Value Buy [1]: Which Scotch is Aged in the Most Expensive Casks, is Amazingly Tasty & Easy to find...for $40?!
These would be 2-3x the cost if priced relative to quality. Hell, they'd be 2-3x the cost if priced relative to scarcity and production! A BadaBing Must Buy
What an opener!
Right?!
If you’ve spent any time looking for “hard to find” scotch or bourbon, the headline probably seems unbelievable. We knew if there was ever a follow-up to our well-received special situation on Glendronach 18, this was it.
Oh, also, surprise! The distillery in question produces a regular strength version, and a two high-proof versions, so we actually have three scotches as our primary targets.
All three are partially sherry aged, imparting some sweetness, in addition to being lightly peated. Peat, that smoky, campfire note, is a polarizing flavor to some. Our target today may be slightly less of a “something for everyone” opportunity for that reason. If you’re not oversensitive to it, or are looking for a gift for someone with such tastes, our target today is incredibly good. Either way, from a research point-of-view, it more than satisfies the rigors of our investment checklist.
We’ll get to all that momentarily.
Key Highlights:
This scotch is underpriced compared to peers by 50-100%. It trades for ~$40, and it could easily trade for $60 to $80 based on peer pricing. The high-proof version, which sells for ~$70, is similarly 50-80% undervalued relative to peers.
The core line-up is changing - The regular version is safe, for now, but the distillery discontinued the high proof version, and the market is not pricing in any scarcity premium at all. Whatever value you ascribe to an out-of-production, but still available product, it should theoretically be > $0.
The discontinued version is being replaced, amazingly, by an equally delicious and equally undervalued product - so we still feel good recommending all three.
All told, whether you buy the “normal” version, find the discontinued high proof version, or buy the newly-released, but slightly different, high proof version, you get an absolute value (just a plain-old great scotch), a value buy (vs. peers), and potentially some implied future “rarity” factor to boot.
We’ve arrived at these conclusions by looking at peers, production, and scarcity. Irrespective of how you weight or normalize for these factors, it points to an undervalued whiskey.
What is this mythical malted beast?
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Opportunity¹:
The opportunity is Benromach 10 year, which is priced in the $40-$50 range, and is slightly less expensive for our European friends (~35 euros).
As a bonus freebie, we’re also recommending:
Benromach 10 year “Imperial 100 proof” - discontinued³, so now more scare, a bargain at $65-80, the same scotch as the 10 yr but at a higher proof
Benromach Cask Strength Batch #1 - the superb replacement for the Imperial, priced at $65
Finding the 10 year in a well-stocked liquor store is…medium-ish odds. The good news is that Benromach is not a well-known brand, often overlooked, so there isn’t much competition for this if your store does carry it. If you look online, there is a lot of supply for the regular 10 year. Unfortunately, the higher proof 10 year Imperial is much closer to sold out online (we found a few hidden links). The good news is that both are findable in random liquor stores if you go and look. The new cask strength batch has a good presence online, but very little in brick and mortar stores in the US.
All three have nearly identical bottles. We cover identification in the last section of the writeup. This is the regular 10 year, and the (main) bottle you’re hunting for:
Profile:
Benromach is characterized by sherry sweet plus some smoky, ashy, BBQ style peat. It has excellent mouthfeel and made to be a style of “old school” scotch.
Old-school scotch production philosophy prioritized the right mix of cask and age to highlight the innate qualities of the distillery - whether sweet, funky, smoky, or malty. The trend lately is in power, not grace. Distilleries have found people equate intensity of flavor with quality - as if more were de-facto better. Accordingly, modern scotch tends to select for the strength of “certain” flavors. Boring malt? Just juice it up with a ton of sherry / peat / sweet / wood notes and ship it out.
This is a generality that some will surely disagree with, and yes, some brands are innocent while others are very guilty. Still, an =max(flavor A, flavor B) function is unquestionably a trend in modern production. Benromach, to its credit, eschews this. Despite an old-school focus, Benromach is no slouch in the depth-of-flavor or complexity department. They make a product that highlights their quality, not their ability to design the most “blast you in the face sherry / oaked / sweet” amalgamation.
Have we tried this personally? Ooooh yeah. It’s good. Real good.
BadaBing tasting summary:
Nose: punches above its weightclass - leather, sweet sherry notes, toffee, and kind of a BBQ sauce style funk
Palate: Excellent mouthfeel, vanilla, slightly milk-chocolatey, sherry sweetness, and the “meaty bbq” note
Analysis:
Benromach is owned and operated by one of the most reputable independent scotch bottlers, Gordon & Macphail (G&M). The legacy relationships that G&M brings to the table are a crucial variable in how they secure the high-quality casks Benromach uses for production.
