Bourbon distilleries, a prominent feature on the landscape of Louisville, the largest city in the state of Kentucky, show that sometimes sticking to tradition and focusing on a niche can pay off handsomely.

Bourbon has been distilled in Kentucky since the 18th century, and the industry built around it has experienced many ups and downs, as consumer trends have changed over the years. Recently, however, the brown liquor has found popularity among younger drinkers, fuelling the biggest increase in whiskey production since the 1960s and attracting big multinationals to the state, including Diageo, a London-based alcoholic beverages firm which plans to build a new distillery and storage warehouse in Kentucky in a deal worth an estimated $115m.


“The bourbon industry is growing in leaps and bounds, and has boosted Kentucky's recognition around the world,” says Steve Beshear, Kentucky's governor.

A lot of bottle

Bourbon, together with Kentucky Fried Chicken, a fast-food chain established in the 1930s in the south of the state, has helped to bring Kentucky international fame, but Mr Beshear says there are other things that he wants the state to be known for.

“We are ideally situated when it comes to logistics and distribution, as we are within a day's drive of 65% of the US population, we have strong infrastructure, some of the most competitive utility rates in the country and a highly skilled labour pool,” he says.

Such claims are common among US governors, but investors seem to confirm Mr Beshear's assertions. Between 2008 and 2013, Kentucky attracted more than $8.6bn in new investments from companies hailing from 22 countries, according to data from greenfield investment monitor fDi Markets. Among the most popular sectors for investments were business services, automotive components and metals and plastics. These accounted for more than one-third of all projects launched in the state since 2008.

The biggest investments announced in the past five years include ConocoPhilip's plan to build a $3bn coal-to-natural gas plant in western Kentucky and General Electric's $600m expansion of its Louisville plant.

Leaps and bounds

Bourbon and chicken are not the only niche industries that afford Kentucky a generous amount of fame and fortune. The state hosts a world-renowned horse race, the Kentucky Derby, and is home to one of the strongest clusters of horse-related businesses in the world. The cluster centres around Lexington, the second biggest city in the state, and comprises 211 thoroughbred farms and employers such as Alltech, an animal health and nutrition company, and the US Equestrian Federation.

It is also a home to Keeneland, a horse racing facility and sales complex, which shows how lucrative the equestrian industry is. In 2013, Keeneland sold $534m-worth of horses to 50 different markets, according to Bill Thomason, president and CEO of Keeneland Association. “If you look at Keeneland, you see beautiful greenfield fields, but this is a business not a park. People come from all over the world to sell their horses here,” he says.

Next year, Keeneland will receive even more visitors than usual as its race track was recently chosen to host the 2015 Breeders' Cup, one of the most popular racing events in North America.

Community spirit

Sticking to tradition does not mean that Kentucky is stuck in time though. When, in 1986, Suhas Kulkarni, an Indian engineer, moved with his family to Louisville, he did not find the state particularly diverse or open to foreigners. “Back then, it was a very closed community, especially compared with cities such as New York and Chicago,” says Mr Kulkarni.

Nearly 30 years later, after having built a successful import-export business and IT company, Mr Kulkarni is the director of the mayor's office for globalisation and heads Louisville's efforts to become a more foreigner-friendly place. “As a city we want to be more globally competent and, in order to do that, we make sure that every nationality that is here, every language that is spoken here, is showcased as frequently as possible,” says Mr Kulkarni.

Among the initiatives aimed at reaching out to Louisville's foreign residents is Worldfest, an annual festival celebrating different cultures which includes a parade as well as naturalisation ceremony.

Being more diverse also has an economic dimension. “A growing number of investments are being generated in Asia and Africa, so when investors come here we need to be able to show not only that we have good business conditions, but we have [the international investors'] fellow countrymen living in our city too,” says Mr Kulkarni.

Carving new niches

While the state's demographics are evolving, its economy is also going beyond traditional staples. As well as the equestrian industry, Commerce Lexington, a local economic development entity, pursues investments into sectors such as software and IT and advanced manufacturing.

“We focus on niches and calibrate our offering to what is relevant for businesses in these niches,” says Jim Gray, the mayor of Lexington. Greg Fisher, Mr Gray's counterpart in Louisville, thinks along the same lines. “If we had a super strong network of universities pumping out PhDs in biotech, we would target biotech. But we do not. Instead we focus on sectors in which we feel we are the best in the world or we can be one of the best,” he says.

Louisville targets investments into advanced manufacturing, logistics and e-commerce. Its suitability to such sectors is evidenced by the fact that it is home to the global airport hub of UPS, one of the world's largest logistics firms. It also plans to establish itself as the world-leading centre for the fairly new but quickly growing lifelong wellness and ageing care industry.

“We have more companies in this particular space than any other city in the world, and we see a lot of start-up activity [connected with ageing care], while demographics around the world make it a sector with a huge potential,” says Mr Fisher.

Louisville is preparing to open the Thrive Centre, a facility aimed at testing and showcasing gadgets that can be used in ageing care. “We are not [targeting] the retiree communities of Florida, California and Arizona, what we are after is technologies and solutions that will help the [elderly] to live healthy, long lives,” says John P Reinhart, president and CEO of Innovate LTC, a Louisville public-private partnership that overlooks the Thrive Centre project, which is scheduled to open in late 2014.

Given Kentucky's record in carving out and cashing in on niche markets, it would come as no surprise to see the state adding lifelong wellness technology to its eclectic mix of bourbon, horse racing and chicken as a field in which it becomes widely recognised.