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Top Reasons Why a Micro-Distillery would Fail?


OCS - Bear Wallow

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  • 1 month later...

I've done some consulting in distilling and a LOT in brewing. I've seen a couple of failures in distilling.

Here is what I've observed:

Most distilleries that get up and running fail because they run out of operating cash flow. There are other reasons, but that's the main one. The factors that can take bites out of your estimated operational funds are things like

-equipment failure and maintenance...this will happen. If you've never rebuilt a pump before, it might take you several tries (and sets of parts) to get it right. Newbs simply don't have the experience with equipment to know what you can let go, and what you need to stay on top of. Not to mention what CAN happen in circumstance (want to know how many chiller pumps I go through in a year?)

-changes in city/municipal/state ordinances...you never know when some agency that never even knew you were around may pop up and say "Hi, I'm from the City Enforcement Committee, and did you know that you're in my jurisdiction? Is that wall rated for 4 hours fire breakthrough, because you're next to a rock climbing facility, and is that explosion proof glass? By the way, because you make items for consumption, you're going to need a grease trap right here..." I exaggerate, but not really.

-poor accounting practice...I am guilty of this, and it was a long time before I simply admitted I hate it and hired someone to keep me in line.

-underfunded marketing...no product, no matter how good, sells itself. No matter how many medals it gets.

-laziness...you'd be amazed at how prevalent this is. Many owners seem to want to Facebook their businesses to death. Make booze! No use talking about it unless you're DOING it!

Other things that I've seen sink a distillery are really poor packaging...usually the owner designed it and are emotionally attached to the look, when the consumers are NOT. Often seen with older owners that have a distillery as a side project. I know of one distillery that closed after an OSHA audit. The upgrades were too much money, and the fine was simply staggering. I've seen two distilleries that entered into unwinnable legal disputes that ended up killing the companies. And once I witnessed a brewery/distillery lose a trademark dispute and they had sunk too much of their money into their package and branding. They lacked the funds to rebrand, and ended up selling. I've never seen a brewery or distillery shut down by TTB (though I'm sure it happens) but I have seen them shut down by steam inspectors, municipal inspectors, neighborhood alliances, and divorces.

I cannot exaggerate the value of a good consultant. Hey, I'M a consultant, and I hired a consultant! An experienced hand and eye to see what you have missed is invaluable. And dang it, people, if things are at the point where you are at your wits end and need a consultant, then you need to LISTEN to them.

Consultants are the guys who did it themselves, made the mistakes, saw the consequences, and can help you prevent those mistakes yourself. And these forums are invaluable. The very existence of a forum like this is what makes much of this possible for many of us. Can you imagine doing this pre-internet?

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Natrat, I'd be curious to hear about the OSHA violations. Or from anyone. What are folks doing to make sure they are compliant with OSHA? I've been to many breweries, wineries, and distilleries and say we match up well with anyone, but I'd like to see what others are doing.

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My biggest failure, (almost), was that the laws for selling spirits at a farm distillery is legal in Virginia.... unless phrohibited by law. It was the second statute that I did not know about.

Not knowing what you don't know and even when you think you have looked is a real ballbuster.

Thus my original plan exploded to a scope 5 times what I had planned. So did the capital requirements. Cash can make up for some mistakes but it can not solve all problems. Cirius Vodka is an example of a good product, poor management, or whatever happened there, going bust.

Far more complicated than I ever anticipated.

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Shakers vodka declared bankruptcy due to too much debt. $2 million in debt for radio ads. These guys had experience and an award winning vodka, but they still failed.

http://www.bizjournals.com/twincities/news/2012/02/02/shakers-vodka-bankruptcy.html

It was backed by the founders of Pete's Wicked Ale. So they had the experience and the money, but they decided to quit rather than pour more money into it.

http://minnesota.publicradio.org/display/web/2012/02/04/shakers-vodka-bankruptcy

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31 posts, and not one mention, unless I missed it about failing on account of poor product. I see this being a huge problem. A lot of bad product is being made. You can fill a lot of store shelves and make money. But if the customer does not like the product, he will not buy it again. It happened with craft brewing and I see it happening with microdistilling.

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31 posts, and not one mention, unless I missed it about failing on account of poor product. I see this being a huge problem. A lot of bad product is being made. You can fill a lot of store shelves and make money. But if the customer does not like the product, he will not buy it again. It happened with craft brewing and I see it happening with microdistilling.

Everyone has their own palate, but I can definitively say that to my somewhat educated palate 4 of the top 5 craft beers are complete crap. I don't know what shakeout you're imagining to be happening in the craft brewing world, but the fact of the matter is that their numbers continue to explode (especially on the "nano" level).

The sad fact of the matter is that "poor product" is well below #31 on the list of reasons that a microdistillery would fail. True, many microdistilleries are putting out product that doesn't suit my particular palate, but this doesn't seem to keep a large number of them from selling thousands of cases of the stuff.

I couldn't disagree with fldme's assessment of the situation more, even though I believe that he and I are in complete agreement about how important quality is to ourselves personally, and our own philosophies. IMHO, the vast majority of the cash-wielding public care more about the 31+ issues mentioned above than they do about "poor product". If you haven't seen a "poor product" sell like hotcakes because it has awesome sales and marketing behind it, than you're not paying attention. If you haven't seen an absolutely stellar product go the way of the dodo because it lacked sales and marketing, then you're probably not buying product with packaging that looks like shit just because you want to see how it tastes.

