When Max Shapira goes to work, he oversees 700 people who work at Heaven Hill Distilleries. It’s a family business and the sixth largest spirits supplier in the country. Tuesday (2/10), the company will fill its 7 millionth barrel of Kentucky Straight Bourbon Whiskey.
The company got started in 1934, the depth of the Great Depression. It was a really difficult time, but Prohibition was ending. It was a time of opportunity for those who were willing to seize it.
One of those willing to seize it was Shapira’s grandfather, who had come to the U.S. from Russia in the late 1800s, settling in New Haven, Ky., a little town close to Bardstown. He had started out as a peddler selling notions — thread, thimbles and similar material –out of a pack on his back.
Business was good, and he got a horse-drawn carriage to grow his business. A little while later, he opened a retail store selling not only notions but also clothing. Shapira’s grandfather had five sons, one of whom was his father.
When the five sons became of age, they were sent out to small towns around Kentucky to open additional retail stores. Shapira’s father was given the job of opening a store in Bardstown, selling things that were needed, even in the depths of the Great Depression — socks for 15 cents a pair, a shirt for $1.50, or a suit for a wedding or funeral for $25, or a pair of shoes for $6. Those were things people needed, and the store thrived.
By 1934, Prohibition was ended. The Noble Experiment had become the Great Disaster, breeding contempt for the law and launching a gang culture known as the Mafia.
Before Prohibition, Central Kentucky, the area around Bardstown, had been known as an area that produced good whiskey. It was a logical time to get into the liquor business, or to start a business, on a relatively equal footing with everyone else.
In Bardstown, a group of men with the technical knowledge met and decided to begin a distillery. They had the technical knowledge — what the pH factor had to be, how much grain was needed, what kind of grain was needed, all the things needed to produce a quality product.
What they didn’t have was money. So the Shapiras invested about $15,000 in the enterprise. That investment required a huge leap of faith: there was no store, no brand, no inventory, economic conditions were terrible — and before there would be a barrel of whiskey to sell, they would have to wait four to five years.
“Even if you had a vision, there was still the question of how much whiskey to make for an unknown product and an unknown brand in the middle of the Depression that you hope to sell four or five years later,” Shapira says.
Despite the unknowns, the distillery was built, production began. About 1-1/2 years later, but before anything was ready for sale, the people with the technical knowledge ran into financial difficulties unrelated to the distillery.
“They came to my Dad, and said, “Look, we are in financial difficulty. We either have to close this down, liquidate it — or you can buy us out,” Shapira said.
“So the family took another gulp — I’m not sure if it was a gulp of whiskey, but they took another gulp and said, ‘Okay’. For about another $17,000, they brought all the others out. That’s how our family became totally involved in the business. My Dad was living in Bardstown, and was given the job of seeing whether this thing would work or not.”
The five Shapira brothers had been given an ultimatum by their partners: Buy us out, sell the business, or just plain close it.
They pulled together $17,000 and bought them out. And then they had to learn to be distillers, because up until that time they had been selling clothing.
They hired some distillers and others to operate the fledging distillery and started to learn the business. “We joke and say they didn’t know a barrel from a box,” said Max Shapira, the third-generation in the business,
That may be funny. But what wasn’t funny was a desperation to generate some cash. “All my Dad could see was money going to barrels sitting in a warehouse. They really didn’t know if those barrels would be turned into money or not. So they came out with a brand called Old Bourbon Falls,” Shapira says.
“I don’t know if they were too proud of this, but at that point it was like any old port in the storm. They brought it out at two years of age, which was permissible under the rules and regulations. They sold a bit — enough to give the family a little cash flow to tide you over until they had something that was really worth while.”
Once the whiskey reached four years of age, they brought out a brand called Old Heaven Hill Bottled in Bond 4 Year Old. “That quickly became the biggest selling brand in Kentucky. That sort of indicated we might have something that can be expanded upon.”
The company grew, as did the industry. But almost immediately after those very early days before World War II, up until the mid-1970s, “The industry pretty much tried to put themselves out of business,” Shapira said.
“We shot ourselves in the foot so many times it’s hard to believe we survived. Part of it was our fault. But part of it was the government’s fault.”
No sooner had the industry gotten itself established, built up some inventory that World War II erupted and the government asked it to convert to making alcohol for the war effort.
That was the right thing to do, and the industry did it, but Shapira notes that also meant that “after building up some continuity of inventory, you had no additional inventory.” To be sure, there were a couple of holidays during the war in which distillers were allowed to produce whiskey, but only a small amount.
