Authors: Reid Mitenbuler
“But the Great White Father down in Washington won’t let Publicker dupe the people like that,”
Fortune
magazine responded to Publicker’s antics in 1933. Because of the regulations that had gradually rolled into place since the era of Edmund Taylor, Publicker would be forced to label its whiskey for exactly what it was. The distillery’s response was a $2 million advertising campaign “to reeducate the people,” the company claimed in a way that made it sound vaguely like some sort of Soviet apparatchik attempting to brainwash its customers. Publicker slammed the proven methods, telling customers, “Don’t fill your stomach from a misty old keg.”
Fortune
was skeptical that the public would buy into the shortcuts. “Maybe Mr. Neuman’s whiskey will revolutionize the industry. Or maybe Si Neuman is crazy,” the magazine speculated.
It turned out that Neuman
was
crazy, and his endeavor ultimately failed, despite the enormous whiskey shortage and Publicker’s advertising campaign to change the rules of connoisseurship. Regardless, the lesson bears repeating, because history always repeats itself and similar shortcuts and misleading reeducation campaigns would rear their heads again seventy-five years later, when America would find itself with another influx of new distilleries and shortages of whiskey.
• • •
As whiskey companies rebuilt, the federal government decided to step in and help. It would establish rules and regulations that would replace an industry it couldn’t control before with one that it now could. In the wake of Repeal, legislators scrambled to implement the changes, many of which would favor bigger, more consolidated producers. Thomas Jefferson, from his grave at Monticello, surely bristled.
The new changes were a mixed bag, and continue to this day to affect drinkers. On the positive side, the new regulations helped protect consumers against the kind of corrupt practices that had turned many
Americans against liquor before Prohibition. In 1933, sale directly from the barrel became illegal and spirits needed to be sold in standard bottle sizes, ensuring consistency and limiting adulteration or watering down by middlemen. By 1936, the federal government also determined the standards of identity, setting even more precise guidelines for the manufacture and aging of spirits and ensuring certain quality baselines. As of 1938, anything called “straight whiskey” officially had to be aged in brand-new charred oak barrels for at least two years, which gave consumers a little more clarity about how their whiskey was produced.
One of the other big changes, still in place today though controversial, was the regulation of distribution channels through what is called the three-tier system. Under this arrangement, power was given to the individual states to regulate alcohol sales, and the industry was organized into three tiers: producers, distributors, and retailers. No single entity could own all three tiers, which was a way to limit the kind of monopolizing common before Prohibition. While the system can help improve diversity by limiting monopolies, today it can also make certain small brands difficult to find if none of your local distributors carry them. This is why a small brand produced in California can be hard to find in New York, and vice versa. You can’t simply ask your local retailer to order a bottle of a small brand you’re curious to try—the retailer needs to go through distributors, which often have complicated relationships with various competing brands (the separate tiers aren’t allowed to bypass one another, except for very limited circumstances, like brewpubs). During Repeal, this trifold system created three distinct layers of taxation that were a revenue windfall for the Depression-era government, but it has perhaps outlived its purpose and today increases prices by involving an arguably unnecessary middleman.
At first the federal government gave the whiskey industry a chance to determine its own rules. Unfortunately, the draft plan worked up by the companies themselves was a dismal failure and promptly discarded. No copies of that plan remain today, but it apparently didn’t satisfy Washington’s idea of how an industry with a reputation that was still
festering—and with Prohibitionists still brandishing pitchforks and torches at the gates—should act. The whiskey industry would need to be on its best behavior as it carefully rehabilitated its image (
Time
in 1937 compared it to “baseball after the ‘Black Sox’ scandal,” referring to how gangsters in 1919 had rigged the World Series).
FDR responded by assigning members of his Agriculture Department to help the whiskey industry write its new rules. As part of his New Deal legislation, he also included the spirits industry under his National Industrial Recovery Act, which temporarily suspended antitrust laws. Rules, prices, and production quotas could be fixed, as long as industries spread their workloads to as many people as possible in order to get the nation working again and to generate tax revenue. The antitrust laws were reinstated by the middle of the 1930s, and a few years later the government would ironically investigate the industry for monopolistic business practices—Alexander Hamilton and Thomas Jefferson, wherever they resided in the afterlife, still probably weren’t on speaking terms.