Nick

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Everyone has their own palate, but I can definitively say that to my somewhat educated palate 4 of the top 5 craft beers are complete crap. I don't know what shakeout you're imagining to be happening in the craft brewing world, but the fact of the matter is that their numbers continue to explode (especially on the "nano" level).

I assume fldme was talking about craft beer in the 90's. Lots of people were making bad beer, then the market collapsed. I think something similar will happen with craft beer today, but I suspect it will have more to do with nanos being unable to scale up, due to competition for investment funds and customers.

It's basic economics, if someone is making a good profit, other people will try to compete with them, driving overall profit down, until some companies go under, then profits go back up. The only defense is a high barrier to entry, so the liquor laws and capital requirements are probably the only thing keeping the craft beer industry profitable right now.

I'd say craft beer is somewhere between the "greed" and "delusion" stage right now:

bubble-lifecycle.gif

I do agree with Nick's overall point that marketing, sales, and luck are usually more important to business success than humble craftsmanship.

You know those old razors everyone used to shave with before WW1? They were so nice, and lasted so long, all the companies that made them went out of business, because people only bought one their whole life. Gillette and Schick started making disposable razors that wear out quickly, and they're still around.

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I thought it was because of all the "crap" out there that we decided to become craft distillers?

I wish that the beverage business WAS merit-based, but the truth is that good marketing trumps good product every time. And I've never seen a distillery or brewery with a good marketing campaign fail...even if their product was undrinkable. In fact, if you make beer and it fails to sell, I guarantee it's because your marketing isn't as good as the crappy beers that ARE selling well.

But we are supposed to be different...we make what WE like, and hopefully a small customer base creeps out of the sand to support us. It's either that, or we all aspire to have our little brand take off like a jet plane, and we embrace dubious industrial process to churn out enough product to satisfy our ever-growing empire of celebrity endorsers!

Personally, I hope to make product which is good enough to sit on the shelves of passionate establishments. I want to be the "you gotta try this!" at the bar, and I want my branding to hold up to the quality of the product.

Distilleries often fail from inadequate packaging or marketing, and if the product sucks as well, it's doomed. If you think your product is substandard, I would hope that you would remove it and improve it BEFORE you fail.

As for the craft beer industry, remember that some of the biggest and most profitable breweries make beer that is so awful it spawned an entire booming craft beer industry! There are more craft breweries making mediocre beer than making great beer. I think that the real movement in craft AND distilling is localism, not necessarily craftsmanship...although I'd like to believe otherwise.

And I've never seen any brewery or distillery fail because their process sucked (many do) or their owner was a goon (many are) or even if their product is CONSISTENTLY off-flavor or infected (you'd be surprised!). One other thing I've seen sink a brewery is a product targeted at a really dubious niche market that is overproduced and never brings cash flow. Don't put all your eggs into one basket unless it's a very big basket! If your target market is female teenage goth scuba divers, you might want to do a small pilot run before you dedicate your summer production to that product.

The establishment I am at right now exists only because of a conceptual beer that the owners want to bring to market. We (the brewers) have managed to stave off making that beer in quantity because it is precisely one of those niche things that will not appeal to 99% of our current customers. I personally managed to sidestep the issue by making gin and whisky instead!

Anyhow, I've gotta go now and make some DELICIOUS whiskey that will probably never get on the shelf because no one can agree on a label :-P

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  • 3 weeks later...

I thought it was because of all the "crap" out there that we decided to become craft distillers?

I wish that the beverage business WAS merit-based, but the truth is that good marketing trumps good product every time. And I've never seen a distillery or brewery with a good marketing campaign fail...even if their product was undrinkable. In fact, if you make beer and it fails to sell, I guarantee it's because your marketing isn't as good as the crappy beers that ARE selling well.

But we are supposed to be different...we make what WE like, and hopefully a small customer base creeps out of the sand to support us. It's either that, or we all aspire to have our little brand take off like a jet plane, and we embrace dubious industrial process to churn out enough product to satisfy our ever-growing empire of celebrity endorsers!

Personally, I hope to make product which is good enough to sit on the shelves of passionate establishments. I want to be the "you gotta try this!" at the bar, and I want my branding to hold up to the quality of the product.

Distilleries often fail from inadequate packaging or marketing, and if the product sucks as well, it's doomed. If you think your product is substandard, I would hope that you would remove it and improve it BEFORE you fail.

As for the craft beer industry, remember that some of the biggest and most profitable breweries make beer that is so awful it spawned an entire booming craft beer industry! There are more craft breweries making mediocre beer than making great beer. I think that the real movement in craft AND distilling is localism, not necessarily craftsmanship...although I'd like to believe otherwise.

And I've never seen any brewery or distillery fail because their process sucked (many do) or their owner was a goon (many are) or even if their product is CONSISTENTLY off-flavor or infected (you'd be surprised!). One other thing I've seen sink a brewery is a product targeted at a really dubious niche market that is overproduced and never brings cash flow. Don't put all your eggs into one basket unless it's a very big basket! If your target market is female teenage goth scuba divers, you might want to do a small pilot run before you dedicate your summer production to that product.

The establishment I am at right now exists only because of a conceptual beer that the owners want to bring to market. We (the brewers) have managed to stave off making that beer in quantity because it is precisely one of those niche things that will not appeal to 99% of our current customers. I personally managed to sidestep the issue by making gin and whisky instead!

Anyhow, I've gotta go now and make some DELICIOUS whiskey that will probably never get on the shelf because no one can agree on a label :-P

This is one of the best comments I have read on this site. Couldn't agree more.

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  • 2 weeks later...

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