Failure Rate

[Zamra]

Artisan distilling is in the early stages of growth in comparison to microbrewing. Noone can deny public demand for local goods, but has anyone looked a the failure rate of new distilleries?

If so, what were some of those insurmountable hurdles? Insufficient capital? Poor marketing/sales? Inferior product?

[Silk City Distillers]

I would be inclined to believe that most "fail" (run out of cash) before they even open their doors, which means if numbers exist, they are probably understated. If it's like any other industry, if you can make it to startup, there's a 55% chance you'll be around by the end of 3 years. If it's like any other startup I've worked with before, the #1 issue is poor management.

[Mash]

From my experience the base line of "success" depends on the alcohol laws of the state. The demand is there, but a distillery has to be able to capitalize on such. Capital, planning, management and execution will determine whether your still viable in 36 months. I've been operating for 38 and still struggle, 95% due to the state ABC.

[trinacria]

From my experience the base line of "success" depends on the alcohol laws of the state. The demand is there, but a distillery has to be able to capitalize on such. Capital, planning, management and execution will determine whether your still viable in 36 months. I've been operating for 38 and still struggle, 95% due to the state ABC.

Great topic! Mash, could you please elaborate a bit on state laws? Im out in California but would be very interested in hearing a bit about your particular difficulties. Ya know, knowledge is power and all.

[The AlchEmist]

Yes, from what i understand state laws can be quite the hassel

[Falling Rock]

I think I worry more about the city than the state. The feds and most states have been there and done it. There is an example to be followed. However, it will be a NEW endeavor for a lot of cities.

This is where your demeanor kicks in. Be easy and ready to bend or the city will break you financially. Water, sewage, fire, tax division,...

[Skaalvenn]

I've seen people in many different industries plan on selling X number of widgets per month without any real plan of how they are going to obtain that number. This is especially true when these people look at what it costs to operate their dream business. Say break even is $100,000 per year in sales, they then somehow come to the conclusion that they will be doing $200,000 per year in sales with no real research to back it up. They might say "There's 100,000 consumers in my market, and I'm going to capture just 2% of them" yet they have zero idea of how to get even 1%.

It sounds really odd that people do this, but I've seen it happen in multiple industries many times.

[Shindig]

Not to hijack this thread but I think this goes hand-in-hand, how many months should you have money set aside for, after opening, to cover operating expenses? If it takes you a year to open and have product ready to sell should you have 6,12,18 months set aside to cover all expenses after that first year so that you do not fall victim to undercapitalization.

[kckadi]

In the theme of how a state can work against a distillery...

http://bloomerysweetshine.com/why-we-are-closing/

and

http://www.mainstdistilleries.com/bloomery-plantation-distillery-to-close/

[TetonDistillery]

If so, what were some of those insurmountable hurdles? Insufficient capital? Poor marketing/sales? Inferior product?

I have seen quite a few fail in just the planning stages. They just don't get off the ground during the planning stages and we never hear about them again. Quite a few people contact me about buying stills or fermentation tanks. So during those discussions I hear about the issues they are having in their process.

Quite often it is just lack of capital. Or the building location they were planning on doesn't work because of zoning issues or a variety of reasons.

Personally, I think there will be a lot of failures in the next few years. There are quite a few small distilleries operating where the owner has another day job and is working for free at their craft distillery. That can only go on for so long before the owner gets burned out and quits. These operations are likely breaking even so long as the owner works for free, but not profitable enough to allow the owner to really devote 100% of their time to the operation. That type of operation won't have the capital to expand even if the product is good.

Making a good product is easy. The key to a successful distillery is figuring out how to market, distribute and sell your product.

[Dehner Distillery]

I have seen quite a few fail in just the planning stages. They just don't get off the ground during the planning stages and we never hear about them again. Quite a few people contact me about buying stills or fermentation tanks. So during those discussions I hear about the issues they are having in their process.

Quite often it is just lack of capital. Or the building location they were planning on doesn't work because of zoning issues or a variety of reasons.

Personally, I think there will be a lot of failures in the next few years. There are quite a few small distilleries operating where the owner has another day job and is working for free at their craft distillery. That can only go on for so long before the owner gets burned out and quits. These operations are likely breaking even so long as the owner works for free, but not profitable enough to allow the owner to really devote 100% of their time to the operation. That type of operation won't have the capital to expand even if the product is good.

Making a good product is easy. The key to a successful distillery is figuring out how to market, distribute and sell your product.

Agreed.

When I started out with my distillery I kept my day job. I can not thank my boss/ mentor enough. If it wasn't for him I probably never would've made it. Having a day job and trying to do a distillery is tough especially when you're the only one doing it. If you have a partner or somebody else help and it's a whole lot easier. But just randomly take off a day or two throughout the week to go work at the distillery and you probably won't have that day job for very long. I would say that the transition from day job to full-time distiller was probably the hardest. Your not really one or the other, and you need your day job to pay the bills but if you're at your day job you're not helping your distillery grow but if you're at your distillery you're not making really that much money to even pay the bills so it's a Catch-22.

I would say one of the biggest parts of actually being successful is having a family i.e. wife and kids that are understanding of what needs to happen. There are lots of long nights, lots.

Another thing is don't buy everything under the sun, start out with the bare minimum's and build your distillery based on what you actually need not what you want.

Having a distillery has been a long time coming from me, this is an absolute joy and passion that I cannot express how much I love what I do. I truly enjoy talking to people that have this and share the same passion I do for this industry. I think there has been and will be very very many exciting times to come.

Joey D.

