You are here
Led by cult bourbons, distillers dream of a ‘Napa-fication’ of Kentucky
[LOUISVILLE] In September 2014, a bourbon brand called Kentucky Owl began to appear on liquor-store shelves around Louisville. The American whiskey market was booming, and dozens of new bourbons were showing up each year. But Kentucky Owl was different. Released exclusively within the state in tiny quantities and produced by the scion of an old Kentucky whiskey family, it had an undeniable mystique — and a price tag of $170.
To skeptics, Kentucky Owl was proof that the whiskey trend had reached its Tulip Mania moment. At the time, few bourbons commanded even $50 at retail. Plus, the man behind the brand, Dixon Dedman, didn't even make the whiskey himself; he bought barrels from other distilleries, then blended them. Surely the bubble was about to pop.
It didn't. Within a few weeks, nearly every bottle of Kentucky Owl had sold out. On the secondary market, flippers were asking — and getting — five times what they had paid in stores. "Before you knew it, before anybody had reviewed it, you had people camping out to buy a bottle of Kentucky Owl," said Fred Minnick, the editor of Bourbon+ magazine and the author of "Bourbon: The Rise, Fall and Rebirth of an American Whiskey."
Several factors gave Kentucky Owl a boost. It had heritage: Dedman, whose family runs a century-old inn popular with bourbon fans, named it after a long-defunct brand created by his great-great-grandfather. Early hype by retailers, along with rumors about the source of the whiskey, also built early interest.
Above all, Kentucky Owl debuted at a moment when whiskey fans, flush with money from a surging heartland economy, were willing to pay extra to get the next hot thing in bourbon. Soon, Kentucky Owl had achieved cult status — and signaled a fundamental change in the American whiskey market.
"People have called us the Screaming Eagle of bourbon," Dedman said in August, referring to the $3,000-per-bottle cabernet sauvignon whose debut, in 1995, represented a shift toward stratospheric luxury in the Napa Valley wine industry.
Not that he's complaining. In January 2017, less than three years after introducing Kentucky Owl, Dedman and his business partner sold the brand to SPI Group, the Luxembourg-based company best known for making Stolichnaya vodka, for an undisclosed sum rumored to be in the high seven figures. Six months later, the new owners revealed plans for a $150 million "Kentucky Owl Park" in Bardstown, an hour southeast of Louisville, featuring not just a distillery but a convention center, two lakes and, eventually, a luxury hotel. The company broke ground in November 2017, at an event attended by Gov. Matt Bevin, and it plans to open the first phase of the site in 2020.
The brand's rapid ascent took Dedman by surprise. "I never had a vision for how fast this thing would grow," he said.
You could say the same thing about the Kentucky whiskey industry itself. Although the bourbon market has been growing for almost two decades, a transformation has taken place in the past five years, a reshaping of the industry's potential that most people didn't see coming and are only now starting to grapple with.
Between 2012 and 2017, sales of bourbon whiskey — 95 percent of which is made in Kentucky — soared by more than 50 percent, to $3.3 billion. To keep up with demand, nearly two dozen new distilleries have opened in Kentucky in the past five years, including three around Bardstown, a town of 13,000 that sits in the center of bourbon country. Established companies like Beam Suntory and Brown-Forman are undertaking hundred-million-dollar capital projects, while scores of new rickhouses — the enormous warehouses used to age whiskey — dot the rolling hills around Louisville.
But the changes are about more than money and investment. Americans aren't just buying more whiskey, and paying more for each bottle. They're buying into an entire "bourbon experience," from whiskey-themed boutique hotels in downtown Louisville to trendy restaurants with "curated" whiskey lists to fleets of tour buses carting bachelorette parties and corporate retreats from distillery to distillery.
"It's unbelievable," said Trey Zoeller, the founder of Jefferson's, a bourbon brand based in Louisville that just built a sprawling visitors center and has plans to quintuple the size of its distillery. "Truly, you build it and they will come."
