Diageo Lobs New Grenade in Whiskey Wars

Tennessee weighs in on Jack Daniel's behalf to tilt the field against its rival.

Apr 2, 2014 at 6:00PM

Distiller Diageo (NYSE:DEO) is going on the offensive in the escalating whiskey rebellion in Tennessee, lobbing a lawsuit against the state after it tried to enforce a dust-covered 1930s-era statute as to where spirits can be stored. 

Whiskey

Whiskey barrels in the Jack Daniel's distillery in Lynchburg, Tenn. Source: Wikimedia Commons.

In what looks like an attempt by the state to put its thumb on the scale to help local distiller Brown-Forman (NYSE:BF-B) press its case for how Tennessee whiskey is made, the state's alcoholic beverage commission sent Diageo a letter charging it with violating a 1937 law that requires distillers store their spirits either in the county where they're manufactured or in an adjacent one. Because Diageo stores its George Dickel whisky (yes, they spell it that way) in a Louisville, Ky., warehouse rather than at the Coffee County, Tenn., facility where it's distilled, the state says it's run afoul of the law.

Diageo counters that the state has never enforced the storage law before and doing so violates its constitutional rights regarding interstate commerce.

Certainly, the timing of the state's letter is curious. It was only a few weeks ago that Brown-Forman railed against Diageo allegedly trying to water down a distinctly American institution like Tennessee whiskey. B-F says the protectionist law it pushed through the legislature proscribing exactly how "Tennessee whiskey" had to be made -- which not so coincidentally is the same way its Jack Daniel's is distilled -- had nothing to do with the state's craft distillers that would be affected by the law but everything to do with a "foreign company" weakening Tennessee's identity. And only a week later, the state's alcohol commissioner chose to enforce the 80-year-old storage law. It can hardly be a coincidence.

Of course, it's spurious to claim in today's global economy that Diageo is "foreign." While the distiller is based in the U.K., its George Dickel brand has a history in Tennessee that goes back almost as far as Jack Daniel's and even comports to the Tennessee whiskey law, using the so-called Lincoln County process that requires straight bourbon whiskey to be filtered through charcoal into single-use, charred-oak barrels. 

In fact, as a result of Brown-Forman pressing the government to implement the standard of identity law for whiskey, craft distillers are running into a shortage of oak barrels. No doubt because of the growing popularity of whiskey and bourbon, whose sales surged 10% to $2.4 billion in 2013 as volumes rose 7% to 18 million cases and international sales topped $1 billion for the first time ever, there is a limited supply of casks available.

Images

Source: SXC.hu.

Brown-Forman accounts for 90% of all whiskey sold in Tennessee, and reported global sales soared 30% in the first nine months of fiscal 2014. Diageo also reported strong growth in whiskey, with net sales of Johnnie Walker growing 16% in the six-month period ending Dec. 31 and its Buchanan's brand of Scotch whisky enjoying a 19% increase in organic sales in North America.

Maybe Brown-Forman is finding all the competition a little too much to fairly and successfully beat back these days, but Diageo points out that if it loses the storage law case, it may have to expand facilities elsewhere and cut jobs in Tennessee.

As the whiskey rebellion enters a new phase, Diageo may be losing a battle or two, but the war is still within its reach -- and that may be worth raising a glass of Dickel to toast.

Boost your 2014 returns with The Motley Fool's top stock
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Diageo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers