Friday, July 29, 2011

Time And Whiskey

Clay Risen looks at the twin challenges of time versus cash flow and time versus taste for startup distillers:
One of the biggest obstacles facing a startup whiskey distiller is time. No matter how quickly you can turn yeast, water, and grains into alcohol, you still need to mature the product in oak barrels to get something you can legally call "whiskey." Most big distillers use 53-gallon charred barrels, which they fill, plug, and stick in an uninsulated warehouse for a few years—or longer, depending on the qualities they're looking for. During that time, the barrels impart color and flavor to the liquid, while absorption and evaporation remove unwanted chemicals. Eventually the distillers decide the whiskey is ready, move it into bottles, and ship them to stores.

All this waiting takes money—a lot of it, and all before you've sold your first bottle. If you're an established distiller, you're covering the upfront costs of your new batches with the profits you're making off the finished ones. But a startup doesn't have that sort of cash flow, which is why many new distillers start with "white" spirits like vodka and gin, then invest in whiskey once the money is flowing.

But the allure of producing brown liquor is a strong one, so for the last few years entrepreneurial types have been looking for ways around the time conundrum. Some have used "tea bags" of wood chips to increase the surface area of wood in contact with the liquid. Others use barrels with honeycomb patterns cut along their insides, to increase the surface area. Tuthilltown, in upstate New York, has even experimented with vibrations from bass-heavy music to agitate the aging whiskey, thus increasing the movement of the liquid against the wood.

The most popular trick, however, is to use smaller barrels—from five to 30 gallons, instead of the standard 53—to speed the aging process. The greater the surface area relative to the volume, the more contact the liquid will have with the wood. The result is, at first glance, impressive: brown color, woody flavor, and less bite than the unaged liquid you started with.
The most striking feature of a distillery tour is seeing the stacks of barrels in the warehouses.  It is a tough concept to understand that this whiskey will generally age at least six years prior to bottling.  That is a long time to wait for a return on investment.  Waiting until October is hard, when you buy inputs for the crop in December.  I can't imagine waiting until October 2017.  The fact that each barrel may age differently just adds to the complexity.  But if it turns out, those barrels are just money in the bank.  Patience is best, but it would be difficult.  Trying to satisfy investors makes it a challenge.  But quality should be the goal, not quick profits.

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