Digitally Native Bourbon Brands

An exploration of The Bourbon Junkies and Virtue Spirits

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Digital Natives

One of the most interesting trends over the last two decades through the rise of the internet and social media has been the increase in direct to consumer brands. Meaning, companies sell directly to the customer without any traditional retail medium.

One big example of this is Warby Parker, the company (that initially) was an online only seller of glasses company founded in 2010 by Neil Blumenthal, Andrew Hunt, David Gilboa, and Jeffrey Raider. In 2011, Warby Parker shipped more than 100,000 pairs of glasses through acquiring customers only online and had 60 employees. As of September 2021, they went public and currently haver a market capitalization of $1.75 Billion.

Another example, and more aligned with what we will get at in bourbon, is Kylie Jenner and her make-up business Kylie Cosmetics. In 2014, Kylie Jenner, a massive online influencer, founded the company and partnered with Seed Beauty, a retail and product development company. These were not sold initially in stores, they were sold online directly through the demand generated by Kylie’s massive multi million followers. In March 2019, Coty Inc. valued the company at $900 million and purchased 51% of the entity.

These are digitally native entities.

Digitally native organizations are very tech centric and spend a significant amount of money on technology as it is the basis of their business model. They also leverage digitally native companies and infrastructure, such as social media (Facebook, YouTube etc) and digital first infrastructure and websites like Patreon and Wix.

In 1995 both of the above stories were unfathomable. But now we have digitally native businesses in all industries. Even bourbon.

The Bourbon Junkies

When I first got into bourbon I naturally went to YouTube to learn more. One of the first channels I found and subscribed to was called The Bourbon Junkies. The Bourbon Junkies are made up of two friends, Sean and Dan who are based in Michigan, and have an incredible rapport, great understanding of bourbon and feel like two friends you want to go and have a bourbon or two with. They review bourbon, talk about what is good or not good, worth it or not worth it, and what interesting news is occurring in the industry.

Because of their effort and skillset, they have amassed almost 100,000 subscribers on YouTube, 27,000 on Instagram and thousands of Patreon subscribers.

Content creators like Sean and Dan eventually have numerous avenues to monetize their efforts and community.

First this comes in the form of direct ad share from YouTube, then comes from sponsors of specifics episodes they release, along with building a merchandise line where avid watchers can purchase products to support their channel.

This is where a lot of content creators stop. But the junkies move to the next natural avenue, which also is one of the most important: Patreon.

Each Bourbon Junkies Patreon member pays some monthly subscription; $3/ month for the “Bourbon Admirer”, all the way up to $144/month for the “Bourbon God” level (I am a “Bourbon Nut” patron of theirs myself). Through their Patreon subscribers alone they amass a whopping $26,000 monthly ($312,000 annually and growing).

What’s interesting though is that that revenue is not even the most important part. Patreon is especially important itself because it creates a community and lays a foundation for future growth and revenue opportunities. Patreon allows the junkies to not only interact with their fans, but establish a direct relationship with them and reinforce that with having their fans having a relationship with one another. A true community.

Next the Bourbon Junkies began to do barrel picks. They physically go to certain distilleries to “pick” a barrel that they think tastes the best, purchase it and then sell the bottled product to their online Patreon Community. Another revenue stream for them and a great value add for their members.

While I am sure they make some money off these picks, it would be relatively low compared to a higher leverage initiative, like having your own brand or, in the case of bourbon, becoming a “non distilling producer”.

A non-distilling producer, or NDP, is a spirits company who buys bourbon from a distillery, rather than making it themselves, and then bottles it under their own name. Examples include Barrell Craft Spirits, Penelope or Blue Run (up until recently) just to name a few. These groups source bourbon from distilleries like MGP in Indiana, Barton 1792 in Kentucky or Cascade Hollow Distilling (George Dickel) in Tennessee as a few examples. Anyone can do it. But it’s not easy.

On October 4th, 2022 I was happy to watch Dan and Sean announce their newest venture: Virtue Spirits.

In watching more of their episodes they have stated they have purchased aging barrels throughout various states in order to use in their own Virtue Spirits brand bourbon, or other whiskey, laying the foundation to launch a product in the near future.

Once they do launch their own product, they are in a unique spot compared to any other NDP that starts up: They have a built in awareness (which lowers their marketing costs) and they have built in customers through not only their Patreon community, but the thousands of eyeballs they touch every week with their videos. Then, through the internet and the shipping infrastructure, they already have distribution.

The key to any business after having your product developed is acquiring a customer. In the world today, it’s not easy. But Virtue Spirits has a unique advantage because of the foundation Dan and Sean built.

First off, they have thousands of Patrons. These Patrons are not only potential customers, they themselves are likely influencers in their geographic areas (and to their friends) and prolific buyers of bourbon. Think about it, anyone who is willing to spend $7, $30 or $144 per MONTH has a much higher likelihood to spend on bourbon.

This built in fan base is a potent combination and it is already built up for them. Traditionally a new company would need to spend millions on marketing generating awareness and demand. Sean and Dan can make a 10 minute video and share on YouTube and post about it in their Patreon group.

They have thousands of viewers who watch their video’s, who in and of themselves are probably highly passionate about bourbon. After all, anyone who chooses to watch bourbon videos is likely more passionate about the spirit than the average Jack Daniels Old No. 7 consumer. For background of just how many views they get, their three most watched videos have over 2 million views combined. And their most recently released video (A “Pour Guesses” video) has over 10,000 views in less than 24 hours.

