Collectible Spirits: Inside The World of $800k Bowmore And The Return of Aged Hibiki.

I am so psyched for my special guest here. One, because he's just a really nice guy. And then number two, I still enjoy a drink here or there or two a week, maybe three. Greg Hughes, President and CEO of Suntory Global Spirits. Good to see you, man. Good to be here. Thanks for coming down. I appreciate it. Last time I saw you was at a company event and I had a couple. I was trying out your latest selection. I didn't realize how many brands you own under this umbrella. Yeah, it's a big umbrella because obviously we have the Suntory whiskies that people know, like Hibiki and Yamasaki and Hakushu. But then a giant bourbon portfolio with Jim Beam, Makers Mark, all the small batch bourbons, Knob Creek, Booker's, Baker's. Then a tequila portfolio with Hornitos and Altessoro. And a gin portfolio with Roku and Sipsmith. So it's a broad portfolio. And that's not even getting into the RTD business, where we're the RTD leader in Japan and Oceania. So we have Minus 196 and the On The Rocks portfolio here in the U.S. and then product all over the world. So it's a big portfolio. Are you a collector of certain whiskies? I am. You know, I started collecting partially because I wanted to make sure I understood what was going on with competitors and what was going on in the category. And we have this concept in Japanese, the Japanese word is Gemba, of going to the real place. So I asked my local team in Chicago, hey, who's the kind of whiskey account in the Chicago area? Because every major city in the world has somebody who most of what they're selling is really being sold through private sales versus off the shelf. And so they made an introduction to me. And this was back when I was in the marketing role years ago. And I started going in once a quarter. And my brief to Gene, who runs the shop, was show me everything my competitors are doing that's interesting. And he would bring things out across, you know, whiskey, across other categories as well. Taste me through it, talk about it. And it was a great experience to get a sense from one of the top whiskey purveyors in the country. What are people doing that's interesting? And yeah, my wife would say, oh my God, do you have to buy everything in the box? Yes, I do. Yes, it's mandatory. So over the years, because I've kept that up, it's now about twice a year because my calendar's a little bit challenging. But yeah, over the years, I've accumulated a decent collection of our product, but also of competitors. What makes a collectible bottle of alcohol? Is it the bottle or is it what's in it? Because the price is either there. Some of these bottles are chunks of change. Yeah, I think, uh, you know, if I think about some of the ones that really sell for a lot of money. So if I think about Bowmore stack, so, um, yeah, there's a, there's a, there's a charity event once a year called the distillers one of one, and you release one bottle of this product. And this is a good example. So scarcity and exclusivity drives a ton of the price. Then the underlying liquid, which I think in this case was a 50 year old Bowmore, which is just an exquisite liquid. And then it was in a pack that made what was man of like Onyx stone to look like the rocks on the shore of Isla sold for 800,000 pounds, one, one, one, one, one, uh, one 70 milliliter house. Bottle of whiskey. I mean, I love Bowmore, but yeah, it's crazy. So some of these prices are, I get up there, but usually there's some combination of really great whiskey, something that's exclusive. I'm going to be hard to find any place else, or at least only once or a limited edition, like a Yamasaki 55 or these older Bowmore statements. And then there has to be some luxurious element to the packaging as well. I want to feel like a glass bottle. Like it just needs to feel right. Substantive and usually has a secondary pack. I'm going to pass that bottle and well, this, and all of these, and we do this frequently, you know, there's the seven 70s, you know, CL, you know, 700 milliliter bottle. The person's probably not going to open because that loses some value, but there's a little drawer in the bottom that had a hundred milliliter vials, 300 milliliter vials of the liquid. So the person could actually taste the product without needing to like get rid of the bottle. So I was thinking, uh, I was thinking back to like, uh, food innovations that I've crossed recently. And I look at PepsiCo. They are now having protein Doritos. That's kind of cool. Uh, I see what Coca-Cola is doing on their front with various seltzers. How do you reinvent something like a, like alcohol, whiskey, or tequila? How do you keep innovating when, I mean, it's still like, there's just whiskey and tequila. Yeah. Fundamentally, I