The most ambitious people in the industry talk about the "Napa-fication" of bourbon, doing for American whiskey what Napa Valley did for American wine: not just make it in huge volumes, but elevate it to a world-class luxury status, built around a region and an image designed to generate billions of dollars in tourism, retail sales and investment. The sort of place where a $170 bottle of Kentucky Owl is actually a pretty good deal and a far cry from the rural simplicity that bourbon was built on.
"This region has matured with the rise of the bourbon industry the way a stupid underage kid grows up to be a sophisticated adult," Dedman said. "I would never in my wildest dreams have imagined that we'd be where we are today."
‘The wise man's bourbon'
Dixon Dedman is Kentucky royalty. His great-great-grandfather Charles Dedman founded one of the state's largest distilleries in the late 19th century, and his family has owned the award-winning, 31-room Beaumont Inn in Harrodsburg, Kentucky, for over a century. Tall, sandy-haired and soft-spoken at 37, Dedman exudes the image of a down-home goober — his word — that barely papers over a sharp, analytical mind.
"He plays dumb really well," said Minnick, "but he's really smart." (Disclosure: I've written for Minnick's magazine.)
There was never a question that Dedman would go into the family business. During college, in the early 2000s, he worked at the Beaumont Inn during the summer, and less than a week after graduation he was back washing dishes. Revenues were down, though, and major improvements were being pushed back for lack of money. The inn shut down for four months every winter for lack of visitors. With Dedman's father easing into retirement, it was suddenly up to him to save the family legacy.
Part of the problem was location. Even though it is in the middle of bourbon country, just east of Bardstown, Harrodsburg sits in a dry county — which meant the inn couldn't cater to thirsty tourists visiting nearby distilleries.
"We'd get people coming through after seeing a distillery, and the strongest thing I could serve them in the restaurant was black coffee," Dedman said.
That changed in 2003, when the county voted to allow restaurants in Harrodsburg to sell liquor by the glass. Dedman pounced: He started selling drinks in the Beaumont's main dining room, and he opened two adjacent taverns, both of which became overnight successes in a town that was dying for a drink. (In 2015, the James Beard Foundation gave the inn an America's Classics award, which it bestows on distinguished regional restaurants.)
The decision to relax Harrodsburg's dry laws, and Dedman's push to sell liquor, came just as the bourbon industry was beginning to recover from a decadeslong slump in consumer demand. In 1969 distillers produced 1.9 million barrels of whiskey, according to the Kentucky Distillers Association; in 1999, the industry's low point, it made just 455,000.
In the mid-2000s, a younger generation of drinkers shifted back toward bourbon, drawn as much by its flavors as by its story as an authentic American craft. Like locally sourced food and artisanal furniture, bourbon appealed to consumers tired of flashy luxury and looking for simple, recognizable products. Between 2000 and 2010, revenues for American whiskey distilleries grew by 46 percent, according to the Distilled Spirits Council of the United States, and tourists began pouring into Kentucky to see where all that whiskey was made.
That was especially good news for a place like the Beaumont Inn. Not only were locals flocking to its bars, but a mounting number of whiskey tourists, arriving to visit nearby distilleries like Four Roses and Maker's Mark, were lining up to stay in its guest rooms. By 2005, it was operating year-round.
Dedman had more on his mind than rescuing the Beaumont Inn. His great-great-grandfather's distillery, which opened on the banks of the Kentucky River in 1879, had grown rapidly, thanks to the success of its flagship whiskey, Kentucky Owl. Charles Dedman gave it the slogan "the wise man's bourbon."
The C.M. Dedman Distillery was forced to close during Prohibition, though, and it never reopened. Dixon Dedman's father and grandfather had often talked about restarting the brand, but it was idle chatter. In 2008, with the inn back to financial stability despite the looming recession, Dedman set out to realize their dream.
Instead of opening his own distillery — a costly and time-intensive project — Dedman decided to "source" whiskey distilled elsewhere, then bottle it under his own label. But sourcing decent whiskey presents its own challenges: Acquiring stocks of bourbon is largely a matter of knowing the right people to open the right doors. Fortunately, Dedman knew people: Generations of traveling whiskey businessmen had stayed at his family's hotel.
