Can Beam Still Call Its Brands Bourbon?

PORTLAND, Ore. (TheStreet) -- Beam  (BEAM) has a new owner in Suntory (STBFY), a new home in Japan and a new portion of the Asian market to explore.

But does it still have the right to call its flagship brand, Maker's Mark and Knob Creek "bourbon?"

The $13.6 billion Suntory plunked down for Beam on Monday entitles it to all of the distiller's brands, but it in no way entitles it to call the brands it produces "bourbon." Half a century ago this May, Congress declared bourbon whiskey a "distinctive product of the United States" and, as such, laid the foundation for what distillers could rightfully call bourbon when selling it here in the U.S.

According to federal standards, bourbon made for U.S. consumption must be produced in the United States; made from a grain mix of no less than 51% corn; aged in new, charred-oak barrels; distilled to no more than 160 proof (80% alcohol by volume); entered into the barrel for aging at no more than 125 proof (62.5% alcohol by volume); and be bottled at 80 proof or more (40% alcohol by volume). Age it for two years or more and keep it free of coloring and flavoring, and you've got yourself some straight bourbon.

It's a fairly straightforward rule and it's exactly what both domestic and overseas bourbon drinkers are looking for. According to the Distilled Spirits Council trade association, whiskey made up a whopping 70% of the $1.5 billion in liquor the group estimates the U.S. exported in 2012. That's triple the nation's beer exports and $250 million more than its overseas wine shipments.

Meanwhile, the Kentucky Distillers' Association notes that bourbon accounts for 35% of all spirits produced in the U.S. Bourbon fuels $2.5 billion in sales in the U.S. and in the 126 countries where it's exported and makes up the majority of U.S. whiskey exports. Kentucky would know, as it produces 95% of the nation's bourbon at distilleries including Jim Bean's in Clermont, Maker's Mark in Loretto, Buffalo Trace in Frankfort and Four Roses in Lawrenceburg. The 4.9 million barrels of bourbon aging in that state outnumber its 4.8 million residents.

But not all bourbon makers manage to hang on to their birthright whiskey. Consider the case of Four Roses, which exists today primarily as a small-batch brand. It was the most popular bourbon in the country during the depression and World War Ii, when it was purchased by Seagram in 1953. Seagram wasn't taken with Kentucky's straight bourbon and decided to focus on blended whiskey in th e U.S. instead. While Four Roses' trademark straight bourbon made its way around Europe and Asia, its blended whiskey reduced its brand to bottom-shelf fodder in the U.S.



That didn't change until the early 2000s, when Seagram was bought out by Vivendi, which sold its brands to Diageo  (DEO) which sold Four Roses to Japan's Kirin. it was the new Japanese ownership that finally brought Four Roses back to its roots and allowed it to produce straight bourbon for U.S. consumption again.

If Suntory changed absolutely nothing about Beam and its bourbon brands after this purchase -- which seems likely give bourbon's importance to Beam's overall business and its sales both here and abroad -- Beam, Maker's Mark and Knob Creek could still proudly bear the bourbon label. If Kirin's example with Four Roses is any indication, it may actually result in better batches and special releases.

For Beam fans who've watched the company stumble through ownership by American Brands and Fortune Brands, this might turn into a welcome improvement. Beam toed a fine line by aging its Maker's 46 brand of Maker's Mark in French oak barrels a few years back, but crossed it by lowering Maker's Mark's alcohol content from 90 proof (45% ABV) to 84 proof (42% ABV). When Beam reversed that decision, Marker's Mark sales soared 44% and boosted Beam's overall quarterly sales 8%.

Suntory seems keen on not only avoiding such missteps, but on expanding bourbon production that's already on the rise. Distillers are producing 120% more bourbon than they were in 1999, with the Asian market accounting for a significant portion of that growth. As a result, Suntory's buyout of Beam not only shouldn't cost Kentucky any jobs, but it just might add some more.

"It's jobs for all these people," Beam spokesman Fred Noe told ABC News. "We're selling American products around the world, which is great."

It's also selling a core bit of American identity. Though U.S. naysayers scoff at the Champagne Bureau's insistence that the term champagne only apply to sparkling wines from France's champagne region, it's a similar argument that protects the integrity of U.S. bourbon. Just as Scotland prizes and legally defends "Scotch whisky" -- issuing guidelines in 2009 for how that product should be produced, labeled and sold -- bourbon's identity is a U.S. commodity similarly worth fighting for.

Fortunately for Beam's bourbon drinkers, the good-humored Bill Murray fans at Suntory place billions of dollars in value on their whiskey's good name.

-- Written by Jason Notte in Portland, Ore.

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Jason Notte is a reporter for TheStreet. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, the Boston Phoenix, the Metro newspaper and the Colorado Springs Independent. He previously served as the political and global affairs editor for Metro U.S., layout editor for Boston Now, assistant news editor for the Herald News of West Paterson, N.J., editor of Go Out! Magazine in Hoboken, N.J., and copy editor and lifestyle editor at the Jersey Journal in Jersey City, N.J.

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