Then, it’s apparent they are influential among the greater “Whiskey Tube” community, as they are constantly referenced by other channels along with their barrel picks, increasing their reach even further.

The combination of these three factors almost guarantees a built up demand for their products when they launch allowing them to sell through Patreon, or through online websites like Seelbachs.

Then these factors all compound. Not only will they be able to access distribution directly via their digitally native community, but that will enhance the demand from traditional distribution which will allow them to scale.

Another whiskey YouTuber I watch a lot, Randy Sullivan, has had a similar initiative with his brand “The Prideful Goat”.

Distribution

Traditional Distribution looks like the following:

• Production: manufacturers, such as distilleries and wineries

• Distribution: wholesalers and licensed importers

• Retail: liquor stores, bars, and restaurants

This is known as the “three tier” system. The distributors and retailers would traditionally be “gatekeepers”, making it difficult for new companies to access consumers. I would not foresee Dan and Sean to have that problem because there is already awareness and demand for their product, so it is unlikely to sit on shelves.

Pricing and Premiumization

Though Dan and Sean are adamant about “getting whiskey back to the way it used to be” and having fair pricing and transparency, it’s interesting to consider that because of their community of bourbon enthusiasts, I suspect they could easily charge more for each bottle, even just $5 more per bottle than what some other companies can with similar whiskey.

Between 2016 and 2020, the average price of a 750ml bottle of bourbon, Tennessee whiskey and rye rose by $3.49, according to IWSR data, an increase of 9 percent. That makes the current average bottle of whiskey $44.12. For a good bottle of bourbon, enthusiasts aren’t afraid to spend double that. The premiumization of bourbon has been prolific for the last ~5 years. Higher priced bourbon has actually been more in demand, and just look at the revenue shifts and profit shifts for premium bourbons over that time period for publicly traded company MGP Inc:

Over 50% of the profit of their spirit category comes from their premium bourbons, illustrating the demand for high quality whiskey coming from people that consumers trust (like their favourite YouTubers).

Heck, even look at these stats from the Distilled Spirits Council of the United States:

I am confident Virtue Spirits has no intention of gauging their consumers, but just $5/bottle more on the average price of a bottle would mean an extra 11% revenue (if using average selling prices). That extra gross margin would allow them to reinvest more back into their business. Better stated as source higher quality whiskey from their sourcing partners which allows their product offering to constantly improve, ultimately delivering better offerings to their customers, further increasing demand.

What Happens Next for The Bourbon Junkies

I am getting a bit future focused here, but we have walked through how a digitally native group like Dan and Sean have naturally progressed their business from a hobby to a thriving Spirit entity. It gets us wondering about how they could expand their business in the future.

One of the things that NDP’s lack is control; over production amounts, over quality, timelines, mash bills and more. Most businesses desire increased control. One way for NDP’s to gain more control is to invest in their own distilling assets.

Not only does it allow for more control, but there generally would be higher margins involved for them, an insatiable desire of most businesses. This is likely years away if they do pursue, but gives context on the future of the Bourbon Junkies.

Is There Demand for Virtue Spirits and Other Digitally Native Bourbon Companies?

Identifying the demand for a digitally enabled bourbon entity means we have to identify two things:

1. Overall demand for bourbon

2. Demand for online purchases of alcohol

The demand for bourbon has been growing rapidly. Looking at the past 5 years, the the IWSR reported the compound annual growth rate of 7.9% for volume sales and 11.4% for dollar sales of bourbon. And, Kentucky distillers have been producing more and more to meet that demand. About 2.4 million barrels of new bourbon were produced and added to warehouse inventory in 2020, the most recent year available. There were 10.3 million barrels of Bourbon aging in Kentucky warehouses as of December 31, 2020.

The demand is growing and producers are investing. Famed distiller Buffalo Trace announced a $1.2 billion expansion and up and comer Bardstown Bourbon Company announced millions further investment, just to name a couple.

It’s safe to say, organizations have a vested interest in ensuring consumers demands for bourbon continue to grow, a good thing for an up and coming digitally native spirit company like Virtue because these larger groups will continue to drive bourbon demand and operate in the industries best interests to avoid a repeat of the bourbon blues of the 70’s and 80’s.

Second, the data shows online purchases of spirits have been sky rocketing.

Check out these stats from the Distilled Spirits Council of the United States:

4% of sales of spirits were online, growing 131% from 2019 to 2021!

Combine these figures with the fact that the age group that is growing the most rapidly in bourbon is young, and therefore, more prone to purchase online. IWSR data shows the 25-to-54-year-old range holds the largest percentage of bourbon consumers.

It’s safe to say that demand for bourbon seems unlikely to subside anytime soon and the demand for a company who’s products are sold online and discovered online, like Virtue Spirits likely will be, have a huge propensity to grow.

All good things for the Bourbon Junkies.

Final Thoughts

Digitally native brands have penetrated many industries over the last decade. Dan and Sean of the Bourbon Junkies provide an excellent lens through which to explore how digitally native companies, and influencers, have and will continue to penetrate the bourbon industry.

For bourbon enthusiasts like me, this is an incredible thing. Opening up more options, enabling more community and ultimately having more fun while exploring the world of bourbon is a great thing and I am excited to see where Virtue Spirits ends up in the next few years.

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About Me

Thanks for reading! My name is Shane Thomas, a bourbon enthusiast from Canada.

I do not come from the spirits industry, but have a passion to learn about the industry and the business dynamics surrounding it.