think about both the product and by and large for whiskeys, um, we've made whiskey the same way for 200 years and that's part of part of what you want to do, but what you can do while being ultra respectful and always trying to make that the best version of itself possible, you can innovate how it's consumed. So we like to think about the occasion that the consumer's in. So we divide it roughly into three occasions. We've got, you know, refreshment, relaxation, and then ready to drink, which is about flavor and convenience. And in that you can be quite innovative. So as we think about refreshment, if you look at Japanese whiskey, Japanese whiskey was in decline for a decade in Japan. And what really sparked the resurgence was not Yamasaki 55 and the high end of, of, of Japanese whiskey. It was figuring out how to make a Japanese highball that was such a refreshing experience that it served in a beer mug with the right ice with Kakuben and soda cocktail. So, so it reframed against beer so you can innovate how people consume. And that's a little bit what we think about doing. So what's the occasion? What's their need at that occasion? And we, can we deliver a different serve strategy, a different pack strategy, a different flavor that opens up against that. And then when you come, the ultimate extreme of that is really RTD, which, you know, the RTD category now. Ready to drink, right? Ready to drink. Sorry, yeah. So in a can. So then can cocktails for us, it's minus 196. But if you think about that category, it's a $45 billion category globally. It's huge. 70% of that's still in the US, Japan, and Oceana. The US alone, it's a $22 million category. And it really is where all the growth in beverage alcohol is right now. So you see that category has grown at 13% kegger since 2019. Last year around the world, full bottle spirits was slightly down in North America. Full bottle spirits was slightly down in Europe. All of the growth moving into ready to drink. As you see people, you know, looking for flavor, looking for convenience, looking for refreshment and moving to that canned solution that gives them the drink already ready to go. I recently caught up with Kevin Hart. And as you know, he has a tequila company. He told me sales are going through the roof. I checked the date. I'm like, all right, Kevin clearly knows what he's talking about. But then that's not the broad experience for the tequila industry at large. Like tequila industry has come off. Like is the celebrity brands and that's still work. You put out a new bottle on your social media account. If you have 10 million followers and you can just sell bottles like anything. Well, the category is still growing in tequila. I mean, it's slowed down from where it was. It's still, it was still completely hot and it's slowed down a little bit. You've seen some of the celebrity brands have a spike up and then come back down again. I think you're going to get trial through social media, through influencers. At the end of the day, the underlying product has to still taste the same, right? I love trying all this stuff. I mean, but some of it just tastes the same. It's just different packaging. If it's a great product and it's authentic and it delivers against a great experience and you can make a connection to it that helps with your marketing, whether that's great social media, great marketing or a celebrity endorser, then that's going to drive trial. But something has to bring that consumer back again. Some people have done a better job of sustaining that than others. Some of the big celebrity brands have seen a pretty big fall off in the last couple of years. You know, I'm a, I'm a whiskey guy. What is coming down the pike this year from you all on the whiskey front? What's the, what's the big product drop? We, you know, we have, um, you know, we, we continue to work on the bourbon side on a lot of age statements on Knob Creek. Um, so I've seen that stuff. So you've seen like a 15, 21 year old. So we continue to see that. We've got some really interesting stuff coming out with bookers. Freddie knows pushing on bookers reserve and writing all this stuff down in a way. Yeah. He's kind of, the funny thing in whiskey is right. Your label comes out cause you have to register the TTB before the product comes out. So the bookers reserve label came out with the fact that it's finished in, in, uh, apple brandy casts and with a little bit of cinnamon infused and the whiskey bird community just lost their mind that Freddie was doing this. But if you hear the backstory, that's a little bit what Booker did to make. You know, some bourbon for the fall. So Freddie is releasing a bookers reserve that uses bookers rye, which won world whiskey of the year. And I think 2017 and uses that bookers