Prepair for the FALLOUT!!!

[Dehner Distillery]

Ironton,

Good view. But you can drink a lot more beer than you can cocktails. Plus sounds like you are not serving beer.... 

I have not given in at all, as a matter of fact we just expanded again for the 4th time. I am one of the highest production distilleries in the mid-west. Not going to lie contract bottling is a great thing.

If we can just get this FET down..... O MAN..... let me spend some money......

 

Southernhigh..... seems like your guy needs a continuous still not pot stills.

 

I really like Glens rant.... I guess its how you look at it. I am super careful, but then you have people that just dive right in thinking they know everything. I have seen time and time again new distillers come into my place and see some of my used of re furb'ed equipment and think "gross or something like that" they go and buy brand new stuff.... now most are out of biz or on there way out, meanwhile I'm chugging along.

Best of luck to everyone. I never would wish anyone out of biz because that is not a road I would ever want to go down.....

[Ironton]

On 8/10/2017 at 9:56 PM, Dehner Distillery said:

 

Good view. But you can drink a lot more beer than you can cocktails. 

 

I would disagree with that statement. I believe you are referring to volume assuming that a cocktail has a higher ABV, but this is not normally the case. Cocktails and Beer are both measure by ABV and the average cocktail has an ABV similar to an average craft beer. If it is more then just charge more, much like a high ABV beer. With the same ABV, Glass for glass I can personally drink more cocktails than beer based on the fact that I get full after a few craft beers and I can drink cocktails till I black out before I get full. And based on the scene in Denver I would say most consumers would agree. The only problem that this poses is serving too many craft drinks and having blacked out millennial's in the tasting room.  *** I do not condone getting blacked out ****

 

To back the logic I explained before,  66oz of craft beer ~ $24 and 66oz of cocktails ~ $48. The great thing about our industry is that the market share is so large, that it allows everyone the opportunity to do things their own way and be successful... To each their own. 

I am glad to hear you are doing well and continue to grow. I am excited that the market as a whole has plenty of room for growth and I am even more excited that there is almost limitless amounts of room for innovation. 

[Foreshot]

On 7/23/2017 at 4:18 PM, Ironton said:

One comment I found interesting was the 1000g for beer at $8 a glass. In my area its more like $7 a glass, but non the less that is about $56,000 on a 1000g batch. On the same 1000g system with a 10% yield you get $68,000 assuming you sell a 1.5 oz shot for $8. Now get your yields up to 20% and sell your drink for $10 (comps in my area) you get $170k. 

Being mostly a quant I like that way of comparing the two. 

[nabtastic]

Y'all need to stop assuming rational behavior. Yes, some individuals will behave rationally.  But most will still buy the "cheaper gas" at Costco and never realize the significant drop in mpg (if you catch my analogy)

[RobertS]

I do, but I think that's a bad example. I track my mpg and haven't found a major efficiency difference between any of the major brands. (Sorry for the tangent)

[Elixir Distilling Company]

Interesting  some of the math in here..... but I think math alone is oversimplifying things...

Lets assume the beer is half the margin of the spirits. When you sell a drink you can either pull a beer from the tap ............ or you can have your drink mixer pull some fresh herbs (that you need to bring in every couple of days), muddle, add crushed ice (that someone likely smacks with a wooden hammer), flavors, juices, cap and shake then pour and pass... dont forget rinse out shaker etc. 

The costs of the addtional time, man power (you have alot of people to serve) and all the extra mixers and attention has to be added into the equation. And lets not forget you need to pay that "mixologist" too. And also the difference in the time and energy (gas/electricity) just to make the product...

I agree the profit in the end is still higher - but not quite as drastic as youd think.

Just my .02

-Scott

[Dehner Distillery]

great inputs

 

[Midstate]

Great Discussion...as with most debates, i tend to think all sides make some great points.  A lot of people like to view the craft distilling industry from the perspective of the craft brewing industry.  What a lot of people overlook is the actual history of craft brewing.  If you look back at it, Sam Adams (who contract brewed his beer out of other brewing facilities early on) got started in 1984.  That was 33 years ago.  Take a look at the growth curve for the craft brewing industry.

Slow steady growth from 1980 to 1990.  Big explosive growth from 1990 to 2000.  Dip from 2000 to 2005.  What happen?  Did craft breweries stop opening from 2000 to 2005?  No, not at all.  But talk to any guys who opened from about 1995 until 2005 (and who are still in the industry) and they'll tell you stories of all the "new guys on the block" who had deep pockets, saw the trend in the industry and thought they were going to take their hedge fund investment and become the next big craft brewery...well, a lot of those guys bailed out between 2000 and 2005 and so the industry as a whole saw a dip in the number of functioning breweries.

