Podcast: Whiskey, Tango, Foxtrot.
Posted on October 25, 2019Whiskey, Tango, Foxtrot. The inside scoop on how Trump administration tariffs are hurting America's spirits industry. .
John Feehery: Whiskey, tango, Foxtrot. The Feehery Theory starts right now.
Adam Belmar: The Feehery Theory Podcast brought to you by EFB Advocacy.
John Feehery: We are talking whiskey today, not Foxtrot or tango. Joined by two experts in the field of whiskey, bourbon, tequila, all kinds of thing. We're going to talk trade and tax policy, but also going to talk taste. How does some of this stuff taste. And we are so honored to have two really huge experts in the field. First, Chris Swonger, who is the CEO, chief executive officer, of the Distilled Spirits Council of the United States, DISCUS. And Frank Coleman, who's been there for what, 20 years, 30 years, forever?
Frank Coleman: 17.
John Feehery: 17 years. One of the true giants in the field. We're really glad to have both of you here today. Chris and Frank, welcome to the show. Glad to have you on.
Chris Swonger: It's good to be here.
John Feehery: This is a good time for the liquor industry, but it's a little bumpy, isn't it, Chris? They got this tariff stuff. What's going on with this tariff stuff when it comes to the spirits industry?
Chris Swonger: Great question. Well, first and foremost, the spirits industry has enjoyed nine straight years of consecutive growth. So, consumers have really been gravitating, male, female, to the taste of distilled spirits and whiskey and so forth. And there has been massive growth, in particular for American whiskey and bourbon.
Chris Swonger: Over the last couple of years, we've hit some turbulence as it relates to the international trade wars, with the Trump administration taken a fairly aggressive posture to address some longstanding trade barrier issues with China, the EU, and other markets. Unfortunately in June 2018, our friends in Europe imposed a 25% tariff on American whiskey, which is resulted in a 21% decline in exports in American whiskey to Europe. This was all in relation to the section 232 steel and aluminum-
John Feehery: So it had nothing to do with whiskey, had everything to do with steel?
Chris Swonger: Completely. And that was really, really, really unfortunate. So, many of our member companies have been struggling with that, and just over the last couple of weeks, something completely separate to the steel and aluminum battle, the World Trade Organization in the US, for many, many years, like 17 years have been grappling with trade subsidies or related to Boeing and Airbus.
John Feehery: Right.
Chris Swonger: And just last week, unfortunately, the WTO came out with a ruling to penalize Europe and Airbus, and as a result of that, I regret to report that our friends in the Trump administration imposed retaliatory tariffs on the Europeans on single malt scotch, single malt Irish whiskey, in great Cordials and Liqueurs.
Chris Swonger: So, both of these issues are unrelated to our industry. Our industry is enjoyed particularly in Europe, which is a significant market for American whiskey. In the US is a significant market for European spirits. Since 1997 I've enjoyed zero [inaudible 00:03:26] zero tariffs. And that has resulted in 450% growth in imports and exports, back and forth between us in Europe. And $6.7 billion worth of economic development, and it's just been really, really unfortunate because not only has a direct impact on consumers and the companies, it has an impact on smaller Craft Distillers.
Chris Swonger: We work very, very closely with our European counterparts. What's unique about our industry is we're very, very connected. Many of our member companies will, there'll be American companies and they'll own scotch.
John Feehery: So let's put this in a framer. So, many of your companies are international in nature. They both have European subsidies, subsidiaries and American conglomerates, the whole nine yards, the European union hits ... When they're hitting an American company or American whiskey, they're kind of hitting themselves, right?
Chris Swonger: Totally, totally. It's back and forth.
John Feehery: When the Trump administration does that, they're hitting themselves. That makes no sense.
Chris Swonger: It's really, really unfortunate and I think it as a result, we've used the term, we're collateral damage. And what we're doing is calling on the Europeans and the Trump administration to get to the negotiating table, really calling on our European friends to end the tariff on American whiskey. And as a result, we think we'd be in a better position to encourage the Trump administration to end the tariffs on Cordials, and Liqueurs, and single malt scotch and Irish whiskey as well.
John Feehery: Talking about Irish whiskey, do we have any here, Frank?
