Thursday, July 12, 2018

Whiskey Men Who Fought the “Whiskey Trust”

Foreword:  A prior post was devoted to whiskey men who, one way or another, contributed to the success of what became known as the “Whiskey Trust,” an organization with headquarters in Peoria, Illinois, that was organized in the late 1800s to control multiple distilleries and thereby drive up the price of whiskey to the American consumer.  Officially it was known as the Distillers and Cattle Feeders Company.  The Trust was known to use coercion and even violence to get its way.  A few distillers, rectifiers (whiskey blenders) and liquor wholesalers boldly risked opposing this monopoly and in so doing helped to bring it down. 

It was fairly obvious that the best way to defeat the Whiskey
Trust was to start up new distilleries — but that was an expensive and potentially risky strategy.  From St. Louis to Philadelphia to Buffalo, a handful of whiskey men understood the challenge they faced and met it to the detriment and eventual defeat of the Trust. 

In 1891, William H.”Billy” Lee with four other St. Louis whiskey wholesalers decided to break with the Trust.  With an established reputation for rectitude, it is not clear what motivated Lee initially to agree to its monopolistic terms for providing him with whiskey.   A likely rationale was the stranglehold that the Trust held on whiskey supplies, essential to the many brands Lee was rectifying and selling under his own brand.  With time and experience, however, Lee and other wholesalers found strong objection to Trust financial dictates.  By yielding they seemingly had placed themselves, as the Chicago Tribune put it, “hopelessly in the grasp of the Trust.”

Lee and his colleagues made their move in April of 1891, as reported in the New York Times, a strong opponent of the cartel.  Headlining “REBELLING AGAINST A TRUST, the Times wrote:  “For some time there have been rumors of discontent among the whiskey dealers of St. Louis, and rumors of rebellion have been rife.  Many wholesale dealers and jobbers were quite free in  their expressions of dissatisfaction with the manner in which the Trust was managing the whiskey-making business of the country, practically controlling it and dictating to the dealers.”

In retaliation, Lee and the others collaborated on building a whiskey plant of their own, calling it the Central Distilling Company.   At the cost of $400,000 (equivalent to $10 million today) they constructed their distillery at a premier site just outside of St. Louis.  The plant came on line late in 1891 with a daily mashing capacity of 4,000 bushels of corn.  This was enough for the partners to satisfy their own requirements and to have additional supplies to sell.  Initially Central Distilling kept sales prices at levels comparable to those set by the Trust.  By the following year, however, the new corporation announced it would reduce the price of spirits to $1.10 a gallon, undercutting the Trust significantly.  If there had been an unspoken truce, this move broke it.

While Trust officers were furious, there was little they could do.  The St. Louis action had begun a downward slide for the monopoly.  In May 1892, owners of the cartel’s five best paying houses announced that, because none of them had been paid the rent required for Trust control, they would repossess their plants at once and put whiskey on the market independently.  Opined the New York Times “It looks as if the Whiskey Trust is doomed.”

Meanwhile, during the same year across the country in   Philadelphia a group of liquor dealers announced the purchase of 103 acres in Bucks County to build “an enormous distillery for the production of rye whiskey.”  Their leader was James Edward Maguire, an Irish immigrant whose “Montezuma Rye” was a nationally recognized brand.  Although vigorously denied, this project was a direct challenge to the Trust.  The monopoly had driven up prices for “raw” whiskey used by wholesalers, like Maguire and his allies, for blending their proprietary brands.  By creating their own source of supply these Philadelphia whiskey men were striking a blow to end their dependency on the cartel.

The new facility, organized with capital of $3 million (equivalent to $60 million today) was titled the Pennsylvania Pure Rye Whiskey Distilling Company.  “Nearly every large liquor dealer [in Philadelphia] holds stock in the company,” said one press account.  A prominent member of the venture noted:  “I suppose those 40 firms represent about $30,000,000.  All the subscriptions have been paid in.  The plant, shown below, eventually had a capacity of producing 30,000 barrels of whiskey a year.

Mcguire was quick to disavow any intent to be antagonistic to the Whiskey Trust.  The reasoning behind the new distillery was to established an industry close to home, he contended, economizing on shipping and by buying local grain.  He added:  “Then too, we are going to try some new experiments in the manufacture of whiskey which are entirely original, and which, if successful, will have a tendency to revolutionize things.”  

Nonetheless, alarm bells must have gone off in the Trust’s Peoria headquarters.  Not only would they lose the Philadelphia houses as customers, members of the new distillery were being encouraged to promote sales of excess whiskey stocks to dealers outside the membership.   According to the press account: “Each stockholder will virtually be an agent, and will use extra efforts to sell the whiskey, because he will reap a decided benefit from it.”   And the Trust would be the loser.

Meanwhile, resistence was mounting elsewhere.  Beginning in 1901 Moody’s corporate digest included a business “incorporated under the laws of New York State for prosecuting a general distilling and wholesale business in cologne, spirits, alcohol, whiskey, medicinal preparations, etc.”   Henry M. Naylon of Buffalo was among its founders and later its leader.  Moody’s did not mention what the liquor industry knew:  This organization represented a backlash to the Whiskey Trust -- and was succeeding.  

Walter B. Duffy, owner of two distilleries in Rochester, New York, in 1900 had organized three major Kentucky distilleries and five New York liquor manufacturers into the New York and Kentucky Company.  The idea was strength in numbers to prevent the Whiskey Trust from threatening them.  A chief Duffy ally in this gambit was Naylon who owned three distilleries in Buffalo under the name, The Erie Distilling Company. 

The New York and Kentucky Company, with main offices in Rochester, subsequently found success as it defied the Whiskey Trust.  The capital stock of the company consisted of $1,000,000 in preferred stock and $1,000,000 in common stock, about 25 times that in 2018 dollars.  It was paying dividends of 7% on the preferred stock and 6% on common.  Moody’s listed the assets as “real estate and appurtenances (conservatively valued at upwards of $850,000), fixtures, machinery, brands and good will of said concerns, all absolutely free from mortgage, debt or other liability.”  

The company’s real liability was Walter Duffy, its president.   Duffy ran one of the most notorious whiskey operations in the country, criticized for his outrageous advertising,  blasted in the press for shoddy products, and hounded by Federal and state officials for selling his liquor as medicine.  When Duffy died in 1911, the directors took no time in naming Henry Naylon the president and chairman of the board, likely because of his “squeaky clean” business reputation and clear leadership qualities.  

Under Naylon’s leadership from his Buffalo offices, the New York and Kentucky Company continued to thrive and to pay handsome dividends to its stockholders.  Meanwhile its despised Trust rival, officially the Distillers & Cattle Feeders Company,” was falling apart, reputedly because of its weight of debt and reputation for violence.  

As fast as the Trust shut down distilleries, new ones like those in St. Louis, Philadelphia and Rochester had sprung up.  Price fixing in the whiskey industry had proved to be elusive.  Meanwhile Naylon’s organization rolled on until its operations and those of its member distilleries, including the Erie Distilling Company, were forced to shut down by National Prohibition.  That event also forever killed off what remained of the Whiskey Trust.

Note:  More complete information on each of these three whiskey men can be found on this blog.  The posts are Billy Lee, March 22, 2017;  James McGuire, November 18, 2017, and Henry Naylon,  February 14, 2014.  More information on Walter B. Duffy can be found in a post devoted to his colorful career, May 31, 2011.

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