by Mark Meyer
So he decided to pack up and move to Pittsburgh to work as a salesman in upper-crust haberdasheries. He quickly developed a reputation as the most productive salesman everywhere he worked. He easily charmed the ladies who came in to shop, and was soon making more money than he had been at his family’s distillery. In 1869, however, he contracted typhoid, which sent him home. Just as they had over the course of his childhood, his grandmother and sister nursed him back to health.
Abraham was duly impressed by the independence and ambition that his grandson demonstrated during his time in Pittsburgh. To test his talents further, Abraham appointed him chief bookkeeper of the Broadford Distillery in 1869 with an annual salary of $1,000—not quite in millionaire territory yet, but a nice bump from his office boy wage.
Henry Clay proved himself a talented manager of the distillery’s accounts. He also began to flex his entrepreneurial muscle with his grandfather’s guidance. He purchased 300 acres of his neighbors’ land and established his first fifty coke ovens.
Abraham grew especially close to his grandson during these entrepreneurial years. So it was a devastating surprise to Henry Clay when his grandfather passed away in 1870 and left nothing of his large estate to him. The silver lining in the inheritance was that Frick gained a controlling interest in the Old Farm Pure Rye Distillery, which in 1870 earned $40,512 (in excess of $1 million today). The family renamed the whiskey Old Overholt in honor of Abraham.
Even with this healthy revenue stream, whiskey no longer seemed to offer the same financial promise to Frick that it once did. He had witnessed firsthand in Pittsburgh the economic power of coal, and he saw the weight of his family’s fortune shifting to this alternative fuel. While he maintained his bookkeeping post at the Overholt Distillery, he purchased twenty acres of land nearby and became the manager of the mine without pay. Emboldened by what he came to know of the coal business, Frick began putting together packages of personal loans, backed by the famous Overholt Whiskey name, drawing on the community’s trust of his family’s legacy.
Frick was full of ambition, according to one anonymous account:
“In the evenings, after finishing with the accounts at the Distillery, [Frick] drove throughout the whole region, sometimes on horseback, sometimes in a buckboard calling upon farmers. He optioned coal land right and left. His savings were exhausted with the payment of hand money and he borrowed everywhere he could. He rushed about the whole night long, with sheaves of promissory notes in his coat pocket—optioning, optioning!”
With land in hand, Frick set out to build more coke ovens. He understood that the market would move from coal to coke, which was easier to transport and burned more efficiently. In Pittsburgh, Andrew Carnegie continued to grow his iron mills and was in desperate need of coke to fuel his enterprise. The coal coming out of the West Overton area was quickly becoming known as the best coal for making coke. Frick was anxious to get ahead of the market and meet Carnegie’s needs.
One obstacle stood between Frick and his ovens: he was out of cash. He did, however, happen to own the famous Overholt Distillery. So at twenty-one years of age, he traveled into Pittsburgh to visit the bank of Judge Thomas Mellon, also formerly of Westmoreland County, and an old friend of his grandfather. Mellon also came from a farming and distilling family, and so his agreement to meet with the young Frick was likely a favor to his old friend, Abraham.
Using the Overholt Distillery as collateral, the very determined Henry Clay convinced Mellon to loan him $10,000. Just a couple of months later, he returned to Mellon’s office to request another $10,000. Concerned that Frick had so quickly burned through his first loan, Mellon sent his partner out to examine Frick’s operation and determine how all the funds were being spent. The examiner’s report deemed Frick was too distracted by his distillery bookkeeping and his art, which seemed to be an interest inherited from his father. (Frick’s proclivity for art collecting would manifest years later with two major collections—one in Pittsburgh and the other in New York City.) Mellon, however, viewed Frick’s distillery salary as an asset rather than a risk, and sent another advisor for a second opinion, who filed a more positive report. Frick received a second $10,000 loan from Mellon to build another group of coke ovens, according to Mellon biographer David Koskoff.