Frank Coleman: We do. In fact we have this great Redbreast ...
John Feehery: Well, could we get a little try of this right now? [crosstalk 00:05:10].
Frank Coleman: This is actually owned by the French, the Pernod Ricard, which also owns a number of American brands, and okay, so let's see.
Chris Swonger: Irish whiskey has enjoyed dramatic growth in the US market over the last five, 10 years. Frankie can elaborate on it-
Frank Coleman: Yes.
Chris Swonger: ... But I think almost like 400, well over 400 plus percent growth. I can't remember the [crosstalk 00:05:35] but it's significant.
Frank Coleman: Actually, since 2002 ... Hang on because you want to add a little water because this is a pretty high ABV.
John Feehery: Frank, what does ABV mean?
Frank Coleman: Alcohol by volume.
John Feehery: Okay.
Frank Coleman: It's how they measure alcohol. So this is a 92 proof. So it's-
Chris Swonger: 46% alcohol.
John Feehery: It's only a little bit, let me give it a try first.
Chris Swonger: We're committed to consuming in moderation.
Frank Coleman: Yes, absolutely.
John Feehery: Oh, this is pretty rough.
Frank Coleman: Yeah.
John Feehery: It tastes good though.
Frank Coleman: Yeah, no, no, that's [inaudible 00:06:06].
John Feehery: All right, fantastic, fantastic. All right.
Frank Coleman: There you go.
Chris Swonger: It didn't take your head off, did it John?
John Feehery: It did not take my head off? I'm no rookie when it comes to drinking Irish whiskey. My favorite is, and I don't want to pick favorites in the show, but my favorite is Jameson 18 year.
Frank Coleman: Oh yeah, yeah, yeah. It's the same company.
John Feehery: Yeah. It's fantastic.
Frank Coleman: This is made down at Midleton where they make all the Jameson.
John Feehery: And so when we're talking about-
Chris Swonger: Sweet.
John Feehery: So we're not only hurting, obviously American distillers, but we're hurting Irish distillers and most importantly we're hurting American consumers.
Frank Coleman: And farmers, and everybody connected with our industry-
Chris Swonger: The whole supply chain.
Frank Coleman: ... Across the board. And it's just really unfortunate because there's been ... It's a photo picture of what free trade is all about. The success of the US and the European spirits markets and the growth that we've enjoyed over the last 25 years, since 1997. So we've certainly hit some headwinds since June 2018 and we're going to do our best to try to navigate it and get both governments at the negotiating table.
John Feehery: So Chris, tell me, you just started at DISCUS, tell me a little bit about the organization. Tell me how long it's been around. Tell me about what you're supposed to be ... Who you represent, and how you advocate.
Chris Swonger: Great. Great. Well thank you. So, I had the privilege of being ... Working for two member companies at DISCUS a long time ago for 15 years, Beam Global at the time. And another company called Allied Domecq Spirits and Wine. And then, I transitioned and work for a global engineering company for 10 years and loved that. And then the opportunity came along to come back into the industry, and I really had the privilege of leading the Distilled Spirits Council of the United States. In addition to that, I also lead a separate organization called Responsibility.org.
Chris Swonger: DISCUS has been around since 1971 and is really the industry-leading trade association on behalf of the distilled spirits industry. We had the privilege of representing 15 great companies that set and reside on our board, American multinational companies. And then we represent 95 Craft Distillers as well. These are the smaller Craft Distillers all around the country.
John Feehery: And they're cropping up all over the place. There's like a Craft Distillers here in Washington, DC.
Chris Swonger: [crosstalk 00:08:35] all over. And then, Responsibility.org is really the industry's arm focused on combating underage drinking, drunk driving and promoting responsible consumption. And what's amazing on that front is underage drinking has been at its lowest levels ever recorded. Binge drinking on college campuses is at its lowest levels that it's ever been recorded. So we got to continue to keep that going down. And drunk drive and fatalities, just yesterday as a matter of fact, the national highway traffic safety administration released numbers that we've got a 3.6% decline and drop in drunk driving fatalities.
