🥃What is allocated whiskey? Guide to Distribution, Economics, and Strategies

 

If you've been around someone with a whiskey hobby for more than a few minutes, you've probably heard the term "allocated whiskey". Some people use the term to refer to any rare or hard to find bottle, but the technical definition of allocated whiskey is a little more nuanced. In this post, we will cover:

• Definition of Allocated Whiskey
• How stores get Allocated Whiskey
• Is Allocated Whiskey Worth it?
• How to get Allocated Whiskey
• Economics of Allocated Whiskey

What is allocated whiskey?

If a whiskey is "allocated", that simply means that a given liquor store cannot freely order stock of that product. This caused when demand for a particular bottle outstrips supply. In those cases, distributors and sometimes distillers will "allocate" the supply of bottles to particular market areas, wholesalers, or retail partners. For example, if I owned a liquor store and wanted to stock Blanton's Single Barrel, I would have to put in a request with my distributor account manager; I couldn't just order the case. The distributor may or may not allow me to purchase the product for sale in my store. They may have conditions around what marketing setups I have in the store, total volume of sales, or targets for sales of a non-allocated product that I need to hit in order to gain the privilege of stocking that product. Further upstream, some distillers may take a similar approach and allocate more stock to larger population markets, control states, or distributors with a better negotiating position. We'll talk more about the three tier system and mechanisms for how this allocation occurs later, but suffice to say the economics of product scarcity put the power in the hands of the seller at each step. Which products are allocated can vary by state and distributor, but this list of Allocated Spirits from the Alabama ABC board is a pretty good illustration of commonly limited bottles. 

How do stores get Allocated Whiskey?

Most producers will allocate product on a market size basis, giving a certain amount of product to each distributor depending on the relative total sales or population of that geographical region. They typically will give the distributor or wholesaler targets for total sales of all of the productions in their portfolio as well as potential marketing metrics around shelf allotments and store placements. Larger distributors or control states may have some latitude here in negotiating overall pricing or other quota incentives, but the producers largely will leave the wholesalers with substantial freedom in devising how they will meet the specified targets. In general, the wholesaler takes the final products, marks them up 10-25% over wholesale prices and then sells them to retail stores for final purchase by the customer. On the wholesaler operations side, the distributor has wide latitude in how they allocate cases or bottles to retail stores. The vast majority of allocated bottles go to major retail chains as those companies have the most negotiating power (e.g. Total Wine can say we want X many cases of Y and has volume, shelf, and display space with which to bargain). After satisfying the major accounts, the distributor will then assign out the remaining limited stock to retailers through a few common methods:

• N per account - Some distributors may simply give every retail account a specified number of bottles or cases. 
• Gross Volume - Many wholesalers have simple calculators based on volume of total sales of products (e.g. for every $100k purchased by the retailer they get a case of allocated product)
• Portfolio Volume - A distributor may make an allocation directly linked to a specific product or family of products. If you go on forums, you'll see retailers complaining that they had to buy 50 cases of Fireball to get a single one of Buffalo Trace. Southern Comfort, Wheatley Vodka, and and other flavored or unaged spirits are common. These are typically more profitable for the producers who then pass on volume targets to the distributors who use the allocated bottles as an incentive for retailers to to move product.
• Marketing Incentives -Distributors may use allocated bottled to negotiate for the presence of special display showcases for specific brands, additional shelf space, stocking more SKUs from a producer, or having things like a front of store fridge full of Jägermeister. 

As a practical matter, the arrangements between a retailer and a distributor regarding what allocated stock a store will get vary greatly and may include some or all of the above in combination. The bottom line is that distributors and retailers that move more of the right products are the most likely to get the best allocations, but there are unfortunately some common failings in this process. If you are interested in learning more, the Bourbon Pursuit Podcast has an excellent episode where they go deep with a former distributor and current store owner. 

Issues with the Allocation Process

With the scarcity and aggressive secondary market pricing comes a lot of bad incentives at all levels of the stack. Distribution and retail are very decentralized and relatively difficult to control processes with a large number of parties involved over large areas. The following are known breaks in the process that further constrain the supply of allocated products:

• VIPs - Go figure that executives, celebrities, or government officials seem to somehow end up with hard to find bottles regularly, even in control states!
• Theft - Whether in the warehouse, on the truck, or in the office, the distributors and retailers have physical custody of the rare bottles for large amounts of time. Management or risk taking workers may take the bottles for themselves or for resale. It's very easy for someone to say an individual bottle got lost or a case got picked up in error.
• Sale and Buy-Back - Instead of outright theft, a distributor rep may go to a store owner and say "hey, I can get you four bottles of Pappy, but you will need to sell me one at cost." These bottles will thus never hit the shelf.
• Secondary Collusion - Some distributors and producers are starting to crack down on excessive price gouging by retailers, so to avoid damaging their reputations and access a unscrupulous shop owner may work with a secondary seller, giving them the product for a percentage of their profits.

With all of these factors in play and a preference for major chains, it is almost a wonder that your local bottle shop ends up with any allocated stock! I certainly don't agree with museum pricing (marking bottles up hundreds of dollars), but you can begin to understand why store owners do it

Is Allocated Whiskey Worth it?

