Maker’s Mark shoots itself in the foot

My first thought when I heard the news that Marker’s Mark was planning to reduce the alcohol content of it’s famous bourbon was, “If I wanted to dilute my bourbon, I’d put ice in it myself.”

My second thought was, “Now I have to find another go-to bourbon to order when I’m out.”

I wouldn’t call myself a bourbon nerd, but I do know a thing or two about bourbon and how it’s made. And I’ve always liked Maker’s Mark. Most bars stock it and it makes a nice Manhattan. I’ve got some more obscure labels at home, but that’s the one I order when I’m not trying to think too hard.

The Washington Post blogged about the rise in demand for Maker’s Mark and how it happened.

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.

The problem is that Beam Inc., the parent company of Maker’s Mark, has crafted a role for Maker’s as one of its “power brands,” along with the likes of Jim Beam bourbon, Sauza tequila and Courvoisier cognac. It is supposed to be one of the major drivers of the company’s sales, a standard that can be found at every decent bar in the world (or, as Beam Inc. puts it in its annual report, the power brands are “our core brand equities, with global reach in premium categories and large annual sales volume”).

Here was the reasoning behind the decision from the Associated Press.

The change in recipe started with a shortage of the bourbon amid an ongoing expansion of the company’s operations that cost tens of millions of dollars.

Maker’s Mark Chairman Emeritus Bill Samuels, the founder’s son, said the company focused almost exclusively on not altering the taste of the bourbon while stretching the available product and didn’t consider the emotional attachment that customers have to the brand and its composition.

Bill Samuels said the company tinkered with how much water to add and keep the taste the same for about three months before making the announcement about the change last week. It marked the first time the bourbon brand, more than a half-century old, had altered its proof or alcohol volume.

“Our focus was on the supply problem. That led to us focusing on a solution,” Bill Samuels said. “We got it totally wrong.”

Apparently, I’m not the only one who was upset. The backlash after the Kentucky distiller announced it was going to cut its alcohol content to meet increased demand was swift. The AP again:

Both Bill and Rob Samuels said customer reaction was immediate. Company officials heard from “thousands and thousands of consumers” that a bourbon shortage was preferable to a change in how the spirits were made, Bill Samuels said.

But many in the PR industry are now calling Maker’s Mark’s reaction to the backlash a lesson in how to handle a bad decision. They issued an apology via Facebook, Twitter and their website. A Forbes commentator had this to say:

Of course the reversal was primarily a business decision, but this apology is heartfelt and nicely done. Maker’s Mark’s leaders are human, they made a bad decision, and they’re going to make it right. It’s that simple. They didn’t defend their motives or sneak in any excessive marketing. They didn’t even try compromising to cut the difference. Instead, they acknowledged that they let down their customers and promised to return to the original recipe—even if that means more shortages. The letter reminds fans that Maker’s Mark is still a family business, and including their direct email addresses is a meaningful gesture in itself.

We can’t always predict our customers’ feelings, and when we get something wrong, they have every right to tell us they’re mad. The way we respond to angry customers says a lot about our brand, and Maker’s Mark was listening. This sort of transparency goes a long way with customers.

But it still doesn’t solve the underlying problem, according to the Washington Post.

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 when making a Manhattan or Old Fashioned.

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.

So what now? The underlying problem is still there. And now it’s decision time for Maker’s Mark and Beam Inc. Are they really going to allow there to be shortages of Maker’s at times, meaning that they would be essentially charging a below-market price? Are they going to hike price and risk Maker’s status as a go-to mass market bourbon brand? Or are they going to find other, sneakier ways to get more supply of whiskey that is less blatant than diluting it, such as introducing even younger whiskey into the blend

Either way, I for one, am happy they’re going to leave a time-tested product alone so that I can continue to enjoy a proper Manhattan.