Working with the government, the whiskey industry also adopted a voluntary “Code of Responsible Practices” as part of its makeover. It agreed not to advertise with pictures of women or children or advertise on the radio, so as not to invade the “family circle.” Likewise, it wouldn’t advertise in Sunday papers or appropriate images of “men in the uniform of our armed services.”
Whiskey’s new relationship with the federal government also meant more lobbying, more traveling to Washington and sitting around smoking cigars and drinking whiskey with influential lawmakers. The new lobbying organ was called the Distilled Spirits Institute, otherwise known as the DSI, and its initial leadership consisted primarily of Owsley Brown, president of Brown-Forman; Samuel Bronfman, head of Seagram; Seton Porter, head of National Distillers; and Lewis Rosenstiel, head of Schenley.
None of these men, however, offered the kind of charm or other qualities needed to serve as the organization’s official head. Owsley Brown’s company was much smaller than his counterparts and would
have struggled to wield influence. Seton Porter seemed like a perfect fit—he was a Yale-educated WASP and a “gentleman whose best recognized attribute was his Racquet Club orientation,” according to his profile in
Fortune
magazine. But a large portion of his company, National Distillers, consisted of companies that had once resided under the Whiskey Trust, a connection the industry would have wanted to downplay. Then there was Samuel Bronfman, who headed the biggest liquor company in the world but was Canadian, making it problematic for him to serve as the official face of an organ dedicated to lobbying U.S. lawmakers. Besides, Bronfman lacked the needed charm. The
New York Times
once described him as “mean, tough, ruthless and unbelievably bad-tempered. He swore so often and so indiscriminately that his employees were sometimes not sure whether he was angry at them or merely making conversation. Like many other autocratic types, he was famous for things like cracking the glass top of his desk with his bare hands and throwing ashtrays at his subordinates.”
But even more problematic than Bronfman’s personality was his company’s checkered past supplying bootleggers during Prohibition. His background was always suspect, although it wouldn’t be until the 1950–51 U.S. Senate investigation into organized crime known as the Kefauver Committee that the gangster boss Frank Costello would testify that Bronfman was one of his main suppliers during Prohibition (Costello, along with Carlo Gambino, was the inspiration behind Vito Corleone, Marlon Brando’s character from
The Godfather
). These were connections that Bronfman would spend his whole life trying to hide, and in a 1979
New York Times
profile of him the great Nora Ephron wrote that “Bronfman never told the truth. From the time of Repeal until his death in 1971, he devoted himself to erasing his past. He gave millions to charity, spent hundreds of thousands printing sanitized versions of his company’s history. His desire for respectability became so great that he claimed to have been born in Canada instead of Bessarabia.” Ephron then pointed out that Bronfman was a human embodiment of a very complicated industry. “The distribution empire Bronfman built with mobsters and former bootleggers and then with their Harvard-educated sons is
fascinating,” she wrote. Regarding his own past and links to organized crime, Bronfman typically offered only wry smiles and knowing winks, once commenting, “It would be a fascinating story, if I could only tell the truth of what happened.”
That left Schenley’s Lewis Rosenstiel as the last big liquor company head to potentally lead the DSI. The problem here, however, was that Rosenstiel’s career was just as suspicious as Bronfman’s. He had built his company by purchasing shuttered distilleries just as George Remus had done, and in 1929 he had been indicted, although never convicted, on bootlegging charges. (It wouldn’t be until the 1970s, when the state of New York investigated how deeply organized crime had infiltrated legitimate business, that witnesses would discuss the connections Rosenstiel had to gangsters like Meyer Lansky and Al Capone. Indeed, Lansky himself once complained, “Why is ‘Lansky’ a gangster, and not the Bronfman and Rosenstiel families?”) His past notwithstanding, Rosenstiel’s personality was also so prickly that years later the
New York Times
had no qualms about describing him, in the first lines of his obituary, as “a domineering man with a quick temper.” He was also widely rumored to be bisexual, which certainly would have flown in the face of the era’s social prejudices and the whiskey industry’s attempts to cultivate a more family-friendly image. One of his many ex-wives even claimed she once saw him having sex with two boys as FBI director J. Edgar Hoover—an acquaintance of Rosenstiel’s and widely rumored to be a homosexual and cross-dresser—wore a dress and watched from the bedside. The ex-wife later admitted that she had made up the claim to smear Rosenstiel’s character, and would do prison time for perjury, but the incident nonetheless demonstrated the highly negative feelings the man stirred in others.
