Date Available

10-23-2023

Year of Publication

2023

Degree Name

Master of Science (MS)

Document Type

Master's Thesis

College

Agriculture, Food and Environment

Department/School/Program

Agricultural Economics

First Advisor

Dr. Tyler Mark

Abstract

The Kentucky Distillers Association announced that over 10 million barrels of bour-
bon are aging across the commonwealth. In 2020, Kentucky distillers purchased 17
million bushels of corn, 75% coming from Kentucky farmers (KDA, 2020). That is,
65% of corn grown in Kentucky remains in the state to be used in Kentucky bour-
bon whiskey distillation. There is no shortage of support from the distilling industry
for American agriculture and the Kentucky economy. In the same, American wine
production is a dynamic sector in the United States economy, accounting for $276.07
billion in economic output or around 1.28% of GDP.
Whether you are new to the alcoholic beverage industry or have experience, pro-
ducers seek new ways to increase the premiumization of their products at the retail
level. Labeling allows for clear product differentiation. Due to the lack of available
research to distilleries on premiumization through product labeling, our research aims
to compare methodology and results from wine industry related research, to the labels
found on bourbon whiskey bottles. Producers can display important characteristics
of the product to potential consumers. Utilizing a nationally representative retail
scanner data set containing over 650,000 unique UPC and 7,000 brands of wine and
whiskey products, we investigate the price premiums in the two industries for the
various labels from 2017-2020. Example labels include, but are not limited to, estate,
reserve, organic, varietal, location, single barrel, and bottled-in-bond.
The retail scanner data set also contains information about the purchase price,
store type, and location. A hedonic pricing model and a demand model is employed
for each industry to evaluate each sector’s price premiums by label type. The he-
donic pricing framework will estimate the product’s monetary value based on label’s
characteristics.
Results from this research will provide wine and whiskey producers with a stronger
understanding on product differentiation and price premiums or discounts they should
expect depending on how they distill or ferment their products. Through the eval-
uation of the long history of product differentiation in the wine industry, we will
offer new insights to help whiskey producers establish themselves among a rapidly
expanding and competitive market.

Digital Object Identifier (DOI)

https://doi.org/10.13023.etd.2023.062

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