Benromach’s exceptional casks and the complicated, multi-step aging process are central to our thesis on why this whiskey underpriced.
Relative to others, who use similar casks and production methods, Benromach stands out as tasty and inexpensive.
We also know a picture is worth a 1000 words. With that in mind, here’s a custom drawing courtesy of yours truly, showing a hypothetical demand line and the consumer surplus that high-quality + low price creates:
First, you have to take this chart seriously, because it’s presented in the down-to-earth-but-serious format of being hand-drawn, in photoshop.
Jokes aside, this simplistic view does evince our point of view pretty well. The Value Zone for Benromach is pretty great in size because of the disconnect between fundamentals and pricing. Unlike finance, fundamentals are not as subjective; they’re quite literally in the glass. The Value Zone savings accrue to you, dear reader.
When you ask what makes a scotch structurally more or less expensive (as opposed to variably more or less expensive based on Veblen pricing) it usually comes down to three factors:
age
input costs
production volumes
Age isn’t as relevant in this case. Recall that was a central element of our Glendronach “18” pitch. Despite being founded in the late 1800s, this iteration of Benromach only started re-distilling in 1992, and all the products in question are ~10 yrs old. The next two factors matter much more.
On input costs:
Benromach uses the most expensive cask types to age their 10-year expressions: First-Fill Bourbon and First-Fill Sherry.
A brief primer on cask terminology:
Bourbon, by law, must be aged in new oak. Meaning, after felling the oak tree, drying it, turning it into a cask, and charring it, the bourbon is the first and only liquid aged in there. Eventually the bourbon matures, is bottled, and then the cask is sold. It cannot be re-used for bourbon (illegal, go to bourbon jail), and thus a large portion of used Bourbon casks end up in Scotland.
Scotch [the production of which is regulated by the Scotch Whiskey Association] has no “one and done” aging rule - casks can be used many times over. For example, global spirits giant Diageo has said sometimes they use a single cask up to five times⁴! From first-fill (the first liquid in there, post bourbon distillation) to fifth-fill! Generally, past a third fill, the cask is “tired” where it can be “refreshed” but that’s a story for another day.
First-fill is simply a cask that only held and matured bourbon or sherry, or whatever, for one maturation cycle before being filled to mature scotch.
Now that we understand the terminology of what First-Fill means, it should be evident that using only brand new casks is more expensive than recycling used casts. Recycling casks 2-5x clearly extends the useful life of the asset in an economically obvious way to the distiller.
Our goal in sharing this much detail on casks is to highlight the role casks play in the cost structure of the whiskey. Traditionally unit economics and/or cost of goods sold informs end-market pricing (unless you’re an SV unicorn, ZING!).
Referencing the chart below (dated 2015), if you extrapolate a price of £225 per cask for first-fill bourbon casks, and a cask produces ~200 bottles, you can estimate the per-unit cost contribution:
>> £100 for only refill bourbon / 200 bottles output = £ 0.50 / bottle
>> £225 for first-fill bourbon / 200 output = £1.13 / bottle
On a unit basis, 125% more expensive when looking at first-fill bourbon only.
Eagle-eyed readers will notice the above chart references “sherry” with no distinction on whether it’s first, second, etc. fill number.
A different source on pricing, the cask manager for Highland Park, said €92 for a bourbon cask, which is a touch less than the ~£100 cited above, but, get this, €600 for a “purpose-built” [read, first fill] Sherry cask.
This video is queued up, and the relevant segment is just the first few seconds, though the whole interview is interesting:
Sherry casks come in different sizes. The standard size is called a butt, and a sherry butt holds 2.5x the volume of a traditional bourbon cask.
>> €600 per sherry cask / 500 bottles = €1.20 / bottle
Currency conversions aside, there is no way to foot using first-fill casks without the attendant per-unit pricing being 2-2.5x the cost of a cheaper cask. Given our thesis that the fundamental value of this scotch is much higher than its pricing relative to peers, and peers with similar absolute prices use less expensive, less quality casks, we consider this strong evidence in support of that view.
The pricing and quality assumptions are supported further by these comments from Benromach’s Distillery Manager, Keith Cruickshank⁵:
Because casks are made to our specifications, we can get wood from whatever type of oak we want from whatever part of Europe we want, and we have it toasted and charred to our specifications as well.
…Most of our sherry casks are seasoned for up to three years with Oloroso sherry, and we can decide whether it’s with European or American oak. Predominantly it's European but we do have a small amount of white American oak that we’ve sometimes used
A skeptic might ask, “even if one cask type is 2-2.5x more expensive, on an absolute basis, it’s £1 per bottle… is the relatively minimal per bottle impact even relevant?” Obviously, the extra dollar hits incremental margins in a big way. A cask can account for 10-20%⁶ of total per bottle costs. But we’re not evaluating distillery operations, we’re evaluating the quality of the product.