rye that infused with a little bit of. You know, kind of the apple brandy and cinnamon. So that, that'll be really interesting. Um, on, uh, on the house of some Torrey side, we continue to do lots of interesting special releases, particularly for global travel retail. Uh, the security Y series comes out again this year with, which is each of the blending components in Yamasaki released as a separate separate bottle. And that is my favorite whiskey full disclosure. Um, nobody's paying me to say this stuff. I just like it. I was just good. It's delicious. And I never, I never tried Japanese whiskey until that company event. You like a couple of years ago, I bought like, I don't know, normal rye from the store. I mean, it's just an amazing, it's a different experience. It's great. And, and, and, you know, Yamasaki 18, one, um, supreme champion at the, at the, you know, the international spirits competition this year. It's the third year in a row. Yamasaki brand has won. It's the first time any, any brand has been the overall champion of all spirits back to back to back. So they're going from, we're going from strength to strength with Yamasaki. I'm excited. We're going to start to bring some of the age statements back on Hibiki, the 12 year old and 17 year old, which we had to take off. I have a bottle of that at home and I, yeah, I don't think it's funny. Yeah. We took 12 and 17 both off. What's in there now? What am I drinking? There's a 21 and there's a Hibiki harmony, which is a no age statement, which whatever the entry level was. I think it's like 70 bucks or something. Yeah. That one. So a 12 is coming back and then a 17 is coming back and we'll keep the 21. So, uh, we ran out of, we ran out of available whiskey, right? So, you know, to have a 12 year old age statement means that the youngest whiskey in the bottle is 12 years old or the youngest whiskey in the bottle is 17 years old. So we're able to blend to a great taste, which, you know, with harmony. But yeah, the ability to have aged aged whiskey that we can bring back some of these age statements because demand really has still continues to outstrip supply in Japanese whiskey. For sure. You might think I'm crazy in this one. So a week ago, I finally, I got out of the house on a Saturday. I'm like, all right, I'm not working. I'm going to take a break. I'm going to just enjoy myself a little bit. I went to a local distillery. I walked in there. Seven o'clock place was packed. People were drinking young people. And I wrote down a piece of paper. I'm like, ask Greg about this because there's so much written about how the next generation is not drinking. I don't know. I, the table I was at probably had 15, 20 beers and I didn't have them. Yeah. I had my whiskey meat, but everybody was clearly drinking. What the hell is going on out there? Yeah. So there's a lot of press, as you noted about Gen Z's not drinking and the woes of beverage alcohol, because, you know, if you looked at all the, if you looked at all the spirit suppliers, kind of five-year Kager from until 2019, pretty much everyone was up somewhere between four and 6%. Then you had the COVID period where the category went crazy because everyone was at home and Wednesday night was a Friday night and there was all the stimulus check money. So category went nuts. And then after that, there's been a real retraction. I think what you'll see is the category settled back at about 3% growth, but that's different than six or seven. And so there's a structural, there's a big debate in, in, in the alcohol industry. Is it structural or cyclical? And my answer is yes. So it's cyclical and that the biggest single driver of alcohol sales is disposable income. So inflation has been a real killer. For beverage alcohol sales, because if people are choosing between rent and gas and food and a, and a night out drinking or, or, or, or cocktails, I've gotten a cocktail now, a normal cocktail is now between 18 and $20 in New York. I'm like, that's crazy. Totally crazy. So you see that. And so that's affected what I would call the broader cyclical problem is you see a lot of pre-gaming happening. So a very common thing among Gen Z because cocktails are so expensive is they will pre-game at home and then they'll go out and they'll have one or two drinks instead of, you know, whatever they were having before. So there's an element of saving money through pre-gaming and how people are getting together. So that's the cyclical nature. And that will adjust once people, once people's incomes get back. But yeah, particularly inflation's hit this, this legal drinking age, Gen Z consumer, particularly hard, right? Because they're trying to find new jobs. They're trying to establish lifestyles and it's just super expensive. The structural challenge will