Rum Rush

(See front cover)

Not since President Harrison flung open the Oklahoma Indian Territory has the U. S. seen anything like what it will see next week when Prohibition is stricken from the Constitution. On that April morning in 1889 a surging column of men on foot, men on horseback, men in buggies, buckboards, dump-carts, whole families in covered wagons stretched across the prairie in a straight line. Men fought and cursed and jockeyed for a front position behind Federal troopers. At noon a bugle blast split the air. On to the old Indian lands swept 50,000 men, women, children, pioneers, drifters, squatters, scoundrels, in a mad stampede to stake out new homesteads. Before that day was done, horses had been shot, prairie fires were raging and men had been trampled to death. . . .

Last week the U. S. liquor industry was nerved for its deadline of Dec. 5, for a stampede into the virgin territory of a billion-dollar business. When Utah, Pennsylvania or Ohio sounded the bugle of Repeal, 20 states with one-half the U. S. population would automatically be open for liquor sales.

After months of jockeying and no little cursing, legitimate liquormen last week sought to hold the positions they had achieved. Square in the front rank were the whiskey men--Seton Porter of National Distillers with more than 50% of all U. S. whiskey in his saddle bags; Lewis Rosenstiel of Schenley Distillers with about 25% and the cream of the imported liquor agencies; the Thompson family with their huge distillery at Owensboro, Ky.; Emil Schwarzhaupt who quit National Distillers to branch out for himself in Bernheim Distilling Co. and who last week shouldered forward by purchasing at government auction 24,000 cases of liquor seized on the high seas; Harry C. Hatch who had come down from Canada to build a huge distillery in Peoria, Ill. for his Hiram Walker-Gooderham & Worts; a Philadelphia gentleman by the name of Simon ("Si'') Neuman who was sure his Publicker Commercial Alcohol Co. could make 17-year-old whiskey in 24 hours. There were importers large & small, California wine growers, New York champagne men, distributors, restaurateurs, hotelmen, bootleggers. There were realtors, hairdressers and elevator boys, all wild-eyed over their ''slices" in this or that liquor syndicate. In London and Glasgow, astute liquor brokers were selling "brands ' on which the printer's ink was still wet. All was hurly-burly in the rush for retail, wholesale and importing licenses and quotas. Broken Axles. Under the eyes of a platoon of U. S. revenue agents, a caravan of 100 trucks clattered through the still streets of Philadelphia one night last week, shuttling 50,000 cases of gin across the river to Camden, N. J. Pennsylvania's Governor Pinchot was jamming through his Legislature a $2-a-gallon floor tax on every drop of liquor in his great distilling State. Next night he signed the bill, dis patched troopers to the borders. The 50,000 cases of gin belonging to a subsidiary of Publicker Commercial Alcohol Co. was about all the legal liquor that escaped be fore the tax became effective. Gin can be made in a day. Whiskey takes years. But a gallon of aged whiskey, cut with water, alcohol and flavoring, makes ten gallons of potable blended whiskey. That is how, in various degrees, U. S. distillers intend to make their present stocks of 21,000,000 gal. go around. One-third of all whiskey in the U. S. is in Pennsylvania warehouses. Four-fifths of Schenley Distillers' precious 5,000,000 gal. are there. National Distillers has 2.000,000 gal. impounded. Until they pay Governor Pinchot some $14,000,000 cash they cannot touch it. Every distillery in the State shut down tight last week. Thousands of men were summarily discharged, grain and fuel orders canceled. Distillers felt like the settler whose axle broke just before the bugle blew.