From a quality and price perspective, the answer is probably no. There are plenty of readily available products that are of comparable or better quality and price than most allocated bottles. The exception may be super premium editions such as the Buffalo Trace Antique Collection (a highly sought after set of five bottles including George T. Stagg, William Larue Weller, and three other bottles) or Russel's Reserve 15 which are truly as step above the rest. 

You can find many lists of whiskies that will put the big names to shame in a blind tasting, and here is my quick list of readily available heavyweights:

• Woodford Reserve Double Oaked - Dessert in a cup
• Jack Daniel's Single Barrel: Barrel Proof (Bourbon and Rye) - Phenomenal 
• Maker's Mark Cask Strength or Private Selects - Better than most Weller and pappy
• Old Forester 1910 and 1920 - Cult Classics, they don't want you to know 
• Wild Turkey Rare Breed - The most often mentioned barrel proof warrior
• Elijah Craig Barrel Proof - I prefer the main editions to the single barrels (have gotten some stinkers)

That being said, many people greatly enjoy collecting whiskey as much as drinking it. Bourbon hunting is a hobby with thousands of hours of YouTube content attached to it, and there is something magical about finding a true unicorn bottle at a reasonable price. It is certainly nice to have a hard to find bottle to give out as a gift or open up with someone who has a peripheral understanding of whiskey. If you are interested in building a collection and find the thrill of searching for rare bottles to be enjoyable, I wish you happiness and good luck!

My personal recommendation would is to be aware of what is allocated so if you happen to see a rare bottle at a good price while you're going about your usual shopping you know enough to grab it, but to not go out of your way expending huge amounts of time, money, or effort chasing what may end up being an underwhelming pour. . I would strongly caution you to not buy from the secondary market as it may be illegal, you may be getting fake product, and those purchases perpetuate the incentives that lead to some of the allocation issues discussed above. 

How to Get Allocated Whiskey

If you have decided the bourbon hunting hobby is for you, the best advice is: "It's not what you know, it's who you know." The best way to get your hands on hard to find whiskey is through cultivating a long term and fruitful relationship with your local store. This likely will take some time, effort, and a good amount of money. First you'll want to validate that the store even tries for allocations, not all stores are interested in the headache, expense, or are focuses on moving other product (often wine or vodka). A good indicator of this is if they do their own barrel picks. Most stores that pick barrels have an explicit interest in sourcing good whiskey.

Tips for Getting Allocated Whiskey - Store Relationships

• Don't call over the phone. Most stores in major areas get an overwhelming number of call asking for allocated stock from people who they don't know or who may never otherwise set foot in the store. They'll likely tell you they don't have what you want. 
• Do always have something in your hand. Even if it's Evan Williams or Benchmark, show that you intend to buy something else anyway.
• Do be friendly. Be polite and look for an opportunity to make conversation at checkout without being annoying or holding up the line. Lurk around the bourbon aisle and see if someone asks if you need help. Ask them what they like to drink or if they have any recommendations. 
• Come on Slowly but Make your Intentions Clear - Introduce yourself if possible. Know the manager and usual staff's name. When you feel the time is right, make your intentions clear. State that you are interested in allocated whiskey, plan on stopping by often, and would love to know what their typical process is for allocated stock. 
• Be Open to Alternatives - If they don't have the specific bottle you are after but offer you something else at a reasonable price, take it! A rare find is a rare find, and they're trying to do you a favor.
• Make it a Win/Win - Even places with absurd sticker prices are sometimes willing to make deals. If they have Elmer T. Lee for $250, ask if you can pay MSRP and buy a bunch of Vodka or some store picks. They may even be willing to let it go for a smidge over SRP if it has been sitting for a while. I wouldn't do this at your normal spot, but haggling a bit with a secondary store can be a good strategy if you're respectful. After you've broken the ice with your normal store, do ask them how they get their allocations and if you can shift your buying habits to help them make their goals. Switching from Smirnoff to Wheatley is an upgrade and may check their boxes. 

Alternative Strategies

Without an insider relationship with a store, your changes of getting that special bottle go down considerably, but there is still hope.

• High Frequency Browsing - Look for a big box store that puts all of their stock on the shelf (Costco shelfs pretty much everything they get and they do get major allocations during the holidays) and learn what days they get deliveries. My Costco gets liquor on Wednesday and Friday, so I'll usually stop over for a hotdog and see if anything interesting came in that day. Total Wine and Spec's work similarly, though they'll likely save the really rare stuff for high tier members of their loyalty program. 
• Watch for Drop Days - Some bigger local outlets may publicize that they're doing an allocated drop though social media. You'll likely need to get there very early, certainly before opening, and wait in line, but these can be highly successful. Prices for this type of event are usually pretty good and they may let you go back through the line multiple times.
• Points Programs - Some stores will have points programs by which you get credit for non-allocated purchases and then can exchange them for the right to buy an allocated bottle. If you buy a lot of booze, this is probably one of the better ways to get product reliably. It will take some research to find the right shop and it may require a bit of a drive.
• Lotteries - Keep an eye out for lotteries or charity auctions. If you're planning on donating to a charity anyway, getting the chance at a hard to find bottle is a great bonus. Lots of stores will also do holiday raffles, many with no cost to enter and the prize being the right to purchase at SRP. 
• Control States - Live in or are passing through a control state? It may actually be easier to get some rare bottles. Some states have searchable inventory allowing you to monitor for specific products. In others, it's not legal for store staff to sell themselves booze. They may have their friends come by and grab it for them, but that still gives you a window. Publicly run stores also don't have as much of an incentive to hold back product for only their best customers, so you  may see more rare finds show up on the shelf.

