How do companies set prices on old, limited, or in-demand whisky? Do they use some algorithm that takes into account age and quantity? Do these prices show the actual cost of production? Or is it just a guessing game by the liquor companies, trying to maximize profit on their rarest offerings?
“I don’t feel there’s a real rhyme or reason to what they do,” says Joseph W. Mollica, chairman of the New Hampshire Liquor Commission. Running the liquor purchasing for a control state that sees a lot of well-heeled tourists passing through, Mollica—who oversaw almost $865 million of alcohol sales in 2017—is able to get his hands on some of the rarest, most expensive whiskies on earth, like Glenmorangie Pride 1974 ($5,799) and Glen Grant 50 year old ($13,999). He’s a whisky retail expert, yet even he can’t put his finger on what exactly influences the price of a bottle. “Everybody seems to have a proprietary pricing method,” Mollica says.
PRODUCTION FACTORS THAT IMPACT PRICING
The standard whiskies we see on the shelf carry prices that are based on real-world numbers: the cost of glass, grain, storage, taxes and tariffs, labor, shipping, and marketing. Add in a little margin for profit, and you’re all set. But in the case of the rarest and most sought-after whiskies, these conventional formulas go out the window. In a time when transparency has become one of the biggest buzzwords in the whisky world, not many companies are willing to share insights on the pricing schemes for their most high-end offerings—though a few in the business did.
Jack Teeling founded Ireland’s Teeling Whiskey Company, which recently released the 34 year old Vintage Reserve single malt, said to be one of the old Irish whiskeys ever produced. With only 38 bottles for sale, the suggested retail price is $5,000.
“It was just one cask and we were surprised there was so little left in it,” Teeling notes. “It was either ravaged by the angels or the guys working at the warehouse knew what was a good one [to secretly sip from],” he says, referring to the angels’ share, or the evaporation of liquid from a wooden cask. He explains that the price is also an escalation of what Teeling had previously charged for its 30 year old ($2,000) and 33 year old ($4,000) single malts.
The lower yield from older casks isn’t the only factor that influences prices. As the volume of liquid in the cask diminishes, in damp climates where alcohol content drops over time, so does the ABV of the whisky. “With scotch whisky, when you’re getting stuff that’s really old, like 50 year old Macallan, the alcohol content is sometimes so low in the casks, you couldn’t do a single barrel expression as it wouldn’t legally be scotch due to the lowered proof,” explains Alex Bachman, owner of Sole Agent, a broker of rare and vintage spirits. “So they have to blend several casks at the same age [to get to the legal minimum of 40% ABV]. The companies will then use that as an excuse to price higher.”
Lavish packaging is often a key component in extraordinarily high-priced whiskies. But is the pricy box creating the pricy whisky, or are producers choosing to put high-priced whisky in a fitting package? Consumers who spend thousands on a single bottle of whisky seem to be motivated by packages that reflect that prestige, and these can add to the cost. “Putting whisky in a crystal bottle that costs $300 itself is obviously a driving point [for high prices],” says Bachman. “The companies know what customers get excited about: excessively aged spirits, especially when it comes to bourbon, in a nice box.”
Old Rip Van Winkle 25 year old came in “an extra special vessel…a handmade glass decanter from Glencairn Crystal Studio. The bottle information is engraved on each decanter, individually numbered, and hand finished with a silver stopper,” according to the press release. A somewhat similar decanter sells for £85.00 (around $120) on Glencairn’s website. The Macallan in Lalique collection presents whisky aged for 50-plus years in custom bottles crafted by master crystal artisan René Lalique. Similar decanters, sans whisky, go for several thousand dollars apiece on Lalique’s website.
With limited-edition whiskies, the cost per package increases even more, explains Jack Teeling. Teeling’s 34 year old comes in an opulent wooden box enhanced with gold trimming and accents. “Each bottle, each box, each cork—it’s such a unique packaging,” he says. “If you produce 10,000 bottles, you apply the design costs across all 10,000 bottles. But apply it over only 38 bottles and things start getting very expensive.”
THE EFFECT OF SECONDARY MARKET FORCES
In some cases, it’s not the producers that instigate higher prices, but whisky drinkers themselves. A limited Port Ellen bottling was included in the first Diageo Special Release Collection in 2001. At 22 years old, it sold for a reasonable £110 ($154 at today’s exchange rate). Even in 2008, a 28 year old Port Ellen was retailing at £180 ($251). By 2012, a 32 year old Port Ellen was offered at £600 ($838)—and the next year, a 34 year old was included at £1,500 ($2,095). What had happened? Sure, Port Ellen has been shuttered since 1983, and stocks decreased year after year. But, more significantly, a rabid and well-orchestrated online black market had emerged in the intervening years.
Though few distilleries will mention it, the secondary market—that is, an individual reselling whiskey to another individual, which is illegal in the United States—is a major consideration as well. Old Rip Van Winkle 25 year old’s $1,800 retail price is around what Pappy Van Winkle 23 year old sells for on the black market (anywhere from $1,710 to $1,890 according to bottlebluebook.com, an online record of recent whisky sale prices). Not surprisingly, “flippers” who were able to purchase the 25 year old at retail almost immediately began offering it on the secondary market for up to $10,000. Despite their awareness of the practice, most distilleries refrain from marking up their whiskies to match the retail prices reflected by these economic forces, lest they look like the bad guys.