Tenn. whiskey on verge of growth spurt

PULASKI, Tenn. -- Boutique distilleries have been popping up all over Tennessee since the legislature changed state law in 2009 to expand legal liquor production to 41 counties from three.

Most of the new licensed stills have concentrated on such products as moonshine, gin, rum and other mass-market liquors -- sometimes flavored to vie for younger taste buds.

Tennessee whiskey, though, is more of a craft.

It takes a long time to age, and it requires lots of patience on the part of those who cook it up and finance its worldwide distribution. Competing with the big boys of the high-octane sport -- Jack Daniel's and George Dickel -- is expensive.

Now, two distilleries planned for Giles County will be dedicated to producing the same kind of Tennessee sippin' whiskey made famous by the Jack Daniel's and George Dickel companies.

One of those, Tenn South Distillery on a 28-acre plot near Lynnville, will fire up operations in December with limited production runs.

But the other, to be built on a 120-acre site near Pulaski, along Interstate 65 about 15 miles from the Tennessee-Alabama border, will be a big-time operation rivaling the scale of Jack Daniel's, its founders say.

The primary product of this outfit, The Tennessee Spirits Co., will be Jailers Premium Tennessee Whiskey.

Plans call for the distillery and processing plant to have a capacity to produce 5 million cases of whiskey each year and to distribute it worldwide, as Jack Daniel's does with its storied brand.

The timing seems ideal. U.S. spirits exports hit a record $1.34 billion in 2011.

"This will be one of the biggest products to hit the alcohol-beverage industry in 50 years," said founding partner Bob Reider, senior vice president and chief marketing officer of parent firm Southern California-based Capital Brands. He has a long history in the business, much of it spent with the Jim Beam bourbon distillery about 220 miles north in Clermont, Ky.

Both of the new Giles distilleries hope to become tourist destinations featured on the Tennessee Whiskey Trail, which includes distilleries such as Jack Daniel's and George Dickel, as well as some microdistilleries.

But Tennessee Spirits isn't waiting to introduce its Jailers brand. The company secured a large quantity of another Tennessee distiller's surplus whiskey and has began selling three products -- 86-proof Jailers, 8-Year-Old American Rye Whiskey and Forbidden Secret American Cream Liqueur -- made from that supply, Reider said.

"We launched our brand in January, and we're already registered in all 50 states and have begun selling in 11 foreign countries," Reider said.

Reider wouldn't say where the company bought its stock of whiskey selling under the new brand names.

Aging well

Tennessee Spirits puts its own mark on the liquor by using a chill-filtering finishing process before it's bottled at a contract plant in Greendale, Ind., near Cincinnati, said Dave Scheurich, Jailers' master distiller.

It will be about five years after Tennessee Spirits opens its own distillery before it will have an in-house product to sell, Scheurich said, because real Tennessee whiskey has to age at least that long in oak barrels before it's ready to bottle.

"The tough part will be taking two different plants and trying to make the same whiskey," he said. "You can come very close."

Tennessee Spirits hopes to start production sometime next year, Reider said. The company plans to build a visitors' center and have tours and tastings right away.

A few miles away, Blair Butler said his Tenn South Distillery's signature product will be "authentic" Tennessee whiskey made using the so-called Lincoln County Process, the way both Jack Daniel's and George Dickel make their whiskey.

"The whole whiskey category has taken off in the past 10 years or so," Butler said. "Just as we saw with the growth in popularity of the microbreweries, people are more interested in the quality of products now."

That's true, said Frank Coleman, senior vice president of the Distilled Spirits Council of the United States.

"The best part is the premium trend," Coleman said. "The most expensive products are selling the fastest. Craft distillers and innovations from the major brands are leading the biggest recovery in the spirits industry since the end of Prohibition."

High spirits export

Exports of U.S. spirits grew 16.5% last year, compared with 2010, according to the U.S. International Trade Commission with American whiskeys (which also include Kentucky bourbons) accounting for 69% of that growth.

Whiskey exports alone were up 13.6% last year, with Jack Daniel's, the best-selling American whiskey, seeing its exports grow significantly, Coleman said.

Free-trade agreements that have eliminated or reduced import tariffs have helped open several new international markets, such as South Korea and the Philippines, to American whiskeys.

Still, starting a new distillery from scratch includes challenges, and success depends not only on product quality but also the strength of distribution and a company's capital financing, said Phil Prichard, who opened Prichard's Distillery in Kelso, Tenn., near Fayetteville, in 1997.

His was the first new distillery in Tennessee in more than 50 years.

"We're satisfied with our growth over the past 14 years, but it has not been a rocket ship; it has been a bottle rocket," Prichard said.

"It took us about 10 years to get past the $2 million sales mark, but we'll be at $10 million within the next three years."

Prichard isn't as upbeat as his new competitors on Tennessee whiskey's growth prospects. His primary product is rum, which is made from molasses.

"We have a well-established market in the U.S., and a little toehold in Europe," he said. "I just don't have the optimistic picture about Tennessee whiskey that other people are dreaming about. Our exports are virtually all rum right now."

But the developers of the two new Tennessee whiskey distilleries say they believe there will be plenty of room for growth, especially since George Dickel isn't exporting at all.

"These products are steeped in Tennessee history, and the best whiskey in the world is made in southern Middle Tennessee," Reider said.


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