Knives Out on Ritz-Carlton Yacht
When there are multiple suspects all conspiring against a company, how do you figure out which is the murderer?5 Ritz-Carlton Yacht Collection is in tough financial straits, according to the Financial Times:
Lenders to the Ritz-Carlton Yacht Collection, a luxury cruise line backed by distressed debt specialist Oaktree Capital Management, have agreed to push back repayment dates and relax debt terms as the group struggles to fill the rooms on its opulent mega-yachts.
There are a few unique suspects here beyond the obvious company killers of management, market, and strategy.
They are selling a luxury product that is eclipsed6 by a clearly more luxurious product. They are selling a cruise experience with yacht in the name. It is natural for customers to have their minds wander to an actual yacht experience which is a clear substitute:
Prices can top $50,000 for a week-long voyage that the company says “combines the residential feel of Ritz-Carlton hotels with the freedom of yachting”. Guests benefit from a personal assistant, outdoor swimming pool and menus designed by Michelin-starred chefs.
So they are selling a feel, while yachts themselves are selling a lifestyle, signaling, and content. This is a positioning squeeze—susceptible to lower priced competition from below that can still claim being luxury and from above where there is such an obviously more luxurious experience that’s accessible to many of the customers, at least on occasion.
Forget positioning—look to ownership—Oaktree was a founding investor back in 2017 and now owns 55% of the company. Ironically, as a distressed debt provider, it is uniquely well suited to navigating these choppy waters.
Was that a self-fulfilling prophecy? Do investors who are less familiar with debt restructurings and distressed scenarios actually build in more of a buffer in projections and planning than those who are so well seasoned at it?
While not a problem when the sailing is smooth, being owned by “distressed debt specialist Oaktree Capital Management”7 is undoubtedly the wrong branding for a luxury cruise company. Many of the people in the target market are financially savvy and are curious about the companies they are spending large sums with. They’ll find out who owns it and look beyond the Ritz-Carlton name licensing. This isn’t as true at the Carnival end of the spectrum, but it is for the luxury end. Distress is the last word you want in the back of your mind when it comes to a cruise and that casts enough doubt to delay on a deposit.
Maybe it’s time for Oaktree to get off at the next port of call. Two of the three suspects include them and the other isn’t something that is fixable. Bon voyage!
Bourbon’s location
We have a lot of bourbon sitting in Kentucky. It’s time to start getting more creative with it. From the WSJ:
Kentucky is sitting on roughly 16.1 million barrels of bourbon—the equivalent of around 300 million cases—according to the Kentucky Distillers’ Association. That’s the largest reserve ever, enough to last as much as 10 years, according to industry estimates.
This comes after a 2022 COVID peak in production and consumption. Consumption has dropped off for a variety of reasons:
More Americans are joining the ranks of the sober-curious, and inflation has prompted some steady drinkers to cut back. GLP-1 weight-loss drugs are having the same effect. Cannabis and THC beverages are widely available, offering a hangover-free buzz.
Looking at the data, there has only been a roughly 4% drop in sales since that 2022 peak for bourbon.8 So while fewer people are partaking and people who are partaking might be doing so less—demand hasn’t fallen off a cliff to match the sour mood in the alcohol industry.
Some of the demand has also shifted to other alcoholic drinks, which seems missing from a lot of discussion. The mix of drinks Americans are consuming is always changing. Within other alcoholic drinks, Fireball has been growing quickly.9
The production side was driven by the predictable never a shortage without a glut to follow (quoting Nassim Taleb10).11
Bloomberg recently profiled bars that are getting creative with cheaper drinks, proclaiming: “Death to the $20 Cocktail.” Barkeeps are going further to offer $10 cocktails that are still profitable.12
The price point goes down easier for customers:
At the lower price, Beary says there was an immediate behavioral shift, as customers started quickly ordering second and third rounds.
“The price point often encourages you to order a second cocktail. I would rather make less margin and have you order a second cocktail and leave knowing you had a good time and want to return,” Beary says.
There’s no reason to be whiskey-dour. Price can still move product. More important is to not forget to go where the customers are. Stoli, which owns Kentucky Owl, was building a 420-acre tasting destination in Kentucky complete with pyramids and a massive complex before it went into bankruptcy last year:
Each building is designed to have a distinct structural form that incorporates visual elements of the local bourbon-making process. The existing quarry pits will be turned into beautiful lakes with crystal-clear, limestone-filtered water.
Kentucky-as-tasting-destination should be inverted. Bring the barrels to the big cities and create experiences around them. Mini-stills for demonstrations, knowledgeable presenters, tasting rooms, and inspection and mixing of corn, grain, barley, and rye in different proportions.
There’s inspiration to take from other alcohol producers like the tequila and wine makers about how to craft experiences. Sure, going to Scotland for scotch tasting is awesome, but it’s not the right investment here. Instead of overseas, look to Baton Rouge and what Raising Cane’s has done with their fried chicken.
They took a heavily Southern brand—which would have a hard time getting visitors to its birthplace in Louisiana—and brought it on the road to where they could get unique exposure. With a prominent New York City location right in Times Square, they are taking the product and showcasing it to where the audience is—not just where they are. It doesn’t seem at all out of place, but rather like a vendor bringing their goods to market and selling themselves directly.
Right now, on the shelf, the product is just the product. With all that pent-up inventory, there’s a big incentive to turn that into stories and something more. If you can’t bring the people to Kentucky like Stoli was trying to do, then do what Raising Cane’s did and bring the bourbon to the people.