John Feehery: I think that's because of your efforts, they're also because of Uber. Kids take Uber, parents, adults take Uber. I think that's an important responsibility. The fact is that drunk driving laws are the reality. People shouldn't drive when they're drunk and you have so many other opportunities to take, other types of transportation, which we didn't have when we were growing up. And I will say this though, I bet you kids are not binge drinking Redbreast because it's probably too expensive.
Frank Coleman: Oh, that's true. This 15 year old [crosstalk 00:09:47].
John Feehery: So what's the next thing we were drinking here?
Frank Coleman: Okay, why don't we turn to the home team product.
John Feehery: All right, let's do that.
Frank Coleman: Okay, there's been a huge growth in rye whiskey of late. Basically the market, we're in the golden age of distilled spirits. There is more diversity, gold made for consumers really. So there's more diversity, there's more innovation, there's more quality than there's ever been in history. So, this is a good example of it. So this is a Jim Beam product, Basil Hayden, it's normally ... This is a Basil Hayden Rye, but they blended with Canadian rye, so it's American rye blended with Canadian rye and some port whiskey added ... Port wine edit in addition.
John Feehery: Let me try that. Let's give it a shot.
Chris Swonger: It's good. I had some last night. It's the first time I've had that. I had that last night. We did an event with the American chemistry council because of the nature of making great distilled spirits, there's an element of chemistry and this is an amazing brand.
John Feehery: Now, am I supposed to sniff this?
Frank Coleman: Yes, you are. And, they bring this out, a special edition every year.
John Feehery: Okay.
Frank Coleman: This is the 2017, but there is a 2018 and 2019 as well.
John Feehery: Now when you drink really nice whiskeys, are you supposed to kind of do the same thing as you do with the wines or is that a different-
Frank Coleman: You definitely know, and I can show you how to do that.
John Feehery: This is good. I like this [crosstalk 00:11:14] it's really good. It's a unique type of thing [inaudible 00:11:16].
Frank Coleman: Totally, total innovation.
John Feehery: I don't want to screw up too much [crosstalk 00:11:20] really, really good. Wow.
Frank Coleman: Okay. But the water actually has a chemical effect. It opens it up.
John Feehery: Oh, is that right?
Frank Coleman: Yeah. And so you [inaudible 00:11:28] it. And so if you-
Chris Swonger: Does it blossom?
Frank Coleman: If you put it under your nose and inhale through your mouth.
John Feehery: Okay. I'm not going to inhale through my nose, right? Well that's good. Whoa, wow. Chris, let's talk a little bit about Congress passed a pretty revolutionary tax law a couple years ago. I was in favor of it. We were trying cut the corporate rate to a more responsible place. There was all kinds of other ... Like any tax law, there's all kinds of things that happen to them. That wins and losses, how did you look at it? Was it a good thing for the industry or was it complicated?
Chris Swonger: Well, this was before I joined DISCUS, but an amazing thing that Congress did in signed by the president at the time was the passage of the Craft Beverage Modernization tax reform Act. And essentially, distilled spirits is one of the highest tax consumer products on the planet. And that's what's so troubling about the tariffs, because you're adding tariffs on top of the barely high tax product. But essentially what the Craft Beverage Modernization tax reform Act did, is provide a tax break, particularly for the Craft Distillers that were just starting up, where it would take the tax rate, which is $13 and 50 cents by proof gallon down to $2 and something.
John Feehery: Oh, that's great.
Chris Swonger: And just for 100,000 gallons. So what that would do, would enable these Craft Distillers to be able to invest back in these small distilleries that are propping up all over in communities all around the country. That was a two-year authorization and we're working very, very hard to try to get the Craft Beverage tax reform Act. It's a mouthful pass [crosstalk 00:13:16] yeah, passed by Congress at year-end, hopefully on a tax extenders bill. But today we've got 299-
John Feehery: Co-sponsors.
Chris Swonger: Co-sponsors on the house side and 71 on the Senate side. So, in this very politically divisive environment that we're living in today, that legislation enjoys great bipartisan support because I think lawmakers are seeing what's happening with distilled spirits in their communities, with the emergence of Craft Distillers over the last 12, 15 years, and it really will make a difference in those distilleries being able to invest back into their communities in growing jobs. And it could be one job or two job at a time at a distillery, but it makes the big, big difference.