Lamed Horses, Troubles on the Federal front also helped to send leading liquor shares into a deep, dark nose-dive on the New York Stock Exchange last week. First hint had come when a virtual embargo was clamped on liquor imports. It was learned that President Roosevelt had listened sympathetically to a Brain Trust idea of forming a government corporation to handle the entire wholesale liquor business. When the distillers submitted a code of fair competition, they saw it thrown in the wastebasket. Last week they were asked to accept a code, drawn by a special Roosevelt committee, which imposed rigid Federal control on the whole liquor business until Congress could tackle the subject. Provisions :

1 ) A Federal Alcohol Control Administration to rule the industry without benefit of any liquor representatives; 2) no additions to present plant capacity except by a certificate of necessity from the F. A. C. A. and absolute control of production and distribution through a quota system; 3) power to fix prices; 4) an agreement with the Secretary of Agriculture to pay "parity" prices established by him for raw materials. Administration of the separate codes for brewers, importers and distributors, which come up for hearings this week, was also to be placed in the hands of the omnipotent F. A. C. A.

The distillers swarmed into Washington in an uproar. They preferred some sort of Federal Control to the graft of State politics but this was more than they bargained for. And to the distillers who were just getting started, it looked as if the Government had deliberately lamed all their horses. Their chief objection was to the absolute power of F. A. C. A. Particularly obnoxious was the freezing of capacity at the Dec. 5 figure. Nearly every company was either building or rebuilding plants which would not be completed by that date. These unfinished plants the code simply scrapped. On this point, however, the distillers had hopes of softening the Government's views.

What perplexed liquor men was the fact that Prohibition was ridden out of the Constitution on the principle of returning liquor to the states. Yet here was a Democratic Administration doing its utmost to retain complete control in Washington. Observers saw unmistakable signs of Brain Trusting, with distillers given the choice of accepting an arbitrary code or facing the threat of a government sales corporation. No theory of social expediency was advanced in support of Federal liquor control, and observers concluded that it was merely another manifestation of the Brain Trust's passion for centralization. Die-hard Drys were more pleased than they had been all year.

The pre-War liquor business was the whiskey business. In 1913 the U. S. drank 135,000,000 gal. of rye and Bourbon, 5,000,000 gal. of gin, 1,500,000 gal. of Scotch, a trickle of Irish. Rum, wine, brandy, liqueurs cut no figure. The Prohibition liquor business was an alcohol business and liquor consumption rose to at least 200,000,000 gal. a year. No one knows how much the U. S. taste has changed in the era of cocktails, bad Scotch and gin-&-gingenle. That in 1934 the U. S. will drink at least 200,000,000 gal. of something seems certain. That that something will be mostly whiskey is the bet of most of the shrewd gentlemen waiting on the line for the Repeal signal.

National Distillers, The Whiskey Trust of pre-War days was a pretty poor apology for the ogre it was damned for. Most of the business was in the hands of local distillers and nine-tenths of the saloons were controlled by the brewers. The old Distilling Co. slipped steadily until the War. It made $10,000,000 in a final spasm in 1918, changed its name to U. S. Food Products Corp. after Prohibition, finally collapsed in 1921.

Not knowing what to do with the derelict Trust, bankers called in the great engineering firm of Sanderson & Porter to find out whether it should be salvaged or scrapped. A younger brother and junior partner of the founder Hobart Porter was assigned the job. Blond, dapper, fond of horses and tennis, Seton Porter graduated from Yale in 1905. A good engineer, he was assistant manager of a construction company on the West Coast before he joined his brother's firm. He recommended that the Trust be salvaged. The bankers were willing to take his expensive advice if he would do the salvaging.

In 1924 President Seton Porter of National Distillers Products Corp. took command of a hodge-podge of subsidiaries that made alcohol, yeast and maraschino cherries. He had a fair share of the dwindling medicinal liquor business and 9,000,000 gal. of fine old whiskey which belonged to people who had bought the warehouse receipts. He sold some of the subsidiaries, paid off $11,000,000 of debts, bought back most of his whiskey. But around his clubs when asked about his whiskey business, Seton Porter usually made a sour face, and did a quiet but extraordinarily able job of corporate management.