“After the war,” Shapira explains, “everyone thought the great times are here. So they expanded their plants, made a tremendous amount of whiskey, which in a few years started coming of age. They produced far more whiskey than was needed, so the pricing of bottled products went down.”
And then Communist North Korea invaded South Korea and the industry made more product, thinking that if the U.S. got involved in the Korean War there would be another request for the industry to join the war effort.
This time the government didn’t ask the distillers to suspend production and join the war effort. So they kept pumping out whiskey, leading to still more over-production and lower prices.
The industry thought there was still a thirsty public and the whiskey boom would continue for a number of years without worrying about brand development. Distillers didn’t recognize that what would ultimately carry the day would be establishing and building marketing and merchandizing support.
The result: Whiskey became even more of a commodity, and that led to even lower prices and consumers began to wonder whether their favorite whiskey was really such a great product or not.
“I don’t know if we cared so much about the history or heritage or about this product dating back all the way to the earliest days of the United States. But that commoditization was another problem that we as an industry created, based upon some of the stuff that the government did,” Shapira says.
A perfect storm was building for distillers, whose major product line was “brown goods” — Bourbon, Tennessee Whiskey and similar products. Distillers kept increasing production, pumping out more product — and lowering prices in which to move that product. “The business became more of a commodity,” says Max Shapira, president/ceo, Heaven Hill Distilleries.
And then vodka, which became “the sexy, mixable thing. Nothing on your breath, it’s odorless, and all the other things associated with that.”
Suddenly, Shapira says, “everyone thought about Bourbon as “that dusty old cowboy out of the west, sauntering in from a long day in the saddle, smacking his chaps, dusty going up everywhere, to a bar where he says, ‘Give me a whiskey.’ He shoots it down in one gulp, and it probably burns from the tip of his tongue to the bottom of his feet.”
So, by the late 1950s and early 1960s, “our goose as an industry was almost cooked. The outside analyst, dating back to the late 1950s and early 196s, were basically consigning Bourbon, whiskey specifically, to that great liquor store in the sky.”
That’s all changed. “It took some time to do it,” Shapira says, “but we finally got it right.
“We stole a little from our friends in the Scotch industry, because they had nice packaging. We stole a little more in that we had our product priced way too low, and we looked at other package good industries where the packages themselves were enhancing the overall imagery of various products — whether it was fruit or candy or something else,” Shapira says.
“So we started learning what we should have learned a long time before that — i.e., the tricks of the marketing trade.”
And there was one other thing: through the 1950s, 1960s and even the 1970s, U.S. distillers were just focused on business in the U.S. There wasn’t much interest in exporting bourbon around the world because they were doing fine, satisfying U.S. demand.
“So we let Scotch have all that market,” Shapira said. “We didn’t start early to try to develop the business outside the four corners of the U.S. In the early 1980’s we started to get our act togethr and brought out packages that looked great, attracted consumer interest.
“We started with single barrel products, products with unique alcohol and need characteristics, great bottles and shapes, different flavor profiles of different products. All that led consumers to say, ‘Let’s take a look.’,” Shapira said.
Then U.S. distillers got lucky along the way. The cocktail craze came back. “We had gone through the white wine — Chablis for dinner or lunch or whatever. All of a sudden the cocktail craze came back.
“That encouraged the concept of how Bourbon could be consumed in so many out-of-the-ordinary great tasting ways. Not just bourbon and water. It can be used in so many different mixes and so many different drinks. It’s becoming stylish and interesting to consume,” Shapira said.
And international expansion has helped in the overall image of the product around the world. You can’t make bourbon in Ecuador. You can’t make Bourbon in Taiwan, Nigeria or the Czech Republic. But you can make it in the U.S. It’s unique to the U.S.
A New Label, Bottle Saves Evan Williams
It’s said when the Rodgers and Hammerstein musical “Oklahoma!” opened, the theater marquee simply read, “Oklahoma.” The show was a flop. Desperate to boost attendance, the producer added an exclamation point on the marquee to read “Oklahoma!” and an enduring cLattsic was born.
Something similar happened to Heaven Hill Distillers.
In the early 1980s, when GenX came along, they wanted to try something different from what their parents drank.. That “something” was bourbon and its many flavor components.
“That’s what happened,” Shapira said, “We got the message like everyone else,” says Max Shapira, Heaven Hill’s ceo. “We brought out brands such as Evan Williams.”
Shapira’s father had trademarked the Evan Williams name, and decided Heaven Hill would introduce a brand named after Kentucky’s first distiller. “A great name, a great history of heritage and tradition. We brought out a fancy new bottle, with groves in the side where you could put your fingers, making it easy to pick up.
