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New barrel shortage issues.


TetonDistillery

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It seems impossible to get new barrels in sufficient quantities these days.

It has gotten to the point where I am giving serious thought to raising money from investors to start buying wood and then setup a cooperage. 18 months till new barrels.

It seems some of the smaller scale cooperages only make about 5,000 barrels per year, which is about 14 barrels per day.

Is that crazy? The demand seems to be there. It would seem to me that once your distillery is doing several barrels per day of bourbon production, it would make sense to invest in the facilities to make your own barrels. Some of the larger craft distilleries are already doing that scale of production.

What do you think? Feel free to criticize me if this is stupid. I can take it. :blink:

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I can't attest that this is true, but I have heard that the "big guys" have bought out several cooperages, partly to meet their own needs, and partly (the conspiracy part) to control the market for the new competition. But, that being said, I have no doubt the free market will eventually sort this out. Till then, plan ahead as much as you can, and develop personal relationships that may help you source barrels when you need them.

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Since you are working on a plan, I'll play devil's advocate.

Defies economic reasoning that existing providers wouldn't scale to meet the new industry demand for the product.

A typical reason for the supply side not meeting the demand side, even at higher prices, are shortages of input materials. Generally in this situation the price of the product would rise as specific individuals from the demand side begin to pay higher prices to secure delivery. I've heard this mentioned regularly. If major buyers can't acquire raw materials, what makes you think you can, especially without paying a major premium? The cost for an existing supplier to expand is going to be significantly less than a new entrant to market.

A secondary is that the existing market is time to meet new demand. How long does it take to scale demand? What's the cost to a supplier to build one additional barrel when they are near capacity? Will you be coming to market at the same time that new suppliers would be releasing new supply, post-expansion?

Tertiary, does the supply side believe the new demand is sustainable? Investing in new capacity generally requires some years of payback, will the new demand be sufficient to reach payback or will it destroy the suppler if the demand fizzles out?

Barrel cooperatives scare the hell out of me as a new market entrant, because it means I need to secure a critical raw material of my product from a competitor, and not an independent third party. It's very plausible that a successful cooperative would close it's door to new buyers. When the going gets tight, who gets the barrels?

If someone isn't already, I'd suspect that someone is in the process of building a supply chain to ship oak from Europe across Asia into China and begin shipping barrels by the container load.

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James,

How about using Alibaba? You all have much more experience than I working with Chinese producers, and the obvious concerns regarding quality are certainly valid. But a quick search turns up several suppliers. I dunno, just a thought.

Also, regarding wood supplies. I can go down to my local lumber supplier and get plenty of American white oak, for pretty cheap even. What I can't do (and I've tried) is but a barrel together. Geometrically, it's a relatively simple problem. But practically, those coopers have some skills. Instead of trying to figure out how to make money in craft that is hard to do and hard to learn, perhaps we could inject funds into an existing smaller cooperage to increase their production, with the understanding that the investors get rights to X number of barrels per year?

(P.S. - Towerguy, I've had the same conspiracy thought. Kinda like what the big brewers tried to do to Sam Adams by buying up all the hops in the 80's. We'd be remiss to think the big players won't do what they can to keep up out of the market)

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As for conspiracy theories .... Imagine the impact on craft whiskey distilleries if ISC were to be bought by Makers Mark or Jack Daniels.

Jamesbendar, those are all thoughts that I have been having while talking this out with others here in our distillery.

I think there is enough scale to operate a profitable cooperage if you are producing 5,000+ barrels per year.

That equals roughly 14 barrels per day of production. There are craft distilleries I have visited that are doing several barrels per day of production.

We aspire to that level of whiskey production and storage within Teton Distillery ourselves. So basically I think that if I started a new cooperage myself (with investors) I am pretty sure I could sell most of those barrels to just our own distillery and a few others that I know. I would rather keep those barrel profit margins nearby rather than pay that extra money to other companies. So while I agree that my costs of production initially will be higher than existing players, I think I can bring that down to a competitive cost structure within a reasonable period of time. Also on the positive side, we would then guarantee our own supply of barrels and not have to worry any more about the other barrel suppliers determining our growth rate for whiskey. That is why the majors have their own barrel making facilities.

Here is a picture of our new barrel storage warehouse on the right.

You can see our distillery on the left. So we have plenty of room to build more storage space for barrels.

10665225_740449319359751_526705970353499

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I agree with your thinking there Teton. If you are looking for investors, I'd be willing to have a look at your plan. I'm waiting on my federal permit right now, and wondering where in the hell I'm gonna get the barrels I'm gonna need. I've tried to toss the cooperage idea around to some wood worker contractor type friends who hate the grind they are in, but seems there's not a one willing to stick there neck out at the moment since they have work right now. I'd be willing to invest, just to secure my own barrel supply, is my thinking. I have no interest in running another business, but don't want my ideas with my distillery held up by barrel supply. Hollar. Scrounge

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The engineer / problem solver in me tells me that the core issue here is the barrel, itself.

Barrels, as containers go, are an ancient solution - initially crafted because woodworking technology and materials were generally primitive. The shape itself is a solution to a contemporarily non-existent problem.

Perhaps the solution is to devise a way to inexpensively turn out oak containers that aren't actually barrels.

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Perhaps the solution is to devise a way to inexpensively turn out oak containers that aren't actually barrels.

While I am all for innovation, the problem becomes that legally there are certain rules as to what you can call the end product if not done a certain way. Barrels are a key part of what we do. Efficient or not, that is now part of the product.