By 1871, Frick boasted 1,200 coke ovens to his name, and in another year, his company became the largest single coke works in America. He built railroad tracks and bridges to ensure the transport of his products. No longer a pastoral landscape, Connellsville now contained railroads running eight to ten tracks thick. Frick was transforming the place his grandfather had settled, and the community around West Overton had begun its evolution from America’s whiskey town into America’s coal town.
Industrial growth seemed to have its full grip on West Overton and Connellsville, but in two years, everything turned quiet for a time. Eighteen seventy-three opened with fortitude. The construction of railroads and steel mills, which were financed through bonds sold in Europe, continued at a fast clip. However, a financial panic struck Europe by spring, which soon crippled the heavily-leveraged enterprises in western Pennsylvania. The price of coal and coke plummeted, forcing most suppliers to halt production. America’s burgeoning workforce spiraled into a 25 percent unemployment rate.
Frick decided to soldier onwards, betting that the economy would ultimately pick back up. The steel industry did of course bounce back, and with ferocity. Frick was able to increase the price of his coal fivefold.
Frick emerged from this crisis stronger and more emboldened than ever. Judge Mellon rewarded his acumen in 1876 with a credit line of $100,000. Mellon also introduced the entrepreneur to his own son Andrew. The younger Mellon, six years Frick’s junior, was known for being socially removed and for living with his parents. Andrew, however, was so struck by Frick that the two became close friends and business partners.
The Mellons were not the only eminent Pittsburgh industrialists to take note of the young Frick. Accordion to Quentin Skrabec’s work, Andrew Carnegie noted to his partners in Pittsburgh: “We must attach this young man Frick to our concern. He has great ability and great energy. Moreover, he has the coke—and we need it.”
In 1884, Carnegie convinced Frick to have lunch with him and his mother in New York, where Frick was honeymooning with his new wife. After touring the city, including walking across the latest Carnegie steel structure—the Brooklyn Bridge—the couple met with Andrew and Mrs. Carnegie. Frick and Carnegie were able to successfully grow their joint coke and steel business over the next decades.
The financial and personal lives of Frick and Mellon also continued to intertwine, as their political, social, and business proclivities became indistinguishable. According to Mellon biographer David Cannadine, they regularly lunched together at Pittsburgh’s Duquesne Club. To celebrate Frick’s becoming a millionaire, they set out to Europe together to educate themselves on art and European society. In addition to the sheer amount of time the two shared in each other’s company, their friendship revealed itself in the vast capital the Mellons entrusted to Frick—his personal loans from Mellon Bank amounted to $148,000 in 1885.
In 1887, Andrew Mellon and his brother purchased a portion of the Overholt Distillery, which had expanded production earlier in the decade so that it was producing an extraordinary 3,450 gallons of whiskey per day. Old Overholt Whiskey continued to flourish, and other manufacturers tried to cash in on the premium by incorporating flavor additives known as “Pittsburg Rye Essence” and “Monongahela Essence” to their neutral alcohols.
Mellon and Frick also used their prized whiskey as a political lubricant, bribing the Republican leadership with bottles of Old Overholt and contributing to a notoriously corrupt political machine that favored business interests above labor.
In 1899, the Broadford Distillery was rebuilt. Additional barrelhouses were added to accommodate an increasing supply of Old Farm Rye
Whiskey, with the capacity to move through thirty-seven tons of grain per week. The expansion was completed in 1905, just fourteen years before the onset of Prohibition. Through the growth of the distillery, Mellon and Frick’s friendship continued to flourish. By 1902, Frick was a major shareholder and director of the Mellon National Bank.
By 1917, it was clear that the federal government was getting ready to take on alcohol, and Mellon became anxious about the future of his and Frick’s whiskey business. On October 28, 1919, the Volstead Act, or the National Prohibition Act, was enacted. Within five weeks, Frick, America’s Coke King and the owner of America’s original brand of rye whiskey, died of a heart attack at the age of sixty-nine. Mellon, his closest friend and business partner, became trustee to Frick’s estate, gaining control over America’s most legendary distillery.