“It was a dismal failure. Dismal,” he recalled. “So my Dad said we’re going to discontinue it, and they broke up all the gLatts, but two or three distributors were actually having some success, and they said, ‘Oh, why don’t you continue with it.’
“My Dad called up our label supplier and said, ‘Look, we are discontinuing this. But we have been using a square bottle for some of our other products for a long time. Make up the cheapest label you can.’
“‘We have only white labels,’ the supplier replied. “Fine. I don’t care. Just do it,” said Shapira’s father. “So we got the label, put it on the square bottle and it started to sell.”
“We’re not quite sure if Evan Williams made Bourbon or not, but we know he was definitely Kentucky’s first commercial distiller.
“We also had Elisha Craig, who most historians say was actually the father of Bourbon. Elisha Craig made his whisky in 1789 and is credited as the first person to char barrels, put whisky in the barrels and make it under what now has become the standards of identity for the bourbon category.
“We brought out brands like that at 12 years of age, 94 proof. Along the way we expanded to single barrels, to small batches, and that continues today.”
Thinking outside the box, Shapira conceived a bourbon nog for the holiday season. It became Evan Williams Bourbon Nog. Heaven Hill recently introduced Larceny Kentucky Straight Whiskey, which Shapira says has been “quite successful for us.”
In addition to internal product development, Heaven Hill bought some brands. “Acquisitions will continue to be part of our strategy for years to come.”
For years a premium Bourbon producer, Heaven Hill’s strategy has evolved to include products in virtually every distilled spirits category. “We joke and say we have everything from 110 proof bourbon whiskey to root beer schnapps and just about everything in between.
Shapira: It’s All a Matter of Taste
“A lot of people always ask me, “Gee Max what is your favorite whiskey?” says Max Shapira, ceo, Heaven Hill Distilleries.
That’s a question he dodges, not because he’s doesn’t have a favorite, but “what I like may be not anything that you like. You may hate what I like and I may hate what you like.
“So I can’t really tell you the answer to that because we make so many different whiskey’s in so may different styles, different ages, and alcohol strengths and everything else that you have to sample it and see which one you like the best.
“I can tell you what I like best. But you can’t take that as the word that you are going to like what I like. Some people like scrambled eggs plain, some people like it with salt and pepper, and some people put Tabasco sauce on it. The basic thing is eggs but its eggs with different flavors and styles to the way that they are consumed.
“It’s the same way with our whiskey,” he says.
Max Shapira’s Biggest Accomplishment
One of the biggest tricks in business is keeping a family business in the family. Many are lured by the siren sound of instant riches through public offerings, and, soon discover — as did the Busch family of Anheuser-Busch and the Bancroft family of Dow Jones — that they have sold their birthright for a pot full of silver.
Others — such as the Fords of Ford Motor Co. and the Browns of Brown-Forman –navigate the public markets with more care. They’re able to maintain control of the family business, even while having public shareholders.
It’s much, much harder to keep a family business going as a strictly-family business. There are a lot of traps. One is not to do adequate tax planning. Another is the ever-present risk that family members will splinter with the result that the business is sold or fails.
But there are some family businesses that persevere for generations and even grow. One is the Crane family, who have been making paper used in printing national currencies, passports and banknotes for more than 200 years. Another is the Cargill family, that owns 90% of Cargill Inc., which has grown to become one of the world’s largest, privately owned businesses.
And then there’s Heaven Hill Distilleries. Max Shapira, the ceo, says his greatest accomplishment is keeping Heaven Hill America’s largest independent, family owned-and-operated distilled spirits company.
“We’re very fortunate to have three members of the next generation actively involve,” he says. Shapira’s son, Andy, is director of corporate analysis and runs sales in the West. Shapira’s daughter, Kate Latts, is VP-marketing. Shapira’s son-in-law, Allan Latts, is chief operating officer. Kate worked in brand management at Proctor & Gamble where Allan was a finance executive. “They are all highly passionate, highly interested,” Shapira says.
What Makes a Family Business Different
“It’s a difficult thing in a family business because you can’t make a family member join the company or ask a family member to come back under the duress of ‘It’s your familia duty to do that’,” Shapira says.
“It’s got to be something they want to do, because working for Proctor & Gamble or Bank of America or whatever is a whole lot different from working in a family company. So you have to want to do it. You can’t be forced to do it, because if you are forced and you really don’t like what you’re doing, (a) you’re not going to do a great job, and (b) probably most important, you’re going to be highly unhappy.
