Maker's Mark and the Price of Being Too Popular
Update: Maker’s Mark cried uncle and reversed its decision to lower the proof to increase amount of supply. Sometimes customers just won’t let you dilute your brand. Or theirs.
Maker's Mark has become one of the great bourbon brands in the U.S. Years of aging and the use of red winter wheat instead of rye created a distinct taste that has been in demand. Too much demand, actually. In fact, the distillery has had an increasingly difficult time keeping up with expanding sales. And so, it is about to literally water down its product--by 3 percent to reduce the alcohol content from 90 proof to 84 proof--to help better meet demand.
The question is whether this company, or any other, runs the risk of watering down its brand to handle manufacturing problems. And whether, at some point, you have to choose between sustainability and growth.
As COO Rob Samuels told BourbonBlog.com, sales of Maker's Mark have grown 8 percent to 9 percent a year, owing to a boom in domestic bourbon interest and growth of international demand. That has put a long-term strain on the company, which has tried adjusting its manufacturing to help keep pace with growth. It previously shortened the aging time from seven years to six. Now it will add more water.
According to what Samuels told spirits writer Fred Minnick, Maker's Mark has received "hundreds" of calls from hotels, bars, and retail stores that could not obtain its bourbon because the company could not produce the spirit fast enough. But now there's a new wave of comments, this time from customers angry that the company would dilute the product they have come to expect.
Samuels says the company has undertaken extensive tastings to be sure that the change doesn't alter the "taste profile" that characterizes the bourbon, whether by itself or as an ingredient in mixed drinks. Perhaps that is true, but you have to wonder about the wisdom of repeatedly testing the limits of product quality and, as a result, a brand. At what point does a company undercut its success and alienate its core audience--the very people you would expect to provide strong word-of-mouth marketing?
There is a clear and obvious problem: The company has not built its manufacturing and sourcing capabilities to meet this growth spurt. Companies in this position have two classic choices: Either build the manufacturing capability to meet the growing demand or suppress demand by pulling out of some markets or perhaps raising prices.
There is nothing inherently wrong with either choice, but they both have risks. If you expand capacity and demand falls off, you're stuck with the cost of maintaining underused facilities and the debt you incurred to build them. Raise the price, and you risk altering your brand image and possibly alienating customers you'd rather not lose. The company's current strategy tries do do neither, really, and so dodge both risks.
But of course, the strategy has risks of its own. Gambling with product quality can be dangerous. Perhaps no one will notice the diluted whisky, as Samuel hopes; bourbon drinkers' palates, after all, aren't necessarily that sensitive. On the other hand, their perceptions might be. And the one thing that Maker's Mark doesn't want to dilute is its reputation.
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.