Will a Barrel Shortage Hurt Small Distilleries and Breweries?  For Some, it Already Has

It wasn’t that long ago that a distillery could get as much white oak or as many used bourbon barrels as it wanted. But the bourbon and whiskey craze, along with some inclement weather, has compromised that availability to the point that there is now worry in some circles that smaller, newer craft distilleries and breweries may face a crippling shortage.

“It has certainly got a lot of them scrambling,” says Paul McLaughlin, vice president of Louisville-based Kelvin Cooperage. “Especially if they want to make bourbon by definition, they need new barrels. You might find more whiskey as opposed to bourbon being made – but those used barrels are still hard to source right now.”

It isn’t just the bourbon craze in America that is gobbling up so much white oak. Irish and Scotch whisky also are booming internationally – American whiskey exports topped $1 billion in 2013 – and the rising number of microbreweries in the region and nationally are more and more taking to barreling beers as part of their offerings. It is a new trend, and the industry simply is playing catch-up, he suggests.

“It will come around again,” McLaughlin says. “Ten or 12 years ago, used barrels were real cheap and new barrels were easy to come by. But it will come around again. The question is when.”

Back in December, Four Roses Distillery in Lawrenceburg temporarily scaled back operations due to a looming shortage, but master distiller Jim Rutledge called it a “bump in the road.” At the time, the shortage of new white oak barrel staves was attributed to an unusually wet fall, and it mostly affected those who sourced barrels from Independent Stave Company, one of the world’s largest cooperages, which has operations in both Kentucky and Missouri.

But McLaughlin believes the bourbon and whiskey boom is the primary culprit five months later. The demand, he says, is simply relentless; Kelvin saw it coming and “put some away,” which has helped, but the cooperage is having problems finding new wood. The question is, how long will this looming shortage last?

“That’s what everyone is asking,” McLaughlin says. “It’s really tough to see an end in the short-term. Everything seems to indicate that bourbon, Scotch and Irish whisky are very bullish. It’s a question of whether logging capacity and cooperage can catch up with demand from the other side.”

Meantime, the larger distilleries will be taken care of because of ongoing relationships with cooperages. If and when the shortage becomes a problem, it will be the small and upcoming craft distillers and breweries who will likely face tough sledding.

“They’re getting ready to turn the equipment on and need barrels, and they’re not there,” McLaughlin says.

Jim Beam and Wild Turkey, he says, will be the last to have to worry, which makes sense. But what about a craft distillery or brewery that has spent the last couple of years preparing to start operations, has secured property, licensing and invested capital in a distilling operation? That remains to be seen on some level. It is already hitting them in a sense.

“Our prices have been driven up somewhat,” says Sam J. Cruz, a co-founder of Against the Grain Brewery and Smokehouse in Louisville. “The availability is not what it used to be.”

But he says he and his partners combat the shortage with relationships they’ve formed since opening in 2011 and prior. He says each week the brewery will acquire anywhere from 60 to 250 barrels. While they may only have 100 barrels of beer aging at any given time, the strategy is to maintain the partnership with their supplier by taking whatever is available to them. Any excess, he says, is then brokered to fellow brewers around the city and region.

“Before, it was however many I want, when I want,” Cruz says. “Everyone’s caught on to the barreling thing.”

They were fortunate to have formed relationships well before the shortage came to be. Meanwhile, they don’t make money from forwarding excess barrels on to fellow breweries.

“We are just able to never say ‘no,’” to buying inventory, Cruz says. That keeps the inventory available. At least for now.

Ken Lee, master brewer at Alltech’s Lexington Brewing and Distilling Co., says being a modest-sized craft distillery in the middle of Bourbon Country is advantageous, meaning that so far, acquiring new bourbon barrels has not been a huge problem. On the beer side, Alltech uses the barrels and then, similarly to Against the Grain, move those barrels on to other distilleries and breweries. Even with a flagship brand, Kentucky Bourbon Barrel Stout, and several seasonals that age in bourbon barrels, the shortage hasn’t been an issue so far.

“We’re cautiously watching that market and we’re always careful with it, but we’re not suffering from it yet,” Lee says.

Lee says Alltech has, at any given point, roughly 5,000 bourbon barrels aging, and it handles another 1,000 or so per week in decanted bourbon barrels. Moving them along after the fact helps keep a flow going and gives others a chance to use the barrels. He actually believes the secondary market, especially the brewers, will not be hurt too badly in the short-term.

“I think that’s the lesser impacted market,” he says of the used barrels. “They could be scrambling a bit for barrels but I think they will find them.”

In his mind, it’s the primary white oak market that is the larger concern. Still, no one seems to know exactly how long the shortage might last or how it might affect distilling and brewing going forward.

Against the Grain has plans to expand its brewery operations in the near future; while Cruz could not provide many details yet, the brewery has applied for $200,000 in tax incentives from Metro and state government for an estimated $1.7 million expansion, including at least one proposed new location at 1800 Northwestern Parkway in Portland.

Asked how the brewery expansion would be affected if the barrel shortage worsens, he says, “If something does happen, we would adjust our production plans. We’d make more of something else and make it well.”

Lee believes new, small craft distilleries who lack the connections with suppliers are in the most precarious position going forward. Bourbon is booming, but white oak is becoming more and more scarce, especially for the little guy.

“I would think some of the craft distilleries, especially if they’re looking for new barrels, that’s going to be the worst case,” Lee says. “That goes back to the availability of the wood itself and seasoned wood to make into staves to make into barrels. I think they’re in the worst scenario of all.

“Whiskey is not in as bad of a condition. But everybody has to be a little bit careful.”