What Makes High-end Whiskey So Expensive

All whiskey is basically made from the same stuff, right? You got the grain or barley, yeast, heat, and aged in barrels… so why is it that some bottles cost around $20, while others are more pricey than the downpayment on your first car? The Glenmorangie Pride 1974 retails at around $7799, while Glen Grant 50 year old, commands a whopping $13,598. Do liquor companies set prices on high-end whiskey by taking into account the age and quantity? Or are these companies simply trying to maximize profit on their rarest offerings?

There is no straight answer as even whiskey connoisseurs can’t seem to put their fingers on what exactly influences the price of a bottle. They do agree, however, that there are certain factors that are put into consideration before slapping such a hefty price on a bottle. Some of these include:

 

woman wearing white angel wings

“Angel’s Share”

 

This refers to the natural evaporation of liquid into the atmosphere over time. Even the most carefully constructed, leak-proof barrels can invite evaporation since the staves themselves are made of wood, which is porous. Of course, storing the product in barrels for years is a necessary part of the process to break down the rougher flavors in the alcohol and leave you with a smoother taste.

 

Through Angel’s Share, 30% to 40% of what was in barrels is probably already gone by the time the whiskey has become 21-year aged. Basically, angels’ share is the price we pay for that distinct color and flavor that comes from oak. In other words, high-end whiskey is expensive not because just it is old, but because there is always lower yield from older barrels, making it rare.

 

close up of brass container in tilt photography

Production Factors

 

Prices for standard whiskeys on the shelf are based on real-world costs – grain, storage, glass, labor, marketing, and shipping. Add in a little margin for profit, and the price is all set.

In the case of the oldest and most sought-after whiskeys, however, this conventional pricing model is only the starting point. In this case, it also comes down to a couple of considerations

 

  • Proofing –

    As the volume of liquid in the barrel diminishes over time, so will the ABV of the whiskey. If it has been there a really long time, say 50 years, the alcohol content in the barrel may be so low that you couldn’t do a single barrel expression since it wouldn’t legally be whiskey due to such lowered proof. Liquor companies compensate for this by blending several barrels at the same age to achieve the legal minimum of 40% ABV. This is added to the pricing.

 

  • Lavish Packaging –

    You’ve seen them – opulent wooden boxes enhanced with trimmings and accents of all colors and designs, a distinguished sight from standard whiskey packages. In one glance, the intricacy of the design on the packaging of a high-end whiskey already tells you that it won’t be cheap. Is the expensive packaging creating the pricey whiskey, or are producers choosing to put such high-priced whiskey in fitting boxes? Either way, there’s no denying that consumer action can largely be motivated by packages that reflect that prestige and they’re willing to pay for it.

 

  • Glass Design –

    While closely related to lavish packaging, the bottle design of a premium whiskey is a cost factor in its own right. For instance, putting your perfectly aged whiskey in a crystal bottle that costs $400 means the total price must reflect this as well. There are also accessories to consider, as some whiskey packages contain specially crafted decanters and stoppers. Their value will also be calculated into the total cost.

 

Taxes


This is a considerable expense that distillers have to contend with, especially since it is a lot more complicated than, say, doing your personal tax returns. Liquor companies have to deal with taxes at different stages of selling their whiskey, including:

 

  • Federal tax

    – This stands a $13.50 per proof gallon and may increase depending on the proof level of the bottle.

 

 

  • State tax

     State taxes vary widely and contribute to the higher price of some liquor. For instance, state liquor tax in Oklahoma amounts to $5.56 per proof gallon, which means companies have to add upwards of $.95 to the cost of each bottle of whiskey.

 

 

  • Ad Valorem tax

    – Common in Kentucky, this tax is based on the rising value of a barrel of whiskey every year it ages and stands at a nickel for every $100 of assessed value. There are also local ad valorem taxes whose deductions vary depending on where the distiller’s warehouses are located. Then there’s another tax that deducts a nickel on every case shipped out of the distillery. It’s no wonder that many brands like to bottle younger whiskeys.

     

Obviously, liquor companies will want to make up for these multiple deductions so they have to increase the prices of their whiskey.

 

person walking inside building near glass

Retail Markup

 

Everyone involved in the shipping and distribution process, from the distillery to the wholesaler and to the retailer, all need to make money off each bottle. After all, they also have costs to pay – acquisition costs, facility maintenance and improvement costs, and even vendor costs. Some states have capped a limit on these markups, others didn’t. Regardless, these markups are a contributing factor to the exorbitant pricing of premium whiskey.

 

And those are just for high-end whiskey that you can find. There are those so rare that you’ll only see them at auctions, often commanding a king’s ransom.

 

one banknote

Secondary Market Forces


In some cases, it’s not the producers that instigate higher prices, but the consumers themselves. For instance, a well-orchestrated black market can create artificial scarcity, driving up the retail costs of some of these high-end whiskeys, and ensuring you can only buy them from select online stores for some big bucks. There’s also the possible price increase due to the activities of “flippers”. Though illegal in the United States, there are still individuals who hoard premium whiskey and resell to other individuals at their own inflated prices. Even though most distilleries are aware of this practice, they refrain from marking up their high-end whiskeys to match the retail prices reflected by these secondary market forces, so they don’t end up looking like the bad guys.

 

 

Economic Factors

 

Total price is also determined by the changes in the prices of the materials. This can be in the form of inflation, where each year sees a price increase in production materials, which automatically mean pricier consumer goods.

 

There’s also the interplay of demand and supply. For instance, say whiskey is in high demand in an area, the shelf price per bottle will naturally go up, but the distiller doesn’t actually see any of those increased profits because they are selling at wholesale prices to the retailers. The only way to achieve see that revenue is if they also increase the wholesale price of the whiskey, which then prompts the retailer to increase his prices too… and the cycle continues.


The Bottom Line

 

At the end of the day, as whiskey drinkers want ever-older and smoother whiskeys, and tax collectors continue to see the liquor industry as an easy way to gain more revenue, it is quite understandable that prices for premium whiskey have soared. If too pricey. perhaps you could take a look at the bottom shelf for some of the old-school whiskeys whose prices are still within budget.

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