So with that, it was determined that none of the big whiskey company heads was suited to serve as the public face of the industry’s main lobbying arm. What DSI needed was a “Tsar of high power, smoothness and influence,”
Time
speculated
.
With this in mind, all of the company heads met to discuss who would lead the organization. Their choice would become part of the industry’s new image, but the part nobody ever really sees: W. Forbes Morgan, DSI’s new executive director—or as
Time
called him in its business section, the “Front Man.” A pillar of respectability, Morgan was the nephew of J. P. Morgan, uncle by marriage to Eleanor Roosevelt, and had personally raised $2.7 million for FDR’s first campaign as treasurer of the Democratic National Committee. His Oxford accent—a result of his transcontinental upbringing and schooling at Eton—was part of the soundtrack of FDR’s inner circle, and the photograph accompanying his announcement showed him wearing a sumptuous silk necktie nailed to his chest with a diamond pin the size of a doorknob. He was plugged into just about every power socket imaginable, and his confirmation happened at the Waldorf Astoria Hotel, right where it should have been.
In more ways than one, bourbon was moving into the modern age.
J
ust as bourbon found itself recovering from Prohibition, struggling to regain its footing during Repeal, the outbreak of World War II once again shattered the industry. Shortages loomed: rationing measures for grain shut down distillation between 1942 and 1946 and distillers were forced to stretch aged stocks with grain neutral spirits.
*
Soldiers on the front were grateful to drink anything they could get their hands on—troops drank their Aqua Velva aftershave, according to James Jones in his novel
The Thin Red Line,
while sailors filtered the denaturants out of torpedo fuel and drank that.
But even though bourbon production ceased during the fighting, most distilleries found themselves busier than ever. The War Production Board took control of the industry after Pearl Harbor and converted distilleries from the production of beverage alcohol to industrial alcohol. Lewis Rosenstiel at Schenley commissioned the construction of a modified column still to make high-proof, industrial alcohol quickly, then handed the plans for it over to other distilleries at no cost. Schenley also marshaled its large stable of chemists for the war effort, directing them to work on penicillin production, which relies on the growing of mold in a way similar as is required to grow yeast.
The spirits industry called its wartime production of alcohol “cocktails for Hitler.” One gallon of industrial alcohol was required to manufacture every 155-millimeter howitzer shell, while the construction of a single jeep required twenty-three gallons. In total, roughly 126 million gallons were used just for antifreeze, and the synthetic rubber for tires, hoses, and the rayon for parachutes required over a billion more gallons. Overall, the spirits industry supplied 44 percent of the 1.7 billion gallons of 190-proof industrial alcohol used during the war. Taxes on whiskey that had been aging since before the war increased from $3 per gallon in 1941 to $9 per gallon by war’s end, raising over $6 billion for the fighting.
The United States continued to look abroad for whiskey imports, but its best suppliers were also crippled by the war. The British government confiscated trucks owned by scotch distilleries for military use, and any scotch that did make it out for export was threatened by German U-boats. U.S. newspapers reported on aged whiskey stocks the same way it would report on strategic petroleum reserves after the Arab oil embargo of the 1970s: as a matter of national security. Drinkers stormed liquor stores and hoarded bottles as the government and distilleries pleaded with them to keep calm and share the wealth. A surprisingly populist ad for Hiram Walker’s Imperial brand blended whiskey featured a shark chasing minnows and read, “There can’t be feasts for the big or there’ll be oblivion for the little.” Hoarding whiskey meant that “someone else may be underfed,” the ad continued. As long as everybody maintained a cool head, there would be enough whiskey to go around, the liquor industry assured drinkers.
The whiskey industry deserves credit for its wartime contributions, but actions during war are rarely black and white. Industry leaders had proved themselves patriots, but not entirely selfless ones. In 1944, Congress charged the whiskey industry with attempting to boost its profits by circumventing measures set by the wartime rationing board. The accusation came after reporters noticed that distilleries possessed nearly double the stocks of aged whiskey that they claimed publicly. A subcommittee of the Senate Judiciary Committee asserted that the DSI misled the public when it ran ads in hundreds of newspapers—titled
“The Truth About the Whiskey Shortage” and signed by fifty-seven liquor company executives—that cited the lower numbers for aged whiskey, which were subject to price controls. The blended whiskies offered to the public instead were more expensive than they should have been because the neutral spirits used in them weren’t subject to the same wartime price ceilings. (The biggest brand of the war was a Schenley label called Three Feathers, which was only 5 percent straight whiskey and 95 percent neutral spirits that, because of grain rationing, were typically made from potatoes or cane sugar.) Whiskey makers were hoarding the good stuff to sell after the war, when rationing measures would be lifted and it could fetch a higher price. Coordinated efforts to misrepresent supply in order to manipulate prices were a violation of the Sherman Antitrust Act. Since the Big Four now owned 70 percent of the nation’s whiskey, they were spearheading the industry’s slide toward “monopolist tendencies,” the lawmakers concluded.