Mellon’s interest in the Overholt Distillery became problematic when he was appointed secretary of the treasury under President Harding in 1921. In his new Cabinet position, Mellon was, in effect, the United States’ chief prohibition agent. And in a remarkable twist of history, it was the same position Alexander Hamilton had occupied when his whiskey tax inspired Abraham Overholt to start Old Farm Pure Rye Whiskey.
Mellon took reluctantly to his alcohol enforcement duties. He believed Prohibition was draconian and ineffective, and rightly felt that the Treasury Department was incapable of enforcing such a broad law. Furthermore, the teetotaling philosophies of Prohibition’s proponents were a far cry from his personal interests. So Mellon did what any creative politician would do. He granted his Overholt Distillery one of the few medicinal whiskey licenses that were available to existing distilleries. Throughout Prohibition, the Overholt Distillery continued filling barrels with thousands of gallons of whiskey. Some was sold by prescription for medicinal “needs,” but much of it likely found its way to the occasional speakeasy as well.
Ultimately, Mellon disposed of the politically troublesome distillery in 1925, selling all of his interest to an investor. Schenley Distillers, another Pittsburgh distillery, purchased Overholt’s remaining whiskey stores, and National Distillers Inc. purchased the Overholt Distillery brand. The brand then transferred to Jim Beam in 1987. The whiskey Beam produces, made with a high-corn mash and on a continuous still, is a distant cousin of the original American whiskey that Abraham Overholt, Henry Clay Frick, and Andrew Mellon would have made on their copper pot stills in western Pennsylvania. The brand, however, remains the longest-running thread between pre-Prohibition American whiskey and the bourbon-centric American whiskey industry of today. Years before Pittsburgh was a steel town, it was a whiskey town. And years before America’s whiskey was Kentucky bourbon, it was Pittsburgh Monongahela rye.
CHAPTER 3
The State of the Industry
Today there is a new generation of whiskey makers that has begun and will continue to change the American spirits industry in the coming decades. In many ways, these upstart distillers are closer in spirit to the whiskey makers of the eighteenth and nineteenth centuries than they are to the predominant whiskey companies of today—though instead of attacking politicians with tar and feathers, they are lobbying states to change laws to allow for direct access to consumers.
While there were a handful of very early pioneers in modern craft distilling—especially in California—what we now know as the burgeoning craft industry didn’t get its sea legs and enjoy significant new entrants until the early twenty-first century. Over the past two decades, the distilling industry has grown at a nearly exponential pace. The number of active distilleries in the United States nearly tripled between 2007 and 2013 alone, expanding from 564 distilleries to 1,501. And there are no signs of a slowdown. So far the industry has grown just as quickly as craft brewing—craft spirits were just a couple decades later to the game.
The very early years of the craft spirits industry saw clusters of small distilleries start up in California, Oregon, and Washington; states with the most amenable legal environments and the highest consumer interest in craft beer and wine. The earliest craft distillers tended toward brandy and eaux de vie, distilled wines and fruit brandies, which made sense given the West Coast’s agricultural bounty of grapes and other fruits. New York State also became home to a relatively early community of craft distilleries as a result of the Farm Distillery Act passed in 2007, which created a fertile environment for fifteen new distilleries to start. As other states outside of the country’s main wine regions have started distilling, the American craft-spirits industry has shifted its focus from brandies distilled from fruits and grapes to whiskeys distilled from grains.
Just as the number of players in the industry has grown, so has Americans’ interest in rediscovering spirits. The number of Americans reporting that they’ve consumed bourbon, rye, or blended whiskey in the past thirty days increased by 40 percent from 2008 to 2014. Now an estimated 27 million Americans enjoy a glass of whiskey in a given month. Some of this growth is coming from former beer drinkers, as people switch out their pints for cocktails and drams; from 2005 to 2011, beer servings fell 1.7 percent in America, while spirit servings grew a remarkable 15 percent.
