed, to reduce Maker’s Mark from 90 proof to 84 proof (or 45 percent alcohol to 42 percent alcohol). It would stretch the company’s existing supply of bourbon further without either increasing prices or having shortages.

As Irwin asks, “What now?” It’s not entirely clear what the distillers will do to meet demand, avoid shortages, and avoid pricing too many buyers out of the market. It’s already a blend, so they could add some younger whiskey to it, in theory, but that might be met with the same consumer backlash.

Anyway, it’s sure an interesting business issue regarding demand and supply, not to mention branding.