When Seton Porter sensed the groundswell of Repeal, things began to hum. One wintry day in 1932 he called up Henry Mason Day, the big, grizzled, taciturn partner of Redmond & Co. who loyally went to jail with his good friend Harry Ford Sinclair for jury-shadowing. Mr. Day picked up one of the seven telephones on his desk and listened to Mr. Porter's suggestion that National Distillers, aside from the dynamite of Repeal, was a pretty good thing at around $16 per share. Mr. Day cocked an eye at the ebony elephant on his desk. Mr. Porter needed to raise money for expansion. Mr. Day took 20,000 shares for his clients.

Since then Mason Day has never been very far from Seton Porter in his busy preparations for the big stampede. Among other things Mr. Day got the ear of President William E. Levis of Owens-Illinois Glass, who bought 40,000 shares of National Distillers for his bottle company. That deal on top of the famed whiskey dividend (one case, pre-prohibition, for each five shares) made Wall Street acutely conscious of National Distillers. In last summer's boom its stock hit a high of $124. Last month National Distillers contributed the first major stock-split to the New Deal market--three for one.

Penn-Maryland Late this spring Seton Porter had lunch with two other Yale men, Board Chairman Charles Adams and President Charles S. Munson of U. S. Industrial Alcohol. Upshot was Penn-Maryland, Inc., equally owned by National and U. S. Industrial. It was arranged that Penn-Maryland would make not only all of National's blended whiskey but also whiskey for Canada Dry Ginger Ale. Standard Brands will make Penn-Maryland's gin, will market its own brand, Fleischmann, through Penn-Maryland, make Canada Dry gin. The quality trade National Distillers reserved for itself--unblended Old Grand Dad, Old Crow, Old Taylor, Sunny Brook, Old Over holt, Large, Mount Vernon, In the importing field National Distillers took under its wing the old house of Alex. D. Shaw & Co.

About the only distiller who found more good than bad in the code last week was Seton Porter. Freezing the total U. S. distilling capacity at the present figure would assure National Distillers of its dominant position.

Schenley. Lewis Rosenstiel wanted to get out of the whiskey business when the years of the locust began but his family would not let him. So he sat down in Cincinnati to wait. He bought up stocks of medicinal whiskey, concentrated them in a warehouse in Schenley, Pa.--a move which, because of Governor Pinchot's tax, he sorely regretted last week. Later he bought the distillery that went with the warehouse and a few other distilleries. Last summer, having acquired a distributing unit and with it three capable whiskey men all named Jacobi, he organized Schenley Distillers Corp. He sold $3,000,000 of stock to the public through the banking house of Lehman Brothers, had himself commissioned a Kentucky Admiral and began to expand in earnest. All liquormen regard the Schenley management highly. They were all born & bred to the business, and excitable, aggressive Lewis Rosenstiel knows precisely what he is up to. Schenley will cross the line with about 5,000,000 gal. which entitles it to one-fourth of the total business and the rank of No. 2 whiskey company. But Governor Pinchot's floor tax hit it hardest. Like National. Schenley has big distilleries in other states but 4,000,000 gal. of stocks tied up in Pennsylvania cannot soon be duplicated.

Bacardi. Schenley also has an importing subsidiary whose list of foreign wines & liquors is the envy of every U. S. importer. Whiskey men and the importers have completely reversed their pre-War position. Today there are only a handful of major whiskey units where before the War there were hundreds. Where there were only 20 or 30 big importers before, hundreds have now rushed into this highly-specialized field. Schenley has Charles Heidsieck's champagne, ports and sherries from Gonzalez Byass & Co., French wines from Barton & Guestier, Noilly Prat & Cie., French vermouth, Dubonnet and the strong red Brioli Chianti of Casa Vinicola Barone Ricasoli. Most important, it has Bacardi.

Like the venerable Scotch brands, which were both bootlegged and faked on a grand scale, Bacardi rum is more widely known in the U. S. today than ever it was before Prohibition. No one was more surprised than President Jacobi of Schenley Products Co. when someone called up one day last month to say that Henri Schueg, shrewd, white-thatched head of Compania

Ron Bacardi, S. A., was coming right over to sign the papers.

