How the Whiskey Industry Gets Hacked
If you ask any major whiskey maker what their biggest problem is today, every single one, without exception, will tell you they need more stock. Whiskey has surged to be the number one spirit in terms of annual revenue, and is just a few years from outpacing vodka to be number one in volume, as well.
But volume is hard for whiskey, because the best product on the market is usually that which has been aged longest in oak barrels—a process that takes years.
It’s a problem people have been attempting to solve for years in a variety of industries dependent on oak barrels for aspects of their product—everything from wine and beer to vinegar.
Joel Paglione, the grandson of a Canadian winemaker of Italian descent, knows this well. He just funded a project on Kickstarter that boasts a product meant to impart all those oaky flavors associated with barrel aging in a fraction of the time.
Oak Bottle is a project built on the concept of surface area to volume ratio. “It’s a unit of measure used to gauge how quickly a vessel can oak-infuse the liquid inside,” says Paglione, “whether that’s an alcoholic liquid or whatever it is that you’re infusing.”
Joe recalled that his grandfather’s vineyard had used smaller barrels to increase the surface area while aging wine. He applied the same concept to oak bottle. “I said let’s make the smallest possible vessel, and that’s the bottle.”
The Oak Bottle is also a fascinating innovation in its own right. It’s a single piece of milled oak, rather than a mixture of pre-cut staves like you’d see in a barrel. That makes for a more eye-catching product in terms of surface design, but also creates a more consistent surface for liquids to interact with during aging: a drastic improvement over the barrel if you consider leaks and other defects caused by multiple pieces of wood to be negative.
Paglione is the first to do it in such a small vessel. And he’s right that surface-to-volume ratio increases oak interaction. He says he and other competitors in the field have created a category that he refers to as “speed aging or spike aging. [It’s] something that people have been playing with for decades to speed up the aging process, or what they call the aging process, but is actually oak infusion. There are some processes, some chemical processes, but I don’t pretend to be an expert in this field.”
Oak Bottle’s competitors on the market include a lot of other attempts to play with surface area, from handfuls of oak chips and spirals of oak, to miniature barrels and glass vessels with oak bottoms. It’s an industry with a lot of people trying different ways to solve the same problem.
Oak Bottle is getting a lot of attention; since the success of its Kickstarter last year it’s been backordered for product and the growing demand has given them the chance to add features to the product, like laser engraving.
But while it’s flying out of warehouses and satisfying customers, it’s not necessarily the full answer to the problem of speeding up time.
For that, you need to turn to Bryan Davis, founder of Lost Spirits Distillery. “People have been trying to figure out how to solve the barrel economics problem for a hundred years,” says Davis, whose company built a pharmaceutical-grade reactor that solves the problem.
It’s always a bold step to call out your competition’s shortcomings, but in his case he’s got the explanation to back the assertion. “The reason they generally fail,” he says, “has been that everybody keeps looking for one silver bullet, like this one thing that you do. Like, “We’re going to take wood and we’re going to increase the surface area,” or “we’re going to take wood and we’re going to put it under 2,000 pounds of pressure.”
Davis says they’re not wrong, just incomplete. “Some of them have produced parts of the profile of an actual aged product, but none of them have ever produced the whole thing,” he explains. “And the biggest reason why is the process in nature is three or four main reactions, but each of those reactions are affecting hundreds of different molecules at the same time. So the first thing is that it’s not one silver bullet, it’s three or four. And then it’s a bunch of tuning to get all of those lined up in the right patterns to be able to trigger a reaction.”
Davis’s reactor handles all of those processes, to the specifications that you input, in order to re-create the effects of aging on a particular alcoholic liquid. And that’s a big accomplishment: We didn’t even know what those processes are until Davis did it.
He answered the question because, like so many others, the roadblocks to making whiskey frustrated him. “I started distilling alcohol in high school because I couldn’t get a fake ID,” Davis explains. That love of hooch continued into college, before coming a legitimate business for a few years as Davis moved to Spain and opened an absinthe distillery. After selling the property and returning to the U.S., Davis decided to start a whiskey distillery, until he saw the costs. “I don’t have $5 million lying around, and everybody who has $5 million lying around isn’t keen to give it to me.”
So instead he turned to the question, which still needed answering despite a century of need. “The last time someone tried to comprehensively answer the question was a paper by the U.S. tax authorities in 1908.” It took him five years to answer it.
Davis explains these processes in a lot of detail, and it’s clear he has the knowledge to walk you through everything that happens in a barrel day by day, for decades—listening to him describe them feels sort of like taking a biochemistry course at the graduate level. What he gets to in the explanation are a few bigger points: There’s more going on than a simple oak contact reaction, and that these things happen at different times in multiple stages.
