Whiskey Rebellion in Tennessee and the Jack Daniel’s Racket

The Tennessee legislature is currently debating whether to change regulations, passed only last year, about what defines “Tennessee Whiskey” — as reported on by Mike Esterl with the Wall Street Journal.

Hard liquor from Tennessee. Source: DrinkHacker.

The story got started last year when Brown-Forman, the maker of Jack Daniel’s whiskey, lobbied the Tennessee Legislature. They passed a law defining “Tennessee Whiskey” as “fermented in Tennessee from mash of at least 51 percent corn, aged in new charred oak barrels, filtered through maple charcoal and bottled at a minimum of 80 proof.”

Opponents, namely small distillers but also rival liquor giant Diageo, objected to this definition, claiming the process requirements were too specific. Lawmakers in Tennessee have been placed at odds between the two influential groups in a state whose best known product may well be whiskey.

As Esterl notes, this definition conveniently fits Jack Daniel’s production method and recipe. Thus, the law is a clear example of pandering to a powerful company to squash not only consumer choice but almost any new competitor.

When you define something by minute details of its production process by law, you give new competitors an increasingly small window of ways to differentiate themselves from the incumbents. To some extent the law mandates that Tennessee Whiskey all must taste the same to some degree.

Effectively, it makes price the only margin a new distiller seeking to produce Tennessee Whiskey can compete on. Even that is unlikely, since it would be nearly impossible for a new company to immediately take advantage of economies of scale to keep their prices lower than Jack Daniel’s.

Under the current law, the only company that can make Tennessee Whiskey and claim any notable form of market share is and will be Jack Daniel’s.

The fact is that the government should not be attempting to enshrine definitions of products into law. This has happened over and over worldwide, in numerous, often absurd, ways. The European Union, for example, has laws defining everything from Champagne to Gorgonzola. Similarly, a product cannot carry a commonly used name if it was not originally produced in some specific region. A famous example is Scotch, which may only come from Scotland, despite numerous comparable products produced elsewhere.

Instead, trade groups and industry associations should fill the role of defining what is or is not some product. Dairy farmers in California have already shown success with marketing their products through their trade association.

Tennessee distillers could learn a thing or two from them. Whereas currently they spend their time lobbying for government to define competitors out of existence, they could band together and build their brands as a whole. More choice for consumers, a smaller scope of government. Now that’s an idea to ponder over a Jack and Coke.

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