For the exclusive use of B. Baker, 2015.
Harvard Business School
9-189-065
Rev. June 28, 1993
Daniel Dobbins Distillery, Inc.
In early August 1988, David Dobbins, president and chief operating officer (COO) of
Daniel Dobbins Distillery, Inc., of Oakwoods, Tennessee, sat in his office pondering the results of the previous day's meeting of the board of directors and wondering whether he should submit the 1988 financial statements (Exhibits 1 and 2) to the Ridgeview National Bank of Nashville,
Tennessee in support of a recent loan request for $3 million, or whether he should wait until after next month's board meeting to clarify some of the preceding day's discussion. A great deal of controversy had arisen over the 1988 reported loss of $814,000 and how this result should be reported to the bank. The controversy revolved principally around the accounting treatment of various expenses reported in the "other costs" section of the operating statement. Mr. Dobbins knew that a decision had to be reached on these matters quickly, because the company had reached a point where additional working capital was needed immediately if it was to remain solvent. Company History
Daniel Dobbins began distilling whiskey in 1880. Daniel had come to Oakwoods,
Tennessee from Scotland the preceding year and had decided to carry on in the family tradition of beverage manufacture. He purchased a tract of land on a high knoll adjacent to a small stream fed by a limestone spring and began to distill bourbon whiskey in an old barn behind his home.
His business grew from a trickling in 1880 to a million-dollar firm by 1911. He attributed this growth to the high-quality, distinctive bourbon whiskey that he produced. The quality of "Old
Trailridge," Dobbins's only brand of whiskey, was claimed to be the result of the unusual iron-free spring water used in the distillation process and the specially prepared fire-charred white oak barrels used in the aging process.
From 1911 to 1933, the years of prohibition in Tennessee, the distilling equipment lay dormant, and it was not until late in 1934 that the company began to operate once again in a newly constructed building. Sales rose from $500,000 in 1935 to nearly $5 million in 1941, when the plant was converted to U.S. defense production of commercial alcohol.
In 1973, David Dobbins, great-grandson of Daniel, took over as COO of the company and nearly doubled sales revenue during the next 10 years. Mr. Dobbins felt that the company had grown because of the stress it placed on marketing a distinctive, high-quality, high-price product
and because of its continued concentration on only one brand of fine bourbon whiskey—Old
Trailridge. The company's advertising stressed the uniqueness of the cool, bubbling spring water used in the distillation of Old Trailridge and pointed to its use of "specially prepared and cured fire-charred white oak barrels." This promotion had been very effective in establishing a brand image of Old Trailridge in the consumer's mind that connoted full-bodied mellowness, camaraderie, and old-fashioned backwoods quality.
In 1987, the company produced just over