[Shindig]

Dehner-

Great info. I plan to hold my day job for the first 6 months or so and then transition to full-time distiller. I have a day job schedule that helps give me more free time than most and that will help. The problem I have is I am doing this all on my own. I do not have a partner and wonder how many others on this forum have done it on their own?

What equipment do you see as a must and what are things people are buying that they just do not need?

[Skaalvenn]

Dehner brings up a very good point. I'm starting our distillery almost entirely on my own and thankfully I don't have kids and my "day job" is just something I work at for 3-4 hours each morning and I can take off as much time as I need whenever I need.

I could not imagine doing it by myself while having kids and/or a full time job. Just trying to get the distillery to the point of having all the federal/state/local approvals requires a lot of time to talk on the phone and have meetings with people working during normal business hours.

I'm guessing this is another reason why people have investors--just someone with the time, experience and extra capitol to make things happen.

Shindig: I'd imagine businesses are the adult version of teenagers and fast cars. People go broke buying bigger, better, and shinier things that they really don't need yet to get the job done. Similar to teenagers going into debt on their car just because they want the nicest car NOW instead of slowly building it up over a few years time. I'd love to have the coolest distillery in the coolest building in the coolest part of town. but since I don't have the money in my wallet for that I've got a functional distillery, in a functional building and it's located in a affordable part of town.

That's just my uneducated guess/opinion.

[mkatrincic_NC]

Just to also clarify -- Bloomery isn't closing. They were in a tight bind regarding the taxing for direct sales out of their distillery. They were going to end up with a loss per bottle.

However, they got grassroots support that translated into a hard and fast lobbying effort in WV...and as of today, their bill has passed. See: www.facebook.com/BloomeryPlantationDistillery

Their Post: WOOHOO!!! The Bill has passed the House!!! The last step is for Governor Tomblin to sign it! Thanks to Rob's heroic efforts; our Delegates Upson, Espinosa, and Skinner; all of the West Virginia Senators and Delegates; and all of YOU, our fans, an your incredible grassroots campaign! Everyone's hard work and efforts made this happen! Please see the link below to sign Delegate Skinner's "SweetSign" petition asking Governor Tomblin to sign the bill! Thank you all!

smile emoticon

http://www.delegateskinner.org/urge_the_governor_to_sweetsi…

______

Back to the question at hand too. States with direct sales to their consumers out a distillery usually have the upper hand at breakeven being on a shorter time scale. We're not as fortunate in NC and will be working hard on the marketing side to gain awareness as soon as our products hit shelves later this Spring.

[TetonDistillery]

Back to the question at hand too. States with direct sales to their consumers out a distillery usually have the upper hand at breakeven being on a shorter time scale. We're not as fortunate in NC and will be working hard on the marketing side to gain awareness as soon as our products hit shelves later this Spring.

That is a very good point to stress. Having a direct to consumer sales option is critical. If you can somehow capture the distributor and retail profit margins for some of your sales, that is the key to having a solid foundation for your business.

If you have to survive with 100% of your sales being to distributors at that wholesale price, then you are in an uphill situation. So it really depends on your state laws.

For example, in Idaho we have to sell everything to the state liquor division. Then they sell through the state stores and smaller contract stores. We operate a state authorized contract store from our distillery in Idaho, but the margins are very thin with that process. The state of Idaho keeps the bulk of the markup above the wholesale price. Other states have it MUCH better than we do in Idaho.

[Cali_Shine_Distillery_co.]

This is a great post thanks for the advice!!!!! hope you don't mind me adding my story

Budget and plan first and foremost!!!!!

We are currently in month 15 and can make product but are waiting on label approval. some of the things we did to cut costs were:

Basically when we say we picked the most affordable place in town we actually picked a broken down warehouse with no water, electrical, and critically no toilet that was a pain haha and brought it up to code ourselves. which was awesome cause we got a epic deal

fought the fire sprinkler issue!!!! which fyi the last code book in California said that if your building was in the proper zoning and under 14,000sqft you don't have to have as long as there is a 32ft perimeter around your building, (that the fire department can get around) and the fire marshal agrees because although the code states this he is the final say. so promise the whole fire department free tastings and free swag because most fire people are awesome!!!!!!

Built and fabbed our equipment ourselves mostly from flat sheet metal and alot of help from friends and worked 10-14 hrs a day for just under a year till we got close to finished started applying for full time work agian to pay the bills and are currently learning how to beat feet at distribution which seems to be its own hurdle.

but if your new at commercial distilling like me take each problem with a grain of salt and instead of getting caught up with the insane amount of problems that come up take each one, one at a time and believe in yourself because you can do this.

also join your state guild ASAP so much help and guidance!!!!!!!

but otherwise don't forget to enjoy your time and love what you do it makes a whole difference being able to work for yourself at something you love to do!!!!

[stevea]

I have seen quite a few fail in just the planning stages. They just don't get off the ground during the planning stages and we never hear about them again. Quite a few people contact me about buying stills or fermentation tanks. So during those discussions I hear about the issues they are having in their process.

Quite often it is just lack of capital. Or the building location they were planning on doesn't work because of zoning issues or a variety of reasons.

Well by that measure I think I'm on plan C, after two fails. Thankfully it's best to make mistakes early and more cheaply.

I believe my main hurdles, around here, are regulatory. The Feds are fine, and the State is generally OK (the tax calculation in this control state is insane) , tho' you have to chat w/ the state EPA and do some paperwork, and we understand how to get to the right zoning area, but then you get into fire codes and - that is murder and huge money issue.

I'd love to hear from others on the topic, but I believe that getting into a city requires that getting someone in the city politics on your side. It's not as simple as finding a location, and getting the check-marks from zoning and fire code.

If you can find a rural place zoned agricultural there is an exemption from code (but safety is still safety).