Just as in the craft beer world, it is the small brands that are driving growth in the spirits industry. For example, the gin market experienced 1.6 percent growth between 2013 and 2014, and an astonishing 45 percent of that growth came from small brands, which outstripped the growth of the large brands by nearly nineteen times. Over the past two decades, this trend holds true across all spirit categories. The shares of the top five spirit brands in straight whiskey, scotch, vodka, gin, rum, and tequila have eroded over the last twenty years, giving way to smaller brands.
As the farm-to-table, organic, and natural foods movements continue to pervade our national mindset, consumers are seeking out authentic and small production methods for many of their foods and beverages. Consumers have shifted to smaller brands in categories seemingly removed from spirits, such as popcorn, oils, nuts, dried fruits, salad dressings, and peanut butters. Even the frozen food aisle—that beacon of American big-branded convenience food—has seen a shift toward smaller brands.
This could be an alarming reality for many large spirit companies who have been sitting in relatively hegemonic comfort for decades. As late as 2013, the top five spirit conglomerates—Diageo, Bacardi USA, Beam Inc., Pernod Ricard USA, and Brown Forman—held approximately 60 percent of the total American spirits market. Consumers, long complacent with the consolidation and static quality of the American distilling industry, now seem to be restless with those same big brands.
This restlessness is likely a part of the same pendulum that swings back and forth between fragmentation and consolidation in most industries. Prior to Prohibition, American distilling was almost unimaginably fragmented. The United States was home to thousands of distilleries, which ranged widely in terms of production scale. In the years since, the industry has shifted to the other extreme of significant consolidation. Michael Kinstlick’s impressive graph shows that after years of a highly competitive market in the late nineteenth and early twentieth centuries, the industry big boys enjoyed more than seventy years of a winner-take-all market:
This consolidated landscape resulted from a mix of technological, legal, and economic forces that happened in three major shifts. The first big shift came with the introduction of the modern industrial still, or the Coffey still, which spread through the country beginning in the 1830s. This still mechanized much of the distillation process, and is now standard in large American distilleries. The invention of this still also shifted production from the traditional copper-pot still, which was used to produce Monongahela rye.
The benefit of the Coffey still was that it greatly increased efficiency and consistency. With vast improvements in these areas, the industry didn’t need numerous, inefficient pot stills dotting the landscape. The downside to this industrial still was that it sacrificed flavor and
nuance between various regions and various batches of whiskey. With the modern industrial still, we moved from being a country with tens of thousands of pot stills to a country with just thousands, and many of those became the mechanized, continuous variety.
The second big shift that led to wider consolidation was, of course, Prohibition, which flatlined legal distilleries until 1936, when only a small number were able to rebound. By now, we’re all aware how ineffectual Prohibition was at preventing alcohol consumption in the United States. It was, however, extremely effective at consolidating the distilling industry into the hands of its biggest players. Those with the deepest pockets were able to wait out the more than decade-long dry spell, absorbing the liquid, brand, and equipment assets of the companies that went under. And these big players came out of Prohibition all the stronger. These included the largest spirits company, National Distillers Products Corporation, which purchased the older Overholt stores of whiskey and emerged from Prohibition as an industry behemoth. Prohibition also effectively reduced the quality of American whiskey for many years, as suppliers had to develop creative ways to maximize their limited supplies of aged whiskey, stretching it with water, neutral alcohol, food coloring, and other flavors to get more mileage out of what they had left in storage.
The final shift towards consolidation was caused by something less obvious, and that has to do with the way spirits sales are structured in the United States. American spirits are sold in a three-tier system: there are suppliers, the people who put the spirits in bottles; wholesalers, the people with the warehouses and trucks who get the spirits from the suppliers to the retailers; and retailers who sell to the whiskey-consuming public. As the American spirits suppliers began consolidating, they wielded great power, and the distributors began consolidating in response. And while many of these distributors may have started as regional family businesses, they’ve had to become just as national and consolidated as the suppliers they represent.