Economics of Allocated Whiskey

With the practical matters out of the way, it is good to understand the operational economics that create the need for product allocations. It is somewhat ironic that many allocated bottles are not intended by the manufacturer to be allocated or limited editions, but the free market moves quickly and has other ideas. 

Bourbon takes a long time to make, typically 4-8 years or more, which means that the total number of bottles available is pretty much fixed at a given point in time. If a producer runs out of 10 year old whiskey, they won't have any more till another year passes, and even then, they are limited to the stock they put in barrels nine years ago. This is even more true for Scotch where maturities are significantly longer than bourbon (often a minimum of 10 years). Demand for whiskey, on the other hand, can change instantly. If an influencer (e.g. Jim Murray of Whisky Bible) or industry competition (San Francisco World Spirits) names a given bottle the best in the world, consumers flock to purchase that bottle. These demand spikes were likely not forecasted by the producer (how could they know that another body would provide a huge marketing boost?). We also see longer term trends such as the Whiskey Booms of the 1980s, 2000s, and COVID-19 period where whiskey enters the zeitgeist and net consumption across all whiskey brand categories increases. 

Charting the Demand and Supply of an Allocated Whiskey

Thinking back to that economics class you may or may not have had in high school, you can see the above chart which shows the typical relationship between supply and demand for a normal good. The orange "demand" line shows that as price decreases, the consumers will typically buy a larger quantity of that product. This is generally because a given individual has a somewhat fixed idea of how much they want to spend on their whiskey hobby over a period of time. The afficionado who would buy a good bottle at $200 likely will still buy that same bottle at $40 and be joined by many more budget conscious consumers. Looking at the gray "supply" line you will see that it goes straight up. This is because the quantity is fixed. If there are only 500 bottles of Russel's Reserve 15, that's it for this year. In a pure market, the ideal price for the supplier would be where the supply and demand lines intersect as that maximizes the orange colored area which represents total sales of the bottle. A real pricing model would factor in the production cost curve and economics of scale, but the point is that the producer will calculate and assign a suggested retail price (SRP) at their best approximation of this market making price. When demand for a an already supply constrained whiskey increases, consumers are willing to pay more for a given bottle than they may have previously, a "scarcity premium". 

Impacts of SRP below Market Theoretical Price of Allocated Whiskey

In this second chart, you will see that the demand line has increased from the first chart to now reflect the market perception that the whiskey is allocated. Those wanting to show off those Blanton's bottles or complete their set of toppers will increase the amount they are willing to pay for a bottle, some by a huge margin. You'll see that the suggested retail price hasn't yet changed. Certain liquor stores may start to raise their prices above SRP to take advantage of this demand wave and secondary sellers start to hoard product in order to try and satisfy the most price insensitive customers. Producers may increase their SRP slightly at this point, but they are already making the margin they desired and may not want to risk alienating the customer base by driving prices up quickly. The producers will instead see the increased demand and seek to increase their production capacity to accommodate (though again it will be years before there is new product from that capacity).  Secondary sellers are far quicker to raise prices and will attempt to extract the maximum price from individual consumers instead of setting a market based price to maximize total volume (their unit volumes are likely too low to make this worth while). What the chart does not show is that the velocity of transactions drops significantly. Secondary sellers will buy up more bottles than they would under a normal consumption pattern which further pinches the already limited supply. Investors may sit on bottles anticipating their value to rise over time. These further demands on an already constrained supply will continue to shift the demand curve up, generating higher prices, until the new theoretical price point is reached. It is worth mentioning that this secondary market sales and investing activity, in addition to being illegal in many jurisdictions, does not benefit either producers, who cannot participate in this price upside, or final consumers, who pay higher prices for the same product. To derive some benefit from the product scarcity without harming their brand or future prospects, producers and distributors will undertake a process to "allocate" what bottles there are to preferred markets or customers, and their control over the scarce supply gives them negotiating leverage to extract favors from those downstream of them.

To Summarize:

• Supply of a given whiskey is essentially fixed at any point in time
• Demand for a given whiskey can change rapidly
• Increased demand with a constrained supply causes price increases
• Producers may be reluctant to raise prices, but the secondary market steps in to capture any upside
• Producers and distributors realize that they have bargaining power and may extract concessions from retailers and consumers downstream of them 

Outro

We hope that you have enjoyed this article. Whether you want to chase allocations and become a bourbon hunter or wish to join me in the occasional bliss of stumbling onto the occasional bottle by happenstance, knowing the dynamics of product allocations is a great way to level up your whiskey hobby. Cheers and good fortune!