“So I’m fortunate that we have these three who are dynamically involved in the business, who love every minute of the day, generally, and who are highly knowledgeable, highly aggressive and want to perpetuate things for many years to come,” Shapira says.
It doesn’t always work out that way, Shapira acknowledged. “You can have people who want to do it, but don’t have the skill set — or they have the skill set but want to do something else.”
Shapira’s children didn’t enter the business immediately after graduating from college. Instead they followed his example and went to work elsewhere for several years.
Working Elsewhere First
In Shapira’s case, he got his MBA at Harvard Business School. “I thought I needed to understand a little bit of the flawed way managers would think. After that, I started working on Wall Street, for Morgan Guarantee Trust Co, which is now J.P. Morgan Chase & Co. It was an exciting time.”
Morgan Guarantee’s office was at 23 Wall Street, right on the corner of Wall and Broad streets. 23 Wall Street was known as “The Corner.” Built in 1913, the building was so well known that it wasn’t thought necessary to put the Morgan name on the building.
On Sept. 16, 1920, a terrorist blew up a bomb outside The Corner, killing 40 people and seriously wounding 143 persons. Many assumed the target of the bombing was the Morgan bank itself.
Shapira’s eyes dance as he recalls his time in New York. “I loved it,” he said. “My wife and I both liked the city. I could have lived in New York forever.”
But he left New York and returned to Bardstown, Ky., to work in the family business. We wondered why.
He conceded that the possibility of returning home “was always in the back of my mind. Those were the days where — at least from my perspective — you had great loyalty toward the people you worked for. They had treated me very nicely, and I was very pleased with what was going on at the bank.”
Commitment
Then the bank asked him to do something that would require a three or four year commitment. “I just didn’t want to give a commitment like that, then half way through say, ‘I’m sorry. I decided to do something different.'”
His Dad had made some comments, such as “What are you thinking about?,” but never really exerted any real pressure.
So Shapira decided to return home. “Maybe today people would do something completely different,” he says. “But that’s just the way it was. There was a great deal more loyalty to people who treated you well,” and Shapira felt he was at a decision point — either commit to Morgan Guaranty for a number of years or return home.
He returned to Bardstown as director of corporate development. “It was a position that allowed me to — I guess a lot of people thought — to meddle in just about everybody’s activity. Because everything you’re doing is to develop the corporation. It was a variety of projects ranging from production to marketing to merchandising to whatever.”
Heaven Hill was a much smaller company than it is today with a very thin management team. It was an opportunity to get involved in all aspects of what went on. “To this day, I have some general knowledge of exactly what goes on in those areas,” he said.
It sounded to us as if the job was somewhat similar to living a Harvard Business School case study, and that it was excellent training for a future CEO.
‘A Bit Like a Consultancy’
“It’s a bit like a consultancy,” he said, “because you are working on a variety of different projects in different functional disciplines within the business. It might be financial, it might be merchandizing, it might be marketing or organizational development or production.”
Shapira returned just as Heaven Hill was beginning to broaden its product line. “From 1934 to the mid-1960s — about 30 years — we were this one basic American whiskey company.
“We had developed a reasonably nice business around the country. Distributors and control states kept asking us for additional product, I guess because they liked doing business with us. So we started developing products internally — white spirits, imported products, etc. That is more of what I would call the internal product development aspect.
“Later there was the beginning of consolidation within the industry. There were a series of brands that came up for sale. We thought it made sense for us to take those brands where they gave us a greater presence in the market.
“We continued to diversity our product line and to give us some additional brands that could be developed and to move forward in an important way. That process really started in 1972 or so when I came back, and it has continued until this day,” he said.
In Developing New Products, Creativity, Passion Can Overcome Size: Shapira
Max Shipra returned to Heaven Hill in 1972 as director of corporate development, focused on both internal development of new brands and acquisitions. Over the years, his approach changed as the company grew.
In the 1970s and early 1980s, product development was pretty much, “I think this is a good idea. Let’s do it.” There wasn’t much research done.
“More recently, there’s been a good deal of consumer research and probing and getting a little bit of insight into what their thoughts and desires are,” he said. The truth is, the world has changed a lot from 1972.
“You have access to so much more information and that provided you with opportunities to dissect markets, dissect consumer behaviors, wants and desires. You now have the ability to target products and then target messages about those products to consumers you identify as potential consumers. So it’s become a bit more involved, sophisticated, if you will,” he said.
We wondered what percentage of new products in the 1970s became successful compared to how many were launched but failed.
“I can’t tell you that off the top of my head. But Elijah Craig was one of the 1980s products we brought out. We just said, ‘Gosh, we think this is going to work.’ We developed a nice bottle, a nice liquid, a great label. We’d say we want certain characters, we want them to be readable from a certain distance off the shelf or back bar. I don’t think there was any broad-based research at all.