John Feehery: Well, the thing about it is, you give people some local control and local flavor. The big guys like it because sometimes they can invest in some of these smaller guys-
Chris Swonger: Absolutely.
John Feehery: ... And the innovation that comes from there. And everyone wants to kind of buy the local stuff, to see what it's like so that local flavor is really, really important. So when you walk into a member of Congress or Senator's office and say, "Hey listen, this is really important," what are the top two points you try to make to them?
Chris Swonger: Really the economic development that this will generate in their particular community. There are 2000 Craft Distillers, give or take, all around the country. So what's beautiful, and this happened when I was in the industry 12, 15 years ago was the very beginning stages of the rise of the Craft Distiller Movement. So what is amazing now is there are Craft Distillers in almost every congressional district.
John Feehery: Absolutely, yeah.
Chris Swonger: And that generates tourism, local development, a great spirit of liberalization-
John Feehery: Community.
Frank Coleman: Modernization of the laws.
Chris Swonger: All of the above. So, we're very bullish on making sure that this gets passed by [inaudible 00:15:10].
John Feehery: And DISCUS is kind of at the tip of the spear to kind of pass some of these things and getting this reauthorize, right?
Chris Swonger: Absolutely. And we're working with our industry partners as well, but certainly, DISCUS is playing a leading-
Frank Coleman: And it does have an impact on beer, wine, and spirits because that was one of the beauties of the bill, is that it tied the entire industry together.
John Feehery: Everybody was together. And that's going to get to my next question. Before I do that, I want to tie ... What's the next one we got here?
Frank Coleman: Stay with the home theme product, bourbon.
John Feehery: Yeah, let's do the bourbon.
Frank Coleman: This is a great bourbon, Blade and Bow, it's produced by Diageo, a global company, the largest. And basically, it's a Solera system where they're blending different bourbons from their old Stitzel-Weller distillery, which is where the original Pappy came from.
John Feehery: And so to be a bourbon, you got to be in Kentucky, is that right?
Frank Coleman: No, you have to be in the US.
John Feehery: You have to be in the US, Okay. All right. Oh, I was wondering about that.
Frank Coleman: And there's a great story about how they ... The rule is you have to be in a charred new oak barrel. And that was a Wilbur Mills deal when he was a freshman on the ways and means committee in 1964. Yes, they were reauthorizing the alcohol administration act and his, the largest crop of his Northern Arkansas district was Oak.
John Feehery: Is that right?
Frank Coleman: He codified one, in essence, was a historic situation anyway, but-
John Feehery: Which is an amazing story. What's cool about it is, so bourbon has to be made with a new Oak barrel.
Frank Coleman: Charred.
Chris Swonger: Charred new oak barrels. So when those barrels are used in making bourbon, typically they're shipped over to Scotland. The Scots will use the used barrels to age their scotch. So that's just another element on how this industry is so connected and what's brilliant about the industry, from George Washington obviously being the nation's, one of the nation's first distillers, to the whiskey rebellion, there is so much rich history and elements of the American story, and it's continuing as we speak with the development of the craft bourbon and craft whiskey phenomenon that's happening. So it's just really a special industry-
John Feehery: That's good, that's really good. So let's say, that's the most interesting thing about where you are coming from.
Chris Swonger: George Washington was the original Craft Distiller.
John Feehery: He was original Craft Distiller. Then you had the whiskey rebellion as you pointed out. But we also had what I call the darkest age in America, and there's a lot of other dark ages, but for me it's very, very personal, and that is prohibition, which is an example of extremism. And the distillers lost, everybody lost. Every lost when prohibition happened. And so your job is actually really important, because if you don't protect this industry and something can go haywire, things can go really bad really quickly. And so, more power to you.
John Feehery: And then I think that that's why advocacy is so important when it comes to all kinds of things, but especially the spirits and all the other things. Now I'm all of the above type trigger. I like whiskey, I like tequila. I really, really like beer. I met Bret Kavanaugh, but I like wine. Talk about the interplay between all the industries. Sometimes you guys are kind of working together and sometimes not so much.
Frank Coleman: Some of our members actually own all three.
