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The jury’s out on the best way to consume bourbon. While some prefer it neat, on the rocks, or with a splash of water, others enjoy this barrel-aged distilled liquor as the key component of a classic cocktail, such as a mint julep or an old fashioned.
But the one thing we can all agree on is that America’s native spirit is enjoying a resurgence — referred to colloquially as the Bourbon Boom. Indeed, production is up 435% since 1999 and the Distilled Spirits Council of the U.S. reported that sales of super-premium bourbon increased by 135% between 2014 and 2019.
Last year, bourbon represented 8.7% of the total spirits volume in the U.S. and accounted for 37% of the whiskey subcategory. It’s expected that 2022 will be a record year for the industry with several expansion projects already underway and American distilleries poised to ramp up their production levels.
With this in mind, we delve into the inner workings of the bourbon supply chain, including how it operates, the challenges it faces, and projections for the future.
What Is Bourbon and Where Does It Come From?
Whiskeys are distilled spirits made from fermented grains and aged in wooden barrels. Bourbon is a specific type of whiskey that has been distilled in the U.S. since the late 18th century.
What makes a bourbon a bourbon? It must be:
- Distilled and aged in the U.S.
- Distilled from at least 51% corn
- Aged in new oak-charred barrels made from American white oak
- At least 80 proof (40% alcohol by volume)
In addition, bourbon is usually associated with sweeter flavors, such as butterscotch, vanilla, and toffee.
Perhaps more interesting than the properties of Bourbon are its origins. Remarkably, Kentucky accounts for 95% of the world’s bourbon supply. It’s a $9 billion industry that generates more than 22,500 jobs, boasts an annual payroll of $1.23 billion, and delivers $286 million in annual tax revenue to Kentucky state and local governments. There are 68 distilleries across 32 Kentucky counties, of which six major distilleries account for the bulk of all bourbon produced around the world.
You better believe that bourbon tourism is also a thing. In 1999, the Kentucky Bourbon Trail was launched, featuring 10 distilleries. Fast forward 20 years or so, and the 38-strong distillery trail is attracting 1.4 million tourists every year.
A whopping 10.5 million barrels of bourbon are aging in Kentucky distilleries right now, which means there are more than two barrels for every person living in the state. Fortunately, the task of consuming all of this liquor does not fall solely to the Kentuckians. Rather, the state operates a complex global supply chain to ensure bourbon lovers around the world can enjoy their favorite tipple.
Kentucky and the Bourbon Supply Chain
Kentucky’s bourbon industry faced several difficulties following the outbreak of COVID-19. Factory shutdowns, shipping delays, and growing consumer demand meant distilleries struggled to acquire critical raw materials (like metal and glass), ultimately leading to major backlogs in customer orders. Smaller businesses without long-term supplier contracts were, of course, the hardest hit by materials shortages and supply chain delays. But the entire industry lost a valuable revenue stream when the pandemic ground tourism to a halt.
Fortunately, the state’s bourbon tourism is bouncing back. Visits to the Kentucky Bourbon Trail and Kentucky Bourbon Trail Craft Tour were up 160% from the previous year; not much shy of their pre-pandemic levels.
The bourbon supply chain, however, continues to suffer from a lack of glass, which goes some way to explaining why Kentucky distilleries are stockpiling vast amounts of the liquor. In the United States, just two suppliers produce the type of glass that is required for food and beverage packaging, and growing demand in the industry is making it harder and harder to come by. As a result, many distilleries have been forced to build additional storage space for their barrels.
But even if they had the space to begin with, storing bourbon is a costly venture. Consumers might want a 15- or 20-year-old bourbon, which means distilleries must store their products for an extended period. In Kentucky, bourbon-aging barrels are subject to an annual property tax and barrel taxes have increased by 140% in the past 10 years. Fine if they can shift the stuff, but bourbon producers certainly don’t want to be hoarding barrels upon barrels of surplus stock.
Challenges to Kentucky’s Bourbon Industry
Ongoing trade wars have also presented challenges to Kentucky’s bourbon industry. In response to a U.S. tariff on steel and aluminum, imposed by the Trump administration in 2018, the EU retaliated with a 25% tariff on American whiskeys.
As a result, American whiskey exports decreased from $757 million to $462 million between June 2018 and 2020. In the UK alone, which is the state’s fourth largest export market, exports declined by as much as 53% during this time. Fortunately, the tariffs were lifted by the EU towards the end of 2021 and the UK in June of this year. This will get Kentucky’s bourbon supply chain moving again and the additional revenue soon to be generated will support facility expansion and job creation.
Innovative Technology Changes the Brewing Process
It’s not possible to speed up the bourbon brewing process, and the distilleries that have perfected their craft over many years wouldn’t want to. After all, it’s either a 20-year-aged bourbon, or it’s not. Nonetheless, in a bid to modernize the industry, improve distribution, and respond to ongoing supply chain challenges, several Kentucky distilleries are investing in new technologies.
IoT sensors can be added to brewing equipment to support data analytics, for example. This can help distilleries track temperatures, airflow, humidity, barrel pressure, and whether or not sugars are being converted to alcohol at the correct moment.
Meanwhile, RFID tags, which search, identify, track, and communicate items and people, can be used by distilleries to quickly and seamlessly track their barrels.
Some distilleries are investing in state-of-the-art equipment, be it new boilers, cookers, or bottling facilities. Others are tapping into the bourbon tourist industry by establishing better visitor facilities, be it a tasting experience or an on-site bar.
The industry is also finding innovative ways to deal with its byproducts. For every barrel of bourbon produced, approximately 350 gallons of whole stillage (or spent grain) are left over, which spells bad news for the environment. At last year’s Distillers Grains Technology Symposium, the Bourbon Reverse Pitch encouraged teams to pitch innovative uses for excess stillage. The winners, Louisville-based BioProducts LLC, came up with a process to convert distillery waste to three high-value products, including an activated carbon that could be used in the production of batteries.
At present, Kentucky’s distillers are in the midst of a $5.1 billion capital investment campaign, due for completion in 2025. It is hoped that this will support the ongoing bourbon boom and satisfy growing global demand for years to come.
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