The relevancy is there is an incredibly strong relationship between cask quality and end product quality - the cask accounts for 60-80% of the total flavor of the scotch⁷! Across the pricing and quality spectrum, scotches from first-fill casks are nearly always premium products.
It’s not a truism that a first-fill cask is required to produce great whiskey - at all - but it is a truism that a great cask has an asymmetrically big impact on making a whiskey great.
For a little color on the importance of casks, let’s go to the COO of G&M himself, Ewen Mackintosh⁸:
“…[W]e have always been focused on the close relationship between oak and spirit, and have learned from vast experience that wood really does make the whisky.”
Cask selection and quality is one of the defining attributes of high-end scotch. It’s rare to see a focus on premium casks in an entry-level product.
On production volumes:
Now that we know about casks, and why these are unique, what does Benromach do with their expensive and high-quality first-fill casks? How much of this can they feasibly make?!
Benromach 10 year:
Distillate ages for 9 years in First-Fill Bourbon casks
Distillate ages for 9 years First-Fill Sherry casks
The two are married in an 80/20 ratio and aged for an additional year in another First Fill Sherry cask, resulting in a finished 10 yr old product.
Sound complicated?! It is! It’s quite atypical too. The complexity raises an obvious question…does this scale? Not surprisingly, it does not scale very well.
The annual production volumes of this distillery are tiny - in fact, the smallest in the region (Speyside). Last production figures show it at ~200,000 liters per year - 100x less than Glenlivet, or ~750x less than Johnnie Walker⁹. Tiny. It’s a reasonable assumption that cost per unit at the operational level is higher because they simply can’t and won’t ever hit the same scale as a larger distillery.
The synthesis of all this data unquestionable argues that a “fair value” MSRP is higher than the current price point. Let’s look at some valuation data and see how Benro stacks up.
Valuation and Data:
One normalization factor we use is Proof Adjusted Price [PaP] / Year. It normalizes based on volume (i.e., how much scotch you get on an equivalent basis) and years (it’s an objective metric, vs. discerning “cask quality” or other inputs). It’s an apples-to-apples “cost per year” ratio.
[click to expand, or right-click “open image in new tab”]
This shows that each featured Benromach trades at a PaP/Yr multiple of $4.3 - 5.3/yr, and that the percent of each from a normalized fair value is in the 10-65% undervalued range. We get the fair value (and the above spreads) by weighting qualitative metrics across our universe of scotches.
Admittedly, we struggled to find a peer group, given how unique Benromach is. It would seem overly punitive to compare these to widely sold, entry-level 10-year-olds with no discernible resemblance to our subject. We’re not buying a number (age) we’re looking for quality. When we use a quality basket (above), we can start to benchmark that younger, but high-quality products tend to hit ~$6 / yr as a PaP multiple and 50-100% undervalued. In my opinion, this is a more representative benchmark, given the quality of Benromach’s cask program, but I want to stay objective.
As a “directional signal,” the argument that the Benromach line is inexpensive and undervalued is supported either way.
In my opinion, the closest flavor and production method comparison in that group is Springbank. Springbank is exceptional, and on an absolute basis, at $60 for the 10 year is 20-50% more expensive than $40-50 for the Benromach 10 year. It’s not shown, but you can apply the same framework to Springbank’s youngest cask strength offering, a 12 year at $100, while Benromach’s is at ~$70.
Other fun facts:
Benromach has only two employees who actually make the whiskey (!!)
They do everything by hand - supposedly no computerized machinery is used
They are one of the only distilleries left (the other being Ben Nevis) that use brewers yeast to ferment the barley
Identifying:
Here’s my experience with them purely on a “how enjoyable they are basis”.
The 43% 10 year is accessible to any scotch drinker. The proof is low enough to not be overwhelming, the flavor and quality are apparent. As I mentioned in the intro, this is lightly peated, but if you compare it to the smokiest of scotches, its nowhere near them. In a way, the perfect scotch - has character, but doesn’t beat you over the head with it.
The 10 year Imperial (discontinued), is a much more aggressive whiskey overall. I would caution that it’s for more “experienced” drinkers, owing mainly to the proof (57%). Also, my personal experience is that when opened, they are rather astringent and closed off. It took a while for this bottle to open up, around 3/4 full. Once it did, and with a little water, it’s fantastic - and yes - much more flavorful than the 10 year even once water is added. The chocolate-y and fruity notes are pronounced. I say that without reservation, but, it is not an easy-going whiskey. I would feel comfortable saying you’ll love it, but you need to be patient and add water.