stick with us though. And it's not really cannabis and GLP ones. I don't know anyone drinking cannabis. That was so much, so much hype that didn't come to fruition. My humble view. They're still out there, but that's not really the driver. The big driver is what I would describe as kind of a, a who, where, and what problem. So the, the problem is if you look at developed countries, so the US, Japan, Europe, the generation that's becoming legal drinking age is a lot smaller than the baby boomer generation that's leaving the category. So you just have a natural in, in developed countries. It's just a smaller population. They are starting to drink at the same rates as previous generations. There's just fewer of them. Elon's right. We got to have kids. Yeah, he's right. There are fewer of them and they're broke, right? So this is the problem. And then where they do live is Latin America, India, Africa, emerging Asia. So you have a problem of the, the big growth in, in legal drinking age. Consumers is not in Europe, the US and Japan, which are the traditional spirits markets, and then they're drinking differently. So you see ready to drink really driving the growth because for this generation flavor and convenience is winning. And so you've got a smaller population. A lot of that population lives in a different part of the world. And then the consumers in the developed economies, US, Europe, Japan are, are You know, inflation, you mentioned inflation. I go to the store, I pick up a bottle of whiskey and of course I'm not tracking this stuff, but there are a lot of attainable price points. I look at what your Hibiki, for me, there's an entry level product or entry level, a gateway into higher price. Suntory offerings. Where is that inflation coming from? So I get a cocktail. Is it more of a wage component? The ingredients, that place where I get the drink from a paying higher for electricity of that, where it is more so that than the bottle they're buying. Well, I think over, over the last few years, I mean, the last year being an exception, there was a, there were significant price increases coming into full bottle spirits. Now, while that's still an attainable price point, pretty much every category and every price segment in the category shifted up. Now that stopped a couple of years ago as, as demand is, as, as definitely supply has caught up with demand. But then you go into, you go into the bar, their rents, their, their, their costs of power is higher. The cost of labor is higher because they're having to pay wages to, to keep up with the cost of inflation. Yeah. The cost of food for them to be able to operate is higher. So that all goes into what's driving up the cost of, of cocktails in general, but you know, it's reflective of what's going on. And the overall price, you know, that's a debunking there. The other one I wanted, I, I've seen so many stories, uh, barely the past year, excess inventory is unsold. And I'm like, all right, hold on. Where's all this inventory? Is it just sitting in a warehouse somewhere or deep in an underground lab? Is that possible? Are you sitting on massive amounts of unsold whiskey in some secret location around the world? Does that exist? Well, I, I'd love to be able to debunk that myth. I don't know, secret location, but there is a lot of, of inventory. Now, the good news from that is as a whiskey lover, the quality of whiskey, that's going to be available to a consumer over the next five years is going to be amazing. Age statements are going to come back. Older expressions are going to come back. The challenge is if you think about that dynamic, right? Um, from 2015 to 2019, everyone was growing at 6%. And no CEO walks into work and says, you know what I want to do today? Just hold share, maybe lose share. So you're like, great. So you're like, okay, category is growing at six. I'm going to distill to eight or nine, depending on how much share you want to win. Okay. So think about that as the demand dynamic. Now the average age of bourbon in Kentucky is six years. The average age of scotch is 10. So roll back six years to when distillation decisions were being made and everyone was forecasting that the category was going to grow at 7% and that they were going to grow at 8%. So they laid down enough whiskey for 7% growth. And so if you think about this, you're like, okay, well, so you end up with a lot of whiskey and this is how the industry has always been, right? You're, you're, you're under supply. Sometimes you're oversupply. That's why they're age statements. That's why you see some, that's why things like, wow, there's 50 year old or more. Well, some point in the past, A, we were thoughtful and we set some aside, but B also, we probably over distilled. But this stuff doesn't go bad. You, you know