Is Diageo's $115M Move in Whiskey Smart, or Will It Prove a Blunder?

Diageo, the world's largest spirits maker, has big plans for American whiskey in the U.S. And why not, with bourbon and Tennessee whiskey at peak popularity. Will this $115M investment prove money well spent, or will drinkers' tastes shift, making it a blunder?

Jun 3, 2014 at 11:15AM

Diageo (NYSE:DEO) last week announced plans to build a $115 million distillery in Kentucky over the next three years. This is an investment triple the size of Brown-Forman's (NYSE:BF-A) (NYSE:BF-B) $35 million expansion of its Woodford Reserve distillery. The Diageo distillery will also be capable of producing three times the amount of whiskey as Woodford does in total right now.

Clearly, Diageo is making this move with big demand in mind. It says the distillery will produce its growing Bulleit whiskey label, as well as “future Diageo bourbon and North American Whiskey brands.”


Diageo's popular Bulleit bourbon. Source: Wikimedia Commons

That seems reasonable, since it comes at a time when American whiskey has never been more popular. Sales grew by 10% in the U.S. in 2013 and 7% worldwide. For comparison's sake, the U.S. beer market was stagnant.

Even more important to this story, sales of high-priced whiskeys have fast been on the rise, nearly doubling in the six years leading up to 2013.  So, it's a good bet that those “future brands” are going to be high-end bourbons. Diageo has plenty of experience in high-end whiskeys as the producer of Johnnie Walker scotches.

But this investment is much riskier than it may first appear. The problem is that while whiskey – and particularly bourbon – is all the rage right now, spirits drinkers' tastes have historically been fickle.

A lotta time in the barrel
This distillery should be up and running in just three years, if the company holds to its plan. But a bottle of bourbon or whiskey takes years to produce. It's that time spent sitting inside charred oak barrels that gives a good bourbon all its distinctive, mellow flavors. Jim Beam white label is aged four years, on the short side for bourbon. The better bourbons spend eight or 10 or even 12 years in those barrels, mellowing and taking on richer flavors before they are bottled.

That's why many labels are running low on supplies. Producer Buffalo Trace, for example, continues to run into shortages over the past several months.  There's no way the distillers could have foreseen today's exploding interest in bourbon and Kentucky whiskey. Now that it's here, all they can do is increase production and hope that the demand is still there 4, 6, 10, or 12 years from now. 

Demand in high-end, "craft"
Brown Forman's Woodford Reserve grew sales 28% globally in fiscal 2013. Beam, recently acquired by Japanese spirits maker Suntory, saw its top-shelf bourbons like Maker's Mark, Knob Creek, and Basil Hayden's growing quickly. Basil Hayden's, the most expensive but least popular of the four, grew at the fastest rate over the company's last nine months reported before the sale, notching 34% growth. It's clear that there's a big appetite for high-end and craft-style whiskeys in the U.S.

Bulleit – and its embossed glass bottle that looks more like an oversized flask than a typical squared-edged whiskey bottle – sits on shelves along with craft whiskeys from smaller makers. Since it doesn't have the name recognition of brands like Jim Beam, Jack Daniels, or Old Grand-Dad, it's easily mistaken for a “frontier whiskey” and not something from the world's biggest distiller. With the trend in beer, coffee, and now spirits moving toward "craft" brands, that's a good thing.

The Foolish bottom line
London-based Diageo's decision to build a $115 million distillery in Kentucky is great for the local economy, no doubt. But whether its a smart move will depend on the appetite for the fickle spirits-drinking public. If demand for American whiskey – particularly at the high end – holds up, this investment could pay off in spades. But if drinkers' tastes shift while Diageo's 750,000 nine-liter cases of bourbon are still years from hitting tumblers and ice, it could prove to be a $115 million mistake.

If we could buy only 1 stock for the rest of 2014, this is it
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

John-Erik Koslosky has no position in any stocks mentioned. The Motley Fool recommends Diageo (ADR). 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

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, 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