That’s bad news for people who are leaning on wood to get the job done, because in wood those processes occur naturally, in real time. So while you may increase surface area, you’re not manipulating other processes on the biological or chemical level--just the space for them to happen.
To make them happen faster takes help. But Davis thinks he’s figured out how to do 20 years of those processes, in the right order, effectively, in eight days.
In fact, Lost Spirits Distillery already did it, albeit with rum. They released their first product last year, having not fully solved the equation. Because one part of the process was still giving them trouble, they started with rum. Rum, due to the constant warmth of the climate where it is made, effectively didn’t require that last puzzle piece.
They continued working on it though, with bigger aspirations—namely, whiskey.
“It’s the 800-pound gorilla,” says Davis, “because everyone’s running out of stock. No one has enough to meet their demands.” Since then they’ve made progress. “We’ve managed to get rye down. We’re still tinkering with bourbon. And we’ve also done scotch in the lab quite successfully.”
What is success, according to Davis? It’s a copy or approximation of an existing product. “You go for similar. It’s not impossible but it’s very, very difficult to carbon-copy a product.”
He spends a lot of time working on “legendary” products—things that have been long out of production and are available in volumes of maybe 10 bottles, in the world.
They do that fairly regularly. It requires taking two samples, and comparing those samples for standard deviations. From there they essentially reverse the aging process to try and re-create the white, unaged spirit as it might have appeared when it was still made. Then they have to recreate that product from existing spirits, which may take a blend of 20 modern products, before they even have the canvas to work on to add age.
Davis elaborated a bit to explain the complexity of the next step: “So you can start aging it, but once you start aging it you’ve got to deal with, “OKy, well, what kind of barrels were they using?” If they were pre-used bourbon barrels, then the bourbon would have stripped out a certain ratio of chemicals from the wood, so now we’ve got to go make bourbon on the reactor using American oak, and then take that leftover wood and put it into the aging process.
“Would they have been using Missouri wood? Would they have been using Virginia wood?” So now you’re running all those tests and you’re also going, “Are we sure they didn’t throw some sherry casks in? And if they did, would those have been Spanish oak sherry casks, American oak sherry casks, or French oak sherry casks?” And there are two different groups of French oak…and if you did use some sherry barrels in there, what kind of sherry?”
Like we said, complex.
“You sort of try to trial and error through it,” says Davis, “to eventually match the chromatogram. If I were to really aggressively say I’m going to do this, I could spend a year on it, no problem.”
He’s working on replicating more modern whiskeys for existing clients, who want to capitalize on the lack of wait time. The idea is that, if you can make something pretty close to a 30-year-old scotch in eight days you can make quite a lot of profit. Blind tests have been positive (though they can’t share many details on the private projects).
“In my lab, I can produce a liter a week, which is not going to flood the markets. The actual production reactors, of which there are two on the market, they produce about 120 gallons of cask strength a week.”
That’s not a lot of product still, but when they realize they need an extra 120 gallons of some 30-year-old whiskey, Davis’s product can deliver it 29 years, 11 months, and 3 weeks faster than anyone else.
Davis says his larger customers are looking at it for augmentation and supplementation. “For the guys who are opening a new distillery and want to grow aggressively but are lacking those $2-3 billion to fill the warehouse...for those guys this presents a really interesting opportunity, because they can grow to their hearts content so long as they have customers.”
Those reactors lease (not sell, currently) for a price something like $1 per bottle, and another 50 cents for wood and electricity. “You can pretty much say at $1.50 a bottle, you can turn it over.”
“The really cool thing though is that there’s no angel share. That’s a really neat bonus perk, because the angel’s share on a mature product is 50 percent.”
Upscaling is the next great hurdle. “Right now we’re working on research contracts with pretty much all of the majors, to figure out how to do this for all of them,” he says. “So far we’ve solved one sort of perfectly, and then the rest of them we’re still working with. We’re also building the reactors as fast as we can assemble them.” He’s been assembling these units for six months so far. He says they’re still extremely complicated, and not terribly user-friendly.
Oh, and they cost about $75,000 to build. “They’re built by the top pharmaceutical reactor manufacturer. Our market for these is larger than the pharmaceutical industry’s demand for reactors.” But Davis says you want that level of care, because apparently a lot of the reactions “take place very close to the point at which the thing explodes.”
At the end of the day, the big whiskey makers still have the advantage here, since you’ll need wood, and you’ll need alcohol, and you’ll need the $75,000 machine. But the entry point is much lower this way, and requires fewer people for success.
And ironically, it will get easier as time passes and Davis’s product matures. “I think you might see 20-30 of these operating in the next year,” he guesses. “We’re limited by how many we can build. But in a decade? I mean, who knows?”