Whiskey Rebellion: A Serial Entrepreneur Fast-Forwards the Bourbon Aging Process
You may have noticed that most of the new breed of distillers, like Tito Beveridge, of Tito's Handmade Vodka, break in with vodka, which requires no aging, or begin with white whiskey, so-called white dog or clear whiskey, which can also go straight from still to bottle. It's because the whiskey business imposes formidable barriers to entry.
Ever since somebody figured out the hooch tasted better after being stored in an oak barrel and, better yet, in a barrel charred on the inside, whiskey makers have established prices and brand pedigrees based on the duration of barrel aging. And necessarily absorbed the inventory costs of storing their production runs while they wait…six years, eight years, upward of 10 years in many cases…to bottle their whiskey and recoup their costs and finally turn a profit.
Heaven Hill Distilleries, maker of Elijah Craig and Evan Williams bourbons and the second-largest American spirits maker after Jim Beam, has upward of 950,000 barrels in Kentucky barns and rick houses. In other words, whiskey wannabes begin over a barrel, in need of a daunting amount of upfront capital to survive negative cash flow until the sale of their first bottles.
Little wonder the rising ranks of craft distillers, echoing the earlier boom in craft beer makers, consist generally of small, niche players. Ernie Scarano, a onetime candidate for the priesthood who runs an antiques store called Mantiques, is one of the 400 or so members of the craft-focused 10-year-old American Distilling Institute, or ADI.
Scarano makes 100 gallons of straight rye a year at his distillery in Fremont, Ohio. His website (esdistillery.com) features a Liquor Ticker that counts down the years, months, days,minutes, and seconds to the June 1, 2014, release of his first, flask-shaped bottles of Old Homicide ("It's to die for").
Though a member of ADI, Tom Lix, founder and CEO of Cleveland Whiskey, which shipped its first batch of bourbon in March, is not thinking craft or small. The company may be launching with only six employees, but Lix's business plan predicts third-year revenue of $10 million, "escalating to an estimated $54 million by the end of our fifth year of production" after expanding to such fast-developing international markets as China, India, Russia, and Brazil.
He's positioning Cleveland Black Reserve, a bourbon whiskey, to retail for $34.95 for a 750-milliliter bottle. His whiskey ticker, if he had one, could almost be a stopwatch. Thanks to a pressure-aging process Lix devised himself, Cleveland Whiskey is capable of making and aging its bourbon in about a week.
Imagine Christopher Columbus crossing the Atlantic and looking up to see a Concorde SST flying overhead. That's on the order of how disruptive Lix thinks Cleveland Whiskey's "fast-forward" aging process will be to the traditional, barrel-bound whiskey industry.
Lix says he'll enjoy a significant cost savings versus the competition and a huge leg up on research and development. And yet the very competitive advantage he'll leverage poses a significant marketing challenge. As might his location. Bourbon made in Cleveland? In six days? Really?
Fortunately, at 61, Lix is no entrepreneurial ingénue, and he relishes these challenges. His untamed curly gray hair framing a boyish, neighborly face, Lix calls to mind Dave Thomas, the founder of Wendy's. But Dave Thomas didn't fight forest fires in Alaska as a 17-year-old. Or get tear-gassed protesting the Vietnam War. Or take so long to find himself.
Lix dropped out of Penn State before he flunked out, and enlisted in the Navy, where he served six years--some of it making hooch alongside a chief bosun's mate in a hidden space in the bowels of a ship.
To fast-forward Lix's professional aging, he was a much more dedicated student on the redo. He earned a Ph.D. in business administration from Boston University. He served as president of Yankelovich Partners, a market research and strategic consulting company. He was founder and CEO of a company that developed software and websites for public radio and public television stations. He sold that company, Public Interactive, to NPR. Later came Bulldozer Camp.
Bulldozer Camp didn't quite get off the ground, but the plan was for a fantasy-camp experience in which white-collar professionals drove heavy machinery by day and relaxed with steaks and whiskey at night. Lix bought land for the camp in the high desert of southeastern Washington. He raised some money, and then the economy tanked, bulldozing his venture before it opened. He ended up bankrupt.
Before Lix lost the land, standing on the dust of one dream, he started to conceive of another. "I was surrounded by winter wheat and fields of barley, atop a glacial aquifer," he says. "I thought, Maybe I can make alcohol here." He pondered the cool nights and very hot days and "Kentucky versus Scotland, how it takes six years, some say nine, to make a decent bourbon, and 12 to 18 years to make a decent Scotch."
The common wisdom: Heating and cooling cycles force the aging whiskey first into the wood of the barrel and then back out again, causing good things to happen to the distilled spirit. In the case of bourbon, made from at least 51 percent corn mash, the barrel imparts various flavors, primarily vanilla, and the charred wood, acting like a charcoal filter, extracts undesirable characteristics, making for a smoother taste. With Mother Nature in charge, the process varies by geography but nonetheless takes years.
Many before Lix have sought to speed up the whiskey aging process. The patent office has seen all manner of notions, from putting heat lamps around barrels to adding wood chips and tree bark to the distillate inside the barrels.