After the papers were signed a Schenley official hurriedly sent for a bottle of Bacardi to show the Press. As it was passed around Old Henri Schueg began to chuckle. It was bootleg with a faked label.

Scotch. Rye and Bourbon are the chief whiskies of North America. Bourbon starts with corn and a dash of small grains. Irish starts with barley but particular Irishmen always drink Scotch. Scotch also starts with barley but the ingredients are better, notably its water. And Scotch is the chief whiskey of all the rest of the world.

The great Scotch whiskey trust, Distillers Co. Ltd., has about 100,000,000 gal. which it would dearly love to sell in the U. S. The big hurdle is a $5-a-gallon tariff which will probably be upped to stimulate domestic grain consumption. DCL, like Bacardi, has taken its time about the U. S. market, has kept liquormen with their tongues hanging out over who was to sell Johnny Walker, Haig & Haig, Dewar and Gordon gin. The assignment of only two brands was definitely known so late as last week: Black & White to National Distillers and Johnny Walker to Canada Dry.

Gordon Prize. That another potent company might take a belated position on the stampede line became apparent when General Foods Corp., which had previously notified stockholders explicitly that it was not going into the liquor business, called a directors' meeting for this midweek to vote on a liquor affiliate. Mc-Callum's Perfection, Haig & Haig and Dewar's Scotch were the chief whiskeys in General Foods' eye, and also Gordon's Gin. The last was a cause for much debate and speculation. The importing company that had Gordon's in the old days had come sufficiently to life to give DCL legal pause in assigning this agency afresh. Observers waited to see whether the Gordon prize would fall to the General Foods crowd, led by its hustling Chairman Edward F. ("Ed") Hutton and Thomas L. Chadbourne, or to National Distillers for whom, for the sake of his insurance business, James Roosevelt was doing some discreet wangling, including a visit at the White House with his father for the bigwigs of DCL.

Distribution. Having helped big National Distillers into the saddle for the supply stampede, alert Mason Day turned his attention to the next important phase of the new industry: Distribution. Under his deft hand Mission Dry Corp.. nation-wide sellers of orange, lemon and grapefruit juice, with 1,700 jobbers' outlets and a sales organization throughout the land, has been recapitalized and staffed up. ready to move whiskeys and whatnot from warehouses via retailers to sideboards as none of the distillers or importers except perhaps Schenley is yet prepared to do. After the stampede is well begun, as all liquormen are beginning to realize, the real money will go to the ablest sales organizations, just as it does in the modern motor industry.

Prices. It costs about $1.50 to make a case of whiskey (three gallons). Barreling, bottling, labeling and aging add about $6. The present Federal tax of $1.10 (which will probably be upped) a gallon adds $3.30. To this total production cost of $10.80 a case must be added the mark-up of middleman and distributor. For some time to come the retail price of reasonably good whiskey will be around $30 a case. Testifying in Washington last week, distillers said they could retail blended whiskey for $1.50 a quart but they did not specify the quality. Most whiskey men believe that in a few years even good aged whiskey will be as low as $1 a quart. Good Scotch will probably not go under $35 per case. Gin will probably retail for $1 to $1.50 per quart.

Demon, The new liquor business is not a rebirth of the old. Clearing the two is more than Prohibition. The War and post-War period so rusted the old machinery that even the base castings had to be scrapped. Liquormen know they will be exposed to fierce public criticism. What got under their skins at the code hearings last week was Washington's bland assumption that they were totally incapable of selfdiscipline. They were convinced that, if given a chance, they could push whiskey into a respectable place high in big business circles. Seton Porter and his associates were keenly aware of their social responsibilities. For his own company, as No. i whiskey man, he cherished the hope that it might some day have the swank of Britain's DCL. Competition would be terrific and rum was a Demon but all he wanted was a fair opportunity to saw the horns off his beast.

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