how you're okay. No, it's fine. Yeah, it's fine. It's a cash issue. It's a capital issue. It evaporates a little bit every year and you want to, you know, yield issue, but so you want to work through that. But I think most of the, most of the heritage distillers are sitting on a lot of, most people will adjust distillation to move that down. And depending on the age of the whiskey, you'll be through that pretty quickly. And just to give a kind of a sense, just to make the math kind of make sense. If you take Lafroig as an example, 10 year old scotch, we sell about 500,000 cases of it a year. And so if you think about it, well, a 10,000 case slowdown in Lafroig doesn't seem like that big of a deal on a 50,000 case brand. But keep in mind, if you have a 10 year old liquid, that means if you slow down and you reset your base, 10,000 cases, you have 10 years worth of 10,000 cases. Exactly. So you end up with a hundred thousand surplus overnight. If demand goes down 10,000 cases. Now you just have to adjust for that and it'll come back in the balance pretty quickly. So I think people will be probably back in balance on bourbon in a year or two scotch in three or four years. It just, you know, it's going to be a little bit of time. Is there a secret mailing list I need to be on to like get on to get onto this list? Is that feel free to reach out. You know, you mentioned ready to drink too. And I've, there's been an explosion in this space. Are there just too many options? Like there's so many options of this stuff. It's a high, it's a high innovation intensity category. So I think Budweiser just bought a band too. They sell like punch. It's like red beat box. Yeah. That's, that's fit firmly in that pregame moment. That and buzz balls. It's it's, you know, we see it because the category and Oceana and art and Japan are much further along in terms of their development than the U S and you see just an innovation intensity cycle of new products, new flavors. Cause part of what drives the category is flavor and innovation. So you see a level of product coming in. It's much more like a fast moving consumer good than spirits. So it's, it's a category where challengers and disruptors come in much like, you know, you're seeing a lot of food categories right now. There's a lot of energy around the challenger brands coming in, disrupting the incumbent brands in RTD. You see the, some of the big brands sticking and staying where they're at, but then you have disruptive brands come in like a surf side or things like that. Just come out of the blue. We're hoping that minus one nine six will be that disruptor brand in the U S it's certainly done that in Japan and Oceana, but you see that consumer's willingness to try. It's a, it's a much different barrier to trial than if you have to drop $60 on a bottle of whiskey. Yeah, you can age it for 10 years. Exactly. It's quick. You tell it that's great cash conversion cycle. It's a great innovation cycle. And if you're a consumer, you're spending $10 on a four pack or six pack of something. If you don't like it, you probably not, it's not so terrible that you won't drink it and you're not out a bunch of money and staring at a bottle that's sitting on your shelf. Yeah. Reminding you that you didn't like the product when you bought it. Right. So it's, it's, I think it's just a much more intense innovation cycle. And all of us as suppliers are needing to, to shift, to be ready for that. It's also changed the competitive frame a bit. You've got a lot of the beer players like in, and as their Bush leaning into that space and you know, and the beer distributors leaning into that space. So it's kind of shaking up, shaking up the category. Not to go back, or I just want to go back on the whiskey front. You, um, you left me thinking like, is there still too much, I guess, distillery capacity in the industry? Yes. Like what has to happen? I mean, do you close the distillery? I saw, I mean, yeah. So the math is there's about, I mean, there's, there's 62 million, nine liter cases of American whiskey demand globally. So that's between Tennessee whiskey, American whiskey. That's about what we sell. Maybe that grows three, 5%. There's about 150 million, nine liter cases of capacity in Kentucky. Because there's been such a, a rush of new entrants. There's been people doing expansions. So what you'll, you'll see over time is, is, is there will be some rationalization of capacity. There'll probably some brands that have come into the market really just to make contract whiskey and not necessarily build brands. We'll really struggle because of the available supply that's there. So I think you will see some assets need to be taken offline for a bit to get capacity back. At first, people will solve the inventory challenge, and then