Tuthilltown, a craft distiller in Gardiner, New York, ages its Hudson Baby Bourbon only four months, using barrels as small as three gallons to increase the surface-area contact of the wood with the distillate.Tuthilltown also employs what it calls sonic maturation, agitating the spirits inside the barrel with heavy bass tracks pounding out of speakers in the aging room.
Lix, who had moved to Cleveland to take care of his ailing mother, started experimenting in the basement, adding chips of oak he charred with a Bunsen burner to Mason jars containing unaged alcohol. He would heat a Mason jar in a pressure cooker, then plunge it into an ice-filled two-tub sink. (Yes, he sometimes had breakage.)
In 2010, with a $25,000 grant from the Innovation Fund of the Lorain County Community College Foundation, Lix was able to set up a more comprehensive lab at his current location, a small-business incubator called Magnet.
In 2011, he received an additional $100,000 from the Innovation Fund. This enabled him to hire Sujata Emani, a young Ph.D. chemist, who helped him better understand and refine his experimental process. The bottle label explains: …we use rapid pressure changes and oxygen infusion to control the aging process and mentions heat processed charred white oak segments for natural flavor and color.
Lix prefers not to elaborate a whole lot more. "The basic concept is relatively simple," he says. "Instead of putting the alcohol inside the barrel, we put the barrel inside the alcohol." Uniformly cut pieces of used bourbon barrels go into a 120-gallon pressure vat.
"Wood is made of cellulose and lignin," explains Emani, "but it's porous. When you apply pressure, it's like squeezing a sponge. The bourbon in those pores comes out. When you decrease the pressure, the bourbon goes back into the wood and picks up a little more flavor and color."
Cleveland Whiskey's constantly pulsing pressure tank, Lix maintains, accomplishes in less than a week what it takes other bourbon makers two or more U.S. presidential terms to do in their barrel-filled warehouses. He could, if he wanted, take his distillate right from the still, speed-age it in his stainless pressure tank, and bottle it days later. But he would not be able to call it bourbon.
By definition, bourbon must be aged in a charred oak barrel. No amount of time is specified in the federal standards. Lix could just run his whiskey through a barrel and call it bourbon. Instead, he has chosen six months in oak barrels as a prelude to his accelerated aging process. And because of a lack of production capacity, he's getting these bourbon-filled barrels from Kentucky and Indiana producers, which make the distillate according to his recipe.
"Essentially, we're applying science and technology to what was going on in those barrels," says Lix. "It's just an improvement. The car was a big improvement on the horse and buggy, but it took a lot of time for people to recognize that and understand that."
He says he has fashioned a premium product, and so he's charging a premium price: At $35, Cleveland Whiskey is more expensive than Maker's Mark and comparable to Knob Creek.
Of all the things Lix has done to roil his industry, this might be the nerviest. Which, as is his nature, he rather enjoys. That said, a call to the Distilled Spirits Council does not find an industry that is looking over its shoulder. "I wouldn't regard that [pressure-aging the whiskey] as a competitive advantage," says Frank Coleman, senior VP of public affairs and communications for the council. "I don't know why you're focusing on these guys, but the reality is, anybody can say they're going to do something-;but they haven't done anything."
He's right on that last point. Cleveland Whiskey has been on the market only since March and is initially selling only in Cleveland and nearby Ohio towns. Within a few days, you couldn't find a bottle in Cleveland proper. But it hasn't yet entered any juried bourbon tastings to prove its merits in the glass. (See the sidebar "Cleveland vs. Kentucky" for the results of Inc.'s stand-in blind tasting.)
Surely, taste will play an important role in the success or failure of Cleveland Whiskey. But other factors will probably loom equally large. "Regardless of how the product actually tastes, they've got a tough job ahead of them," says Esther Kwon, a spirits-industry analyst at S&P Capital IQ, after hearing a rundown of Cleveland Whiskey's business plan. "If you don't have the backstory, you don't have the brand. How are you going to charge a higher price? It's not impossible. It depends on what kind of a story they can create."
The legendary bourbon maker Pappy van Winkle, the man behind the Old Fitzgerald brand, made it quite clear how he felt about the roles of art and science in whiskey making when he hung a sign on the gate outside the famous Stitzel-Weller distillery south of Louisville. The sign said: NO CHEMISTS ALLOWED.
As Kwon implies, Cleveland Whiskey has no photogenic rick houses piled high with barrels. No sixth-generation master distiller to trot out like a rock star or top chef at events.
Lix wants an underlying spirit of willful defiance--his own mojo--to somehow energize the brand. Look at the bottle: Cleveland is in three-quarter-inch letters. As if to say, "That's right, Cleveland." Lix sees the city, which is becoming known for high-tech start-ups, poised to shake off the rust of its industrial past, and he believes he can be a part of, perhaps even toast, its rebirth.
"Maybe," he told a group of employees, investors, and hired marketing mavens assembled last spring to name the brand and choose the bottle design, "our story is that we really don't have a big story. It's simple. We use technology to make our whiskey faster, which makes for a great entrepreneurial business and a product that actually tastes better."
Lix anticipates adding a second whiskey variety to his line by the end of the year, and he may or may not employ the name he's sought to trademark: Wry. He expects to be selling in Chicago by summer. If so, it will probably get noisier in his production facility. He recently bought a ship's bell, which he plans to clang each time his loading door opens and a truck pulls out