A recent blog post discussed how many consumer package good companies are realizing how climate change is affecting their respective profit margins and operating profits. Other than this entry in 2006, very little has been written or talked about how bourbon distillers are affected by climate change. Yet, nothing threatens the continued growth (bubble?) in bourbon sales than changes in climate. Climate change affects bourbon's manufacturing stage. Following the distillation process, the unaged alcohol (usually called moonshine) is poured into white oak barrels until filled and then plugged. The barrels are placed in multistory, unheated, and non-air conditioned barns referred to as rick houses. The barrels are then moved within the rick house in attempt to provide a more even aging process.
The summer heat and the winter cold push the bourbon in and out of the wood barrels. This movement gives the bourbon its flavor. The longer the bourbon remains in the barrel, the more flavor it takes on because the seasons affect the taste.
Climate change is altering this process, though, with shorter, more intense weather systems. Instead of a several consecutive days of cold temperatures, bourbon distillers are experience brief temperature drops followed by dramatic climbs. The summers are also getting longer. The average daily temperatures are rising as we continue to record hotter years.
Given how the weather patterns directly influence the market offering, it is startling how little the industry trade groups are talking about the issue. The Kentucky Distillers Association nor the Distilled Spirits Council of the United States mention climate change on their respective website. The Distilled Spirits Council of the United States lists several public policy issues but none deal with climate.
Today, most bourbon distillers are enjoying superior financial performance. Resource advantage theory states that societal resources such as weather patterns affect the competitive process. Consistent with R-A theory, we would expect that climate change will alter the competitive position for bourbon distillers. In turn, we would expect them to achieve either parity or inferior financial performance because climate change will alter the market offering to probably no longer meet the demands of a market segment.