“That was in the days when the Bourbon industry was in real trouble. We brought out a couple of brands during that that time. They didn’t do well. Let’s just say they’re not on the market anymore,” he said.
“But you always make mistakes. Even today you make mistakes. We’ve done some things along the way which sounded like a great idea and were the subject of research that just didn’t turn out the way we wanted them to.”
‘Everyone’s a Competitor’
We wondered how Shapira thinks about companies such as Diageo and Pernod Ricard. They’re so big they have to be the elephant in the room, we thought.
“Well, if you’re in business today, everyone is a competitor,” he said. “It’s not just Diageo and Pernod. There are craft people who have small entities who are competitors.
“I don’t know if you worry so much about them as you do about making sure you have the right stuff, the right organizational structure. The right people in the right slots to continue to identify new business.
“There are hundreds of things you can do in this industry in terms of satisfying thirsty consumer wants and desires that incorporate alcohol. It’s our job to execute, because you know if you have a good distributor you can bring most of these products to market. If the products are well thought out, hopefully you will be successful more times than you won’t be,” he said, adding:
“It’s not just in our industry but in so many industries so many of what one would call the big successes have come from small companies. Think about it: A little brand called Grey Goose. It wasn’t Diageo. it wasn’t Pernod.
“Even our own success. Look at Burnett’s vodka. Now it’s one of the largest selling vodka brands in the country. We’re not tiny. But we’re not Diageo, either. Look at Sazerac, with Fireball. Look at the water business: VitaminWater.
“You could go on and on,” Shapira says. “Our industry is replete with that. Many other industries are replete with that. So size, you know, doesn’t matter so much. Creativity and passion sometimes overcome size. That has happened so many time in this industry.
Selecting People, Working with Distributors
Selecting the right people is never easy, says Shapira says.
Shapira believes one starts by trying to grow talent internally. “The most important thing is an individual’s dedication to their job. If they are doing that, they will learn how to do a particular job.”
But, we wondered, how do you identify the person to move up, say to being a sales supervisor from being simply a salesman.
“A good salesman can be a good sales manager,” Shapira says. But, he concedes, “sometimes you make a mistake. It’s a difficult process to get right all the time. But you keep working at it.”
August A. Busch III, then chairman of Anheuser-Busch Cos., once talked about wanting to have 100% share of mind from his wholesalers. Soon after that, craft beers exploded and everyone started carrying other brands along with their main suppliers’ products. We wondered how Shapira gets attention from the mega-distributors that exist today.
“We have great relationships with all of our distributors,” the executive said. “We are always looking for the best distributor in each market to satisfy our requirements. So we do business with not only the largest groups — Youngs, Glazers, Southern, Charmer — but we also do business with certain independents in various markets as well. We have not adopted the philosophy that one distributor is what we need when what we need is one organization throughout the country. That seems to have worked well for us.”
Shapira told us he doesn’t like splitting is product line among various distributors. If a wholesaler gets the Heaven Hill line, he gets the entire line. “That gives them the best opportunity to understand the marketing and advertising and to understand the entire portfolio.”
It Takes People to Get Things Done
Earlier Shapira had told us he believed his greatest achievement was getting the next generation actively involved in the business. But, we wondered, what about his greatest commercial success.
“I think it goes back to building an organization,” Shapira said. “My Dad always said, ‘It takes people to get things done’.
“So if you don’t have an organization that is correctly structured, with the right people doing the right things at the right time, then no matter what ideal, and all working together is some team fashion, the best ideas aren’t going to be worth too terribly much.
“Suppose you have a great marketing idea that has to get produced in some way, and it’s got to be shipping in some way, and it’s got to be sold in some way. Unless you have all those functions organizationally working together, then you’re going to have a difficult time identifying the goals you want for the whole corporation,” he says.
“Sure, we build plants and acquire brands, and that is exciting. But the biggest success is building an organization. You don’t just hire 20 people and have an organization that is working like teamwork. It takes a long time to do it. The biggest achievement an executive can have is to build an organization that can function smoothly to act upon the corporate objectives.”
As we wrapped up the interview, we wondered if there was anything we didn’t discuss that we should have. Shapira, ever the builder, noted that his grandchildren were spending the summer working in the Heaven Hill Visitors Center, stocking shelves.
“Not liquor,” he added quickly. “Not liquor. Stacking shelves with knickknacks and things.”
Another piece in the puzzle of building and maintaining the family businesses.