I think what Dehner is talking about is a similar dip that may hit this industry.  There may be a lot of new people interested in craft breweries.  But the general population as a whole don't have a clue what a craft distillery is.  A lot of the general population doesn't have any idea what bourbon is vs rye vs whiskey vs corn whiskey.  There's a lot of education and awareness that needs to be developed within the average drinking public.  What do most people go to the bar and order...and you can look at this in the Beer, Wine, or Spirits.  XXX-lite, house-red, rum and coke.  Now obviously in the Beer industry you're far more likely to get a beer drinker who asks "what craft beers do you have?" or "what do you have on tap?".  In the spirits industry I feel we're still a few years (5 or 10) away from people asking "what craft bourbon do you have?", or "do you carry JON DOE rum? 

There are a lot of people jumping into this industry, and best of luck to each and every one of them.  As several people mentioned, it will certainly help to have a story, have a marketing concept, and have a way to pay the every day bills.  Knowing that it takes you X bottles worth of sales to pay your monthly lease payment is great.  Knowing it will take X bottles worth of sales to pay off your $500,000 initial capital investment is also great.  Unfortunately if you have 10 investors who are looking to recoup their money as make X% on it within a certain number of years, you may be working like a dog for that many years before you make a dime.

There's certainly a good chance that there will be a fall out...it might be some people who got into this industry with the greatest intentions, but didn't understand the reality of the market, it might be some of those guys who like to try to predict industry trends, dump lots of money into those trend and then write off the loss when it doesn't work out, it might be some people who built a phenomenal business but just don't have the heart to see it through to profitability.  I don't doubt that all these things will come to pass.  Keep in mind that we've also been in almost 9 years of economic growth.  Markets have been doing great.  But that doesn't always last forever.  Longest economic growth in recent history was 10 years.  If the market in general takes a dump, how many people will stop paying $40/Bottle for that craft bourbon and just buy a bottle of Big Distiller Bourbon for $20/bottle.

The craft distillery market certainly has many years of growth ahead of it, but its not going to be all boom for everyone, and there will certainly be growing pains, probably sooner, than later.

[MGL]

I wonder how much longer most distillers are going to keep working long stressful hours while being flat broke. In my area hardly anyone is making any money but they are swimming in debt. How many more years are people going to say "I hope things turn around in 2018" like they said about 2017, 2016, 2015.....

I saw a survey of craft distillers. There's way more small ones each year but each small one is selling less. The cost of doing business has not gotten any cheaper so the writing is on the wall. If the small ones were struggling in 2015, they are going to really be struggling soon. The excise tax change doesn't help if you're only moving 50 cases a month.

[philstill]

Interest rate hikes in 2018 will be a headwind for any distillers with debt. It will also be a drag on the whole economy.

For the new Trump Tax measures this is a excellent guide to prepare for the new implications of the US upcoming changes.

https://law.ucdavis.edu/news/news.aspx?id=8769

Direct link to the taxation paper:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3084187

There are separate links in this section The paper has also received extensive media coverage including articles in Forbes, New Republic, McClatchy News Service, Slate, Bloomberg BNA, Politico, CALmatters,  Which will give separate interpretations.

 

[Southernhighlander]

The new tax bill will help my businesses in many different ways.  Huge savings in corporate taxes and especially in inventory taxes at the end of the year.  Also this tax bill gives us all advantages when it comes to  buying new equipment.   I will be using the savings generated by the tax bill to grow my business by purchasing new inventory, adding new employees, buying new equipment and building more warehouse and shop space.  I think that we will see over 4% growth in gdp in at least 3 quarters of 2018.  We had 2 consecutive quarters of growth at over 3% in 2017.  

[nabtastic]

I can’t help but feel like a lot of these posts are saying “I had a poorly structured/researched business model so everyone else must be doing poorly too”.  Yes, lots of people will go out of business just like every other industry - that doesn’t mean the sky is falling.  It just means that “easy money” isn’t so easy and that you actually have to be good at running a business in this industry.  I’m not poking at any one specific post, btw. 

Happy Holidays y’all. 

[Southernhighlander]

13 minutes ago, nabtastic said:

I can’t help but feel like a lot of these posts are saying “I had a poorly structured/researched business model so everyone else must be doing poorly too”.  Yes, lots of people will go out of business just like every other industry - that doesn’t mean the sky is falling.  It just means that “easy money” isn’t so easy and that you actually have to be good at running a business in this industry.  I’m not poking at any one specific post, btw. 

Happy Holidays y’all. 

I agree 100%.  

Happy Holidays!

[paulNL]

What nabtastic says. I'm new in this industry but I hardly have any debt, and the amount of bottles I have to sell each month to pay interest and recurring costs is sow low I can carry it in one go, and I'm not Hulk Hogan's healthy nephew. Keep costs low, even if it means making other products then you originally intended (in my case gin instead of whisky), design your business to be as efficiant as possible, do not try to out-compete cheap brands and make sure you have some other income if business starts slowly (which it probably does).