Among them was Jim Rutledge, the master distiller at Four Roses. Rutledge, who recently retired after 49 years with the distillery, is widely regarded as one of the greatest whiskey makers of his generation. Starting in 2010, Dedman would buy barrels of whiskey, then bring samples to Rutledge's home for him to assess.
Beating a $30,000 bottle of Scotch
Unfailingly polite but highly opinionated, Rutledge was not impressed. It turned out that even with access to good barrels, Dedman had something to learn about picking the right ones. "One day he had five samples, and we met over breakfast," Rutledge recalled. "I tried them and thought, ‘How do I tell him not to ever put these in a bottle?' I told him he might have to blend them" — a laborious process that involves taste-testing endless combinations of barrels.
Undeterred, that's what Dedman did. After closing up the inn at night, he would set up dozens of barrel samples at a table in the back of the restaurant and methodically mix them, paying close attention to their age, alcohol level, even where they had been sitting in the warehouse (temperature affects how a whiskey ages, and temperatures vary widely in an unheated warehouse).
It took nearly four years, but he finally settled on a blend he liked. He combined the barrels, paid someone to bottle and label them, and then took them around to local liquor distributors.
Dedman insists that making a commercially successful whiskey was never his plan. "It's not like I thought it out, like I said here's what I'll do year one, and then what I'll do year five," he said. "I never thought, we should do this because bourbon is on the move." Looking back, he cringes at how amateur the whole operation was — he didn't have a sales plan, or a marketing strategy.
None of that mattered. By almost all accounts, that first batch of Kentucky Owl was a transcendently beautiful bourbon, reminiscent of whiskey made in the mid-20th century, often considered a golden age of distilling. "When you pick up that bottle, Kentucky Owl just feels like Kentucky," Minnick said. "And when you taste the early releases of Owl, it just tastes like old Kentucky bourbon from the 1950s."
Kentucky Owl got an added boost from social media. Rumors, spread through bourbon chat rooms on Reddit and other sites, claimed that Dedman had worked closely with Julian Van Winkle III, the owner of the legendary Old Rip Van Winkle whiskey company. The information was false, but it supercharged the hype.
"People just went nuts," Minnick said. "Kentucky Owl just has that cool factor you cannot teach."
Other whiskey brands have begun asking three-figure prices too: A rye whiskey from Kentucky Peerless, a new distillery in Louisville, goes for an average of $120. Chicken Cock, another sourced and "revived" 19th-century brand, sells for $250. Even once-proletarian brands like Wild Turkey and Four Roses now offer limited-edition expressions at $200 or more. But none has quite matched Kentucky Owl for sheer consumer excitement.
Whiskey fans and writers talk about Kentucky Owl as the next Pappy Van Winkle, Van Winkle's flagship brand, bottles of which often fetch $5,000 or more. Others, betting on Dedman's blending skills and the global growth of American whiskey, see it going even higher, to sit in the same category as the Macallan single malt or Château Latour Bordeaux.
"It has the potential to get up and stay among the world-class, luxury brands — it has that kind of cachet," said Jeff Hopmayer, a strategic adviser in Nashville who has worked closely with several bourbon producers, including Kentucky Owl. "When I bring a bottle to a party, everyone freaks out."
Building a Napa Valley of whiskey
In early 2017, Dedman got a call from the office of Yuri Shefler, a Russian businessman. Shefler, who lives in London, is the sole owner of SPI Group, a global drinks company best known for Stolichnaya vodka, which Shefler acquired in 1999, two years after the Russian government sold it off.
Moscow, perhaps sensing that it had made a mistake in letting go of such a valuable brand, has sued to win Stolichnaya back. So far SPI Group has defended its most valuable property, but in recent years it has also diversified, buying or starting wineries in Spain and Argentina, a tequila distillery in Mexico and a rum distillery in Louisiana. Now, Shefler wanted a piece of the bourbon boom.