people will need to then pretty quickly start thinking about how to address the, the excess capacity challenge. You know, as we wind up here, you spent decades in the food industry or sort of craft food. Well, yeah. P&G and then. P&G, craft foods. Did you work with Chipper over at P&G? I did not work with Chipper. He created, I think, the Swiffer. Okay. Yeah. All right. Cool. Yeah. Former Levi's. I mean, the guy's pretty amazing. This is an interesting time to be in the business of food. You know, I was talking to Ramon LaGuardia over at PepsiCo, and he was talking about the changes he's doing to his portfolio because of GLP-1s and how consumers are eating smaller pack sizes. Like this is a, this is a fascinating, like the next decade for packaged food is going to look so different than the past 10 years. Do you see it that way? I, I do. I mean, I, um, I've been, I've been walking grocery store aisles more looking back at the food categories again. I've been out of the food business for a bit, but I just, I just joined the marzetti board. So I'm sort of back paying attention to food. Welcome back. Thanks. And, uh, and, and other than as a consumer and, you know, you look at the categories and the emergence of some of these challenger brands that just are, are, are taking these categories by storm, whether it's Goodall's versus Kraft Mac and cheese, or Chomps versus a brand like Slim Jim or I went through Chomps. I mean, no disrespect to Slim Jim's. I mean, the Chomps are just superior. They're great. Right. So you've got these, uh, you know, you've got these products that deliver incredible quality, clean ingredient lines and, you know, disruptive packaging, great marketing. And they, they come in and they just take these, these kind of various, what have been considered very traditional, safe. I'm more, I'm managing. And when I was in the food business, we were thinking about how do we manage our price gap to private label? And there was us and maybe one other competitor and we all, it was about pricing. And then you drove, you used marketing to drive the category growth. And then you kind of managed price gaps to keep that. But now you've got this disruptive energy coming in all these challenger brands. And now we even have looked on the cereal. I look what Target just announced a couple of weeks ago. No additives or ingredients. Dennis, what does that mean for some of these cereal players? There's still something bright colored cereal. Tough. And you've got like the Catalina crunches coming in with all the protein infusion. It's interesting. I mean, I, I, I was with Richard Edelman last week when they did the Edelman trust barometer that came out and you see that like there, there's such an erosion in trust in institutions, particularly among younger generations. And that seems to be translating a bit over to some of the trust in institutional brands. And as a brand builder, you know, the thought that you could take a little bit for granted in the past that your consumer would be there for you. And now you almost have to work as hard or harder than the challenger brand to prove that just because you've always been there doesn't mean that you're not as interesting or authentic or, or high quality as the challenger brand. Lastly, fun word for your go-to drink and wine. Oh, I love, uh, I love Knob Creek nine-year-old. I love bourbon at my core. I'm a whiskey consumer. I was hoping we were going to say like ready to drink. I hope you were like, there's no way he's going to say RTD. Yeah, I, I, I, you know, Knob Creek nine on the rocks. I'll make a Boulevardier every now and then, which is basically a riff on a Negroni that you use bourbon with. And I love Hibiki. I spoil myself with the 21-year-old from time to time. Super excited for the 17 to come back. Do you have to have, are you that type of guy that has to have the circle ice cube with the pure, pure ice? Are you just, come on now? You know, we talk, we talk about quality at the point of consumption. So everything matters from the ice. My kids make fun of me because when we did, we did an addition on our house and my wife wanted to put a new mudroom in and we put a screened in porch on and all I cared about was getting it a good ice maker. So like my one thing in the whole process was making sure we had this incredible ice maker so that we have this perfectly clear ice for all of our drinks at our house because I'm obsessed with it. So yes. After we're done, I got to get that name. Greg, good to see you. Thanks for doing this. I appreciate it. I'm going to send this interview to a mutual friend, Annie Callahan. Excellent. We're host to see you. Very good. Love that guy. That's it for the latest episode of opening bit unfiltered. Appreciate you always tuning in. Talk to you soon.