Kentucky Distilleries Fill Record Barrels In 2019 While Emptying Relatively Few

Distillery owners regularly describe whiskey making as a risky, long-term venture requiring patience and deep pockets.

The purest proof of that truism can be found in Kentucky Department of Revenue numbers shared in October by the Kentucky Distillers Association (KDA).

In 2018, the 1.7 million barrels filled in Kentucky pushed the Commonwealth’s total in aging to 9.1 million.

In 2019, a record 2.1 million barrels were filled—a 25 percent increase over the prior year—nudging the total to a record 9.86 million.

Amazing, right?

But the most interesting fact not mentioned in the KDA news release is depletion, i.e. the number of barrels pulled from aging and dumped for bottling and sales.

Between 2018 and 2019, about 1.36 million barrels moved from warehousing to bottling, which can be viewed either as a 15 percent slice into 2018’s ending inventory or a 14 percent drawdown against the 2.1 million barrels filled to age in 2019. Either way, roughly 85 percent of Kentucky’s overall whiskey production is left to rest without returning so much as a penny in revenue.

Neat business model, right? Looking closer makes distillers look even more gutsy:

On average, the cost of a new barrel and the whiskey to fill it is $500. So, multiplying 2019’s 2.1 million barrels filled by that cost creates an industry-wide cash outlay of $1.05 billion. None of that $1.05 billion expense will be replaced with revenue for years, while of it will be taxed—which by the way, happens only in the Commonwealth of Kentucky. In 2019 alone, Kentucky distillers paid $29 million in taxes on those 9.86 million barrels in aging.

How many businesses hold onto pricey, highly taxed inventory for years and decades? I can’t think of any. By comparison, many manufacturers work on a just-in-time inventory supply of two to four weeks of raw materials, and a well-run restaurant turns 100 percent of its perishable inventory every month. That’s a lot of making and selling going on in a truly short stretch.

That doesn’t happen in whiskey making. While it takes just a week to cook, ferment and distill a batch of new make, it takes between 2 and 20 years to age it to a precise flavor target. And that’s why Kentucky distillers depleted only about 14.5 percent of their aged stocks last year. They’ve got to hold onto it to ensure it’s delicious, and we all know it is.

So, when you complain that there’s too few of your favorite whiskeys on the market, you now know some more reasons why supplies are tight. And as global demand for American whiskey continues soaring, I doubt distillers will ever catch up in my lifetime. I say we all should drink to that.