He wasn't alone. As American whiskey has demonstrated its staying power, it has attracted investors from around the world. In early 2017 Rémy Cointreau, the French drinks company, bought Westland, a craft distillery in Seattle; a few months later LVMH Moët Hennessy Louis Vuitton bought the Woodinville Whiskey Co., in Woodinville, Washington. And in September 2018 Edrington, the owner of the Macallan single malt, bought a minority stake in Wyoming Whiskey, based near Jackson Hole.
But Shefler and SPI Group wanted more than just an investment in a bourbon company — they wanted to control a chunk of the bourbon experience. Kentucky Owl offered a unique opportunity: a prestigious brand with almost no footprint, a blank slate on which SPI Group could write its own bourbon story.
Dedman and his partner, Mark Carter, closed the deal in early 2017, for an undisclosed sum. (Carter and his wife, Sherri, who own an inn and a winery in California, left the company; last year they introduced their own whiskey brand, Old Carter, at $250 a bottle.)
As part of the deal, Dedman is staying on as a corporate ambassador and blender for Kentucky Owl, which will remain the company's premier brand. Dedman's operation will sit within a much larger project, also called Kentucky Owl, which will generate a range of whiskeys at different prices, all produced at a sprawling facility in Bardstown.
That facility, Kentucky Owl Park, represents the full expression of where American whiskey is headed. Built on a 450-acre limestone quarry, the park will be about much more than making whiskey: A visitor might get a distillery tour in the morning, eat a lakeside lunch, see a live-music show in the afternoon and sleep in a boutique hotel room that night, all without leaving the property.
"It's about creating that overall experience," said Rudy Costello, the chief executive of Stoli Group USA, which oversees Shefler's American holdings. "We see the tourism in that area already, and I don't think we've even scratched the surface."
Right now, the site of the future Kentucky Owl Park is, literally, a hole in the ground; it takes some imagination to picture it as a nirvana of whiskey. But the plan also fits neatly within the overall trajectory of the Kentucky bourbon industry — a half-dozen distilleries lie within a few minutes' drive, and all of them are building amenities like restaurants, visitors centers, parks and hotels to cater to a new class of whiskey tourist.
The typical distillery was once a utilitarian industrial plant; now it's a boozy theme park. The recently opened Castle and Key Distillery outside Frankfort, Kentucky, which took over a defunct distillery site modeled after a medieval castle, sports a botanical trail and a manicured garden. The centerpiece of the new Bardstown Bourbon Co. distillery is Bottle & Bond, a minimalist-chic restaurant run by the former chef at the Greenbrier Resort in West Virginia. Upping the ante, SPI Group hired Shigeru Ban, a Pritzker Prize-winning architect, to design the main buildings at Kentucky Owl Park.
For local business leaders, such changes promise to turn the region into something like a Napa Valley of whiskey, a place that combines high-end retailing, resort hotels, fine dining and, flowing through it all, an unending river of tourist dollars.
"We don't want it to be just an industry; we want it to be a destination," said Kim Huston, the president of the Bardstown Industrial Development Corp. Huston takes the Napa comparison seriously: She travels frequently to Northern California to study how its most famous wine region went from a sleepy agricultural community in the 1980s to being a synonym for high-end living.
"We're probably where they were 20 years ago," she said. "Our goal is for Bardstown to play on the world stage of luxury tourism."
Not everyone in the region is on board with these plans. Kentucky is significantly more traditional and rural than a place like Napa, and even deep-pocketed companies like Beam Suntory can't easily push around social conservatives who bristle at the thought of turning their towns over to tourists, no matter how much money the visitors bring in.
But the skeptics might not be able to hold out for long. Bourbon fans are already streaming into the state — 1.2 million people visited its distilleries in 2017, a 20 percent jump from 2016 and almost double the number in 2014, according to the Kentucky Distillers Association.
And after years of speculation about a bourbon bubble, distilleries and investors are confident that the expansion is here to stay.
"If you look at the total amount of bourbon sales today, it's still less than it was in the 1970s, adjusted for inflation," said Costello, the Stoli Group USA chief executive. "And there is still tremendous opportunity outside the United States, with some big emerging markets starting to tune into American whiskey."