The incident was an echo of whiskey’s checkered past as well as a lesson for its future. Americans will always love bourbon unconditionally, but the companies responsible for making it will forever be tempted to step out of line. Today, the industry is regulated by the Alcohol and Tobacco Tax and Trade Bureau (TTB), which still occasionally finds distilleries in violation of federal regulations. For instance, after 2010, when markets hummed with whiskey’s resurgent popularity, various non-distiller producers increasingly began implying to customers that they were making whiskey themselves instead of sourcing it from somebody else. A handful of brands were hiding their whiskey’s origins for marketing purposes, a violation of Section 5.36(d) of the Code of Federal Regulations. Around the same time, with companies finding that bourbon’s popularity had stretched whiskey supplies thin, other companies started to present age statements in questionable ways. In some cases, companies choosing to drop age statements from their labels continued to include the numbers on the label and only removed the words “years old” from under them, suggesting an age that the company technically didn’t have to honor (this was the case with Very Old Barton, Old Charter, and numerous others). It wasn’t officially
illegal, so the federal government couldn’t do anything about it, leaving vigilant whiskey writers to warn consumers about the practice.
But even though whiskey companies will occasionally veer from the straight and narrow, whiskey-loving Americans will always forgive them. During World War II, customers seemed less concerned about whiskey’s misdeeds than they were with simply finding a bottle of the stuff. Shortages being what they were, Americans reluctantly turned to substitutes. An enchanting potion Americans initially referred to as “cactus wine” began creeping over the southern border. Drinkers eventually learned that it was called tequila, and greeted it with suspicion that bordered on hostility, as if this strange new spirit distilled from the agave plant was planning to steal bourbon’s job. “The only liquor I have ever tasted that I regard worse than tequila is slivovitz,” cocktail book author David Embury wrote in 1946. Embury told readers that tequila’s odor could be offset with a “dilute acid,” concocted by mixing salt and citrus juice. The “Mexican Itch” was born, a move consisting of licking salt from the back of one’s hand, sucking on a lime wedge, and downing a shot of tequila. Slamming the empty shot glass down on the bar and picking a fight with the bouncer was optional.
It would be decades before tequila got a warmer embrace in the States. In the meantime, cheap and plentiful rum, courtesy of Caribbean distillers that hadn’t been shut down during the fighting, saw sales triple between 1941 and 1945. The Bacardi brand was a particular favorite, owing to its having been smuggled into the United States during Prohibition. That made it a sparkling jewel that big liquor companies wanted for their portfolios—they had started buying up nonwhiskey brands to diversify their product lines and insulate themselves from whiskey shortages. Lewis Rosenstiel at Schenley won the scramble for Bacardi’s coveted import and distribution rights and began promoting it heavily. For a time, rum regained some of the popularity it had lost during the American Revolution. Liquor companies reminded people that grain was needed for the war effort, thereby making rum the patriotic alternative.
Of course, Americans weren’t always thrilled with the alternatives,
and hoarded whiskey whenever they could find it. The big liquor companies continued trying to spread demand to the variety of new products in their portfolios, but whiskey demand continued to overwhelm, and bootlegging remained a problem. In 1943, one liquor store in Washington, D.C., announced that it had eight thousand bottles of bourbon and rye just in time for Christmas, slashing prices on gin and rum to free up shelf space. A giant mob waited ten freezing hours outside for a chance to carry away a bottle. “The public is behaving very badly about the liquor situation,” a Chicago-based representative of Hiram Walker moaned to reporters in 1944. “When they go to a store and can’t get butter, they realize there’s a war on. But when they can’t get whiskey, they raise hell.”