The Cask Strength Batch #1 was the subject of a very-recent group tasting, which is why it’s half gone already. The consensus was that it performed really well with water, almost right away. I look forward to revisiting this one in a month or two, as high proof whiskeys always improve with some time after opening.
From the $40 “easy buy” 10 yr for the casual sipper to the complexities and challenges of the higher proof offerings, these three really are an ATV that can satisfy different tastes and moods.
Thanks for reading, and ….
Get hunting!!
Online Links²:
Note: Shipping really eats into things when you’re looking at a $40 bottle but with tax and $20+ shipping. There’s not much you can do. Using the “other resources” link, you can find out of state shippers that may have more expensive shipping but no tax at checkout. Many online retailers price break shipping ($20 for one, but maybe it’s $35 for four). These were the lowest we found in our sourcing.
The best bet - go to the store, or call your local stores and ask over the phone. An “above MSRP” bottle may still be cheaper with no shipping.
Benromach 10 43% ABV
Ships within California:
Third Base Market, $40 + Tax + $22 Shipping from Grover Beach, CA
Remedy Liquors, $44 + Tax + ~$22 Shipping from Orange County
Flatiron Wine & Spirits, $50 + Tax + $10 Shipping from San Francisco
Ships to Most States CONUS, enter zip in checkout to see (confirmed yes to NYC):
Third Base Market, $40 + no out of state tax + $30-35 Shipping
Resources for more options:
Benromach 10 Imperial 57% ABV
(note: my experience is these are “fairly” findable if you call around locally - just online markets have been mostly sold out)
Ships to CONUS
Fine Drams, €56.8, + €28 Shipping - this is all things a good opp, especially if you pair it with a second bottle as it comes out mostly the same as a local + tax + ship would
European Delivery Only
Whisky Please, £48.50 + £5 shipping
Resources for more options:
Benromach Cask Strength Batch #1
Ships within California:
K&L Wines, $65 + tax + $11 shipping, Can pick up in Hollywood, Redwood City, or SF
Ships to CONUS
Wally Wine and Spirits, $85 + $18 shipping (note, if you can find a second thing to add, a wine, whatever, free shipping over $99 and no state tax applied at checkout)
Footnotes:
¹Disclaimer: This newsletter is not investment advice, and it’s not intended to circumvent any federal, state, or local laws regarding the age of consumption or those regarding buying and selling spirits online. Some states allow shipping in, some don’t, many are lenient about overseas purchases, some aren’t. Be responsible.
²Buying, Shipping, and Fomo: First on shipping.
While we do extensive due diligence on finding the lowest prices, prioritize online markets we know are reputable and even read the fine print to better assess a store’s shipping policies, these links are available as a courtesy - we have no affiliation with any store, period, we’ll disclose if we ever do, and cannot warrant or assure anything about them. Don’t make me manually disclaim every possible facet of buying something online. It’s online - shit happens. Use a credit card, and if something goes wrong, email them, or have your processor reverse the charge. Simple. We have bought from stores all over the USA, and Europe and the delivery success rate has been 99.999% in our experience.
On Buying and Fomo: Please do NOT rush to buy everything we suggest. Honestly. We mean it. It’s a catch-22; we only recommend things we think are great, but there’s an abundance of greatness. Different opportunities will appeal to different tastes, some bottles are better for gifts, for sharing, whatever. Maybe some ideas you “save” and buy when you’re in the mood. I promise - 20 of the best ideas can sell out, and there will still be a 21st idea. And a 30th. And a 40th. And so on. You can always email us too Badabingwhiskey @ gmail.com [remove spaces around the @] and ask us.
³ Last accessed: 4-19-20. https://www.thespiritsbusiness.com/2019/04/new-benromach-replaces-classic-range-whisky/
⁴ Last accessed: http://www.dramming.com/2012/06/26/a-peek-into-diageos-cask-management/
⁵ Last accessed: 4-19-20. https://www.forbes.com/sites/felipeschrieberg/2019/11/21/a-geeky-whisky-interview-with-benromachs-distillery-manager/#3e5bc89438c2
⁶ Last accessed: 4-19-20. https://www.whisky.com/information/knowledge/production/details/maturation-in-casks.html
⁷ Last accessed: 4-19-20. https://www.whiskyfoundation.com/2017/05/29/what-difference-does-a-cask-make-2/
https://www.eater.com/ad/20948496/wood-flavors-food-drink-barrel-aging-scotch-whisky
⁸ Last acessed: 4-19-20. https://www.fb101.com/2015/11/the-wood-makes-the-whiskey/
⁹ Last accessed: 4-19-20 https://www.theglenlivet.com/en-EN/article/8whiskyfacts
https://en.wikipedia.org/wiki/Johnnie_Walker
https://www.thewhiskyexchange.com/b/40/benromach-single-malt-scotch-whisky