John Feehery: Right, I know.
Frank Coleman: Take like Constellation, they own a great tequila, Casa Noble, and they own Svedka vodka and of course their Robert Mondavi wine and then their Corona beer.
Chris Swonger: In large part, we work, DISCUS works very, very closely with the Wine Institute and wine America, and the Beer Institute and the Brewers Association. So 85% of the time we're in collaboration together. We're all committed to responsibility, which is an important element of it. Every once in a while you'll get some jocking, the spirits guys are competing with beer, and that happens everyday-
John Feehery: But you're taxed higher than everybody else, right?
Chris Swonger: We are, we are.
Frank Coleman: Except on that first 100,000 gallons.
John Feehery: Right. First 100,000 gallons. But that's a legacy of your blue laws, right?
Chris Swonger: Exactly.
John Feehery: And that's really hard to stop that.
Chris Swonger: Exactly. Exactly. And we [crosstalk 00:19:23].
Frank Coleman: That's why the tax bill was so [inaudible 00:19:26].
Chris Swonger: And we're still continuing with blue laws every day in the States. But, it's an amazing industry and it's a real privilege to represent and advocate for it.
John Feehery: Like for example, Jack Daniels is made in a dry county.
Chris Swonger: Exactly.
John Feehery: Which is very strange.
Frank Coleman: They passed a law, now you can have liquor in there.
Chris Swonger: You can have a tasting.
Frank Coleman: At the place, yeah.
John Feehery: So guys, thank you so much for coming on the Feehery Theory Podcast, brought to you by EFB. We have one segment of the show, which I think is really important. Some people don't think it's as important, but I love it. And that is what are you buying or selling today? What are you buying or selling today? The topic basically is whatever youth want, whatever thing that you have in your craw that you want to get out and tell people about.
Chris Swonger: Here's what I'm selling, just a couple of months ago, we launched it at DISCUS, a grassroots platform called Spirits United. It's really bringing and harnessing the pride that exists within our industry, to be advocates for our industry. So, for all your listeners, sign up www.spiritsunited.org, and it's an advocacy platform. So we're looking for consumers, everybody in the industry to sign up to Spirits United. If you're a consumer and enjoy these great products, that's what I'm selling. Sign up for Spirits United and help us get that craft beverage bill passed by [inaudible 00:20:56].
John Feehery: Excellent. Frank, what are you buying or selling?
Frank Coleman: I'm selling our annual convention, which is a first annual convention that we've ever done. It's going to be in Louisville in February and you can get it, you can get more information by going to distilledspirits.org. You can sign up to attend or sponsor or what have you.
Chris Swonger: It won't be a bad conference.
John Feehery: Won't be a bad ... I'm buying a wonderful woman who used to be a nanny to my daughter and son Jack and Molly.
Chris Swonger: Mimi.
John Feehery: Mimi Johnson, who I hope is watching the podcast today. She's a great American, a great immigrant from Ethiopia, one of the truly great spirits I've ever met in my life. And she's been a big part of both of our families. And I just want to say, Mimi, if you're watching, we love you and we're glad that you're watching and we know you don't drink, so we drink on your behalf. With that, let me just say thank you guys and cheers. Let's put a little bit more-
Frank Coleman: Okay. You want to switch one more?
John Feehery: One more [crosstalk 00:22:01] we'll do a cheers [inaudible 00:00:22:01]. Let's do the Glenmorangie
Frank Coleman: Glenmorangie. Yes. Okay.
John Feehery: Okay.
Frank Coleman: So scotch, this is owned by Moet Hennessy.
John Feehery: Okay.
Frank Coleman: It's the original innovator of scotch, so this is a Sherry Cask Finish. Dr. Bill Lumsden is the mad scientist who scotched. So for years he's been doing different kinds of finishes and he popularized it in about 20 years ago.
John Feehery: Well, cheers guys. Thanks for-
Frank Coleman: This is Sherry Cask.
John Feehery: Sherry Cask, and here's the Sherry Cask and all that other stuff.
Chris Swonger: Cheers.
Frank Coleman: Cheers.
John Feehery: Cheers. That's good.
Chris Swonger: Yeah.
Frank Coleman: Yep.