• • •
Even though the war ended in 1945, Americans still had to wait one year more for the return of regular whiskey production as Prohibitionists waged their last attack. Drys argued that grain was needed for the livestock that would feed a war-torn and starving world. This was the kind of argument they would have won before World War I, but the Prohibition movement was now facing a much more formidable adversary. The whiskey lobby responded that spent mash was actually better as animal feed than unfermented grains. The whiskey industry, therefore, was doing world hunger a favor by making as much whiskey as possible. The knockout punch thrown, distilling resumed with no restrictions on production. The war had brought the nation out of the Depression, and as soon as the whiskey was ready, all the discretionary income of the booming postwar economy would be waiting for it.
Whiskey companies had come together during the war, but now, with the fighting over, they turned their attention back to competing with each other. Victory would go to the outfits that successfully predicted what the market most craved. Would drinkers choose full-bodied straight whiskies, or the blends that had been intended as a holdover but that some drinkers now preferred? Schenley, Stitzel-Weller, Beam, and Heaven Hill bet on straight bourbon, forecasting that America
would return to robust, rich flavors. Seagram, however, went the opposite direction, speculating that blends would dominate. Other companies hedged, balancing portfolios between the two styles. When the market showed its hand, everybody won the pot. Straight whiskey came back, but the blends still kept a sizable portion of sales. Straight whiskey went from 12 percent of the market in 1946 up to 40 percent by 1955 (it would be half by 1963, although sales fluttered up and down during the 1950s). Blended whiskey fell from 88 percent in 1946 to 60 percent by 1955.
All this time, American whiskey’s eternal battle of big versus small, each side represented by its respective patron saint of Alexander Hamilton or Thomas Jefferson, continued unabated. This fight would be a zero-sum game, and continued to tilt in Hamilton’s favor. Between 1933 and 1958, the number of distilleries fell from 130 to 76 as control of the industry pooled into the hands of a smaller number of larger corporations, dominated by the Big Four, which now controlled more than three-quarters of the market. Labor and other supply shortages would also force many distilleries out of business or into consolidation rounds.
Eventually, the number of conglomerates would also begin acquiring each other—from 1938 to 1958 the number of holding companies fell from 110 to 35. The conglomerates were like a pod of whales that had grown big on schools of fish—when the fish ran out, the whales started eating each other. They grew so big that throughout the 1950s, each of the Big Four was consistently listed among America’s top ten advertisers, alongside companies like General Motors.
Fortune
magazine reported that whiskey was essentially becoming a giant “banking and inventory business.”
Whiskey’s consolidation rounds were a perfect symbol of the rest of the postwar business world, where integration and diversified portfolios meant the reduction of financial risk. The Big Four were no exception. “The giants are turning increasingly to other fields of endeavor,”
Barron’s
reported. National was still making Old Taylor, Old Grand-Dad, Old Crow, and fifty-five other liquor brands, but it also decided to invest $82 million in the chemical industry, changing its name to the National
Distillers and Chemical Corporation. Seagram got into oil exploration and Schenley created a toiletry and pharmaceuticals division. Not all of these endeavors were as lucrative as making whiskey, but the U.S. Justice Department had begun to frown at the rate at which the Big Four were purchasing their smaller competitors, forcing them into other pursuits.
As more brands came under control of the conglomerates, these giants began trading the labels among each other as if they were baseball cards. If a company had too many whiskey brands and not enough gin brands, it would trade with a company that found itself in the opposite scenario. Just as they had done during Repeal, the companies continued to buy up small brands simply to discontinue them so the market could be focused on fewer star players.
Barron’s
in 1954 noted the trend “in the whiskey industry toward a concentration of consumer preference in a relatively small number of recognized brands—the same trend at work in the automobile, beer, and cigarette industries. The largest distillers now account for an estimated 75 percent of the U.S. market, with the five best selling labels doing over 40 percent of the business.” Tracking who owns what is to this day a full-time job, since the portfolios shift every year, everyone rebalancing depending on how their brands prosper and where they think the overall market is headed.
The Four Roses brand is a perfect example of how consolidation affected many once-famous labels. The brand was widely respected and had roots legitimately stretching back to the 1880s—it had drifted under the Frankfort Distilleries umbrella during Prohibition, but family shareholders wanted to sell it during World War II. In 1943, Seagram swooped in and saved the brand from extinction by purchasing it for $42 million. Then Sam Bronfman gutted it after the war by turning it into a blend, because that’s where he had wagered the market was headed (it continued to be sold as a straight product for export markets). Immediately, the once-respected brand gained a reputation as cheap rotgut.