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I've got a commitment to supply me 53s starting next year, but they're out of a wine barrel cooperage - toast options only, no char. North of $350 a pop too...

I think the challenge of opening a cooperage is much like opening a distillery - the aging wait. Staves are typically exposed to the elements for 2-3 years before a barrel can roll out the door. In 2-3 years, this crisis may very well be over as you know the existing cooperages aren't oblivious to the demand.

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First wine in boxes, now whiskey, what's this world coming to.

The problem is the calculus of making a box versus a barrel. While the box is less labor and significantly less technique, the raw materials required to build a box are significantly more expensive than to build a barrel, why? Staves are relatively easy to source based on the geometry of a log, planks are not, planks will be much more expensive.

Looking at white oak, 8/4ths thickness, the material to make an approximately 53 gallon container are going to be near $150us. That's just the oak, and that is in volume pricing. Add the labor and any external banding and you'll quickly be near $300. Not even taking into account the time associated with kilning or aging.

A straight sided 6 or 8 side container might be bit more economical, but now you've got much more complex joinery involved. The 4 sided container could be very easily constructed with gross dovetails and captive heads using inexpensive machinery. Going 6 or 8 sides is going to rely significantly more on the external banding for strength.

I have a beautiful Stickley chest of drawers, it's wonderful, quarter sawn oak, dovetails to die for. You think the TTB would let me wheel that into my place and fill the drawers with whiskey?

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I have in a short period of time built a solid workable relationship with Kelvin Cooperage, and unless I am missing something, that process of relationship development is open to everybody in the industry . I believe the problem with cooperages, is that they like all other businesses, have to be wise about their capital and inventory spec production.

I wonder if a solution for those who have un satisfied demand might be to form a CO-OP, not necessarily to produce, unless somebody wants the hassle of yet another business to run, but instead to use said demand to negotiate pricing and production commitment from the various coopers in the industry.

if for example 50 distilleries of various sizes posted on some format, like google docs (maybe keeping the distillery name private while the process is weeded out) their 1-4-8-12 month requirements, then perhaps the net combined volume would make Various Coopers take notice, and maybe offer "best price." Alternatively once that demand is known nationwide, it might spur new participants to undertake Cooperage as a business.

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First wine in boxes, now whiskey, what's this world coming to.

The problem is the calculus of making a box versus a barrel. While the box is less labor and significantly less technique, the raw materials required to build a box are significantly more expensive than to build a barrel, why? Staves are relatively easy to source based on the geometry of a log, planks are not, planks will be much more expensive.

Looking at white oak, 8/4ths thickness, the material to make an approximately 53 gallon container are going to be near $150us. That's just the oak, and that is in volume pricing. Add the labor and any external banding and you'll quickly be near $300. Not even taking into account the time associated with kilning or aging.

A straight sided 6 or 8 side container might be bit more economical, but now you've got much more complex joinery involved. The 4 sided container could be very easily constructed with gross dovetails and captive heads using inexpensive machinery. Going 6 or 8 sides is going to rely significantly more on the external banding for strength.

I have a beautiful Stickley chest of drawers, it's wonderful, quarter sawn oak, dovetails to die for. You think the TTB would let me wheel that into my place and fill the drawers with whiskey?

So this is kinda sorta the idea I've been kicking around for a while. Not a fine piece of Stickley, obviously... But something along the lines of an "aging cabinet", where the charred oak surfaces that contact the spirit could be easily replaced.

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The barrel issue is something we've mused as well in our 'start up' discussions. How to get around the bottle neck of supply. We tend to be of the DIY mindset, so a lot of times we default to "How hard would it be to make our own?" (Cue long sessions of youtubing barrel construction.)

That said, that's WAY beyond our current skill set and scope, but it's a fun puzzle. I also tend to think along the lines of Old Spye. Innovate rather than recreate. Sometimes we're hampered by traidtion for tradition's sake. Yes, on one hand it can sort out the 'riff raff' but on the other hand it's causing other strains on both mateirals and businesses.

The power of a cooperative might be a good solution to start. Buy in bulk and distribute as-needed. But someone is still going to have to stick their neck out there.

It's definitely an interesting topic to consider.

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Just going to throw in some stuff, here...

First of all, there will be a new cooper coming online, soon, and aimed at supplying craft distilleries. He's hoping to have the first barrels off the line in February. I'll post more info as it comes, but the venture only just broke ground, and I've been asked to keep it under wraps.

Second, as the people mentioned above have found, competent coopers are not exactly common. Finding staff for the venture has been challenging.

Third, modern coopering machines are $$$$$ and take significant skill to operate...

Teton, I'd be very much interested in an Idaho-based facility. And I think the real challenges may come with securing a steady supply of barrel-quality oak. I was quite amazed when I was told how many staves crack during the process. Also, it seems that the larger operations kiln or age their own oak supply.

I have recently seen a wine-quality barrel with alternating American and Hungarian Oak staves for sale. Not sure how the TTB likes them.

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Solera age/blending of whiskey is more evidence of craft distillers pushing the envelope of process and marketing. It's only a matter of time until some mega-bourbon conglomerate says they found a piece of paper in heir Great Great Granpappys woodshed, that invented the process.

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I have always wondered what the Solera system would be like with fruit brandy, particularly plum. With a decent amount of headspace and good balanced aging temperatures, this would probably make a very sophisticated tasting brandy!

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Is Dave Pickerall actually the head distiller at Hillrock? Did he settle down and move to NY?

I think it's interesting that they are saying the Hillrock whiskey exhibits signs of Terroir, when it's primarily made from other peoples whiskey for now.

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