*Distillery Trending*

[EarlPins]

Smaller scale distilleries are popping up everywhere. More than often, many owners have little to no experience distilling prior to opening their business. Why are you following the trend? Are you after fame, are you after the money?  Will you make money? When similar brands pop up over and over again, what are the consumers going to think? Cool, generic name/logo, campfire, outsourced spirits..whatever. What is the point? Will your brand really stand out, or are you just flooding an already saturated market? WIll these poorly made spirits sell for long? Does anyone take time to do things right these days? Oh wait, right is subjective..right? What's that you say? You went to an 8 hour distilling course, and to the ADI conference this year, opened a distillery and now you are a master distiller? Anyways..The same story is repeating itself with many new distilleries.  What is happening to the industry? What do you as an owner/distiller/investor/consumer/contributor think about the current direction of the distilling industry and its future? Will the small distilleries prevail, or wash away into the sunset? Is there still purity out there? I saw McDonald's starting using the word 'Craft' in their marketing now. Count me in for a craft sandwich, and a pour, excuse me, 'dram'  of whatever you got. 

[Julius]

Not everyone who has opened a distillery in the past decade is making substandard, sourced product. 

[Doc's]

Well alot went into that.   My company has not open yet, and I can attest to the over saturation in the local ABC stores with local brands.  Some of the local distillerys that I have visited have shown me the version you see happening, and others it is more obvious that they have tried to bring a more unique product, sometimes unsuccessfully to market.  I have always wanted to be a small business owner, I have floated many ideas over many years and growing up prior to the internet age I took a cautious approach to several business ideas due to the accelerated pace of change.  The idea of a distillery came up in Jan of 2018.  As with each prior business I thought about starting I vetted several reasons not to do it.   The only two that gave me pause was the amount of small distillerys opening up, and the ABC laws of the state.   I am by no means a master distiller, maybe a novice 8 gallon distiller in the back yard on a good day. I do have someone who is part owner that brings alot of experience to the distilling side.  I also have some creative ideas (with Rum at least).  I also have been very lucky to know some very skillful people that will help open and run the business.  While I am not planning on making millions I am planning on being able to leave my current job after a year or two and make this my living.   I think this industry is similar to the craft breweries in the early 2000s.  Many will do well and many will fail, but each year the big dogs will lose a very small amount of market share to the little guys.   I also think as with any business that someone starts, that if you do not enjoy the work and bring something unique then it can be more of a struggle to survive.  I find it amusing that several of the distillerys that we have visited where started by commercial real estate agents.  I also can say that my  appreciation for local gin, rum and wiskey has improved.  

Regards 

Matt

[Southernhighlander]

EarlPins,

80% of restaurants fail within the 1st 5 years.  It appears that the failure rate among distilleries is a great deal lower than that.  Does anyone have an idea what it is?  Also, I've seen more than one distiller who has been in business for a year produce superior products than some others, who have been in business far longer.  Some people learn a great deal faster than others.  Some never learn.

Personally, I think that there is room for thousands more small distilleries in the US.  

[Sator Square Distillery]

I think there's plenty of room for more distilleries. Those who make a good product and find a good niche will do well. Others may do well flooding the market through distribution. Those that don't know how to manage their growth and plan ahead will probably fail, but that's par for the course with any business. And then there will always be those distilleries that do everything right but still fail anyway.

I do sort of cringe when I hear someone refer to themselves as a 'master distiller'. To me that's an honorific that you earn only from your peers after a lifetime of work and a portfolio of products that are great by consensus.

[Roger]

There are various reasons For distillery success or failure vs the average business type (restaurants included ) such as:

Many Small Craft distilleries are secondary to an individual's source of income. Small operations that are run primarily by families who are employed at other jobs, and they are working due to the passion of their endeavor. This type of operation can usually survive as a hobby that may break even. 

alternatively

Retirement / heritage distillery where an individual has left their primary job or business and has a million or more to invest in a new field. They can float through the first few years while their decent local product matures long enough to be palatable. If collocated as a ditillery-pub with decent food, it can be a good model.

alternatively 

Either of the above can also be operate as fake distilleries, where they re-bottle and rebubble bulk products, giving them a better chance to survive by charging True Craft prices with minimal input expense. ( There is no other industry that has a national infrastructure set up to supply fake craft to business that then attempt to dupe customers).

alternatively 

Group funded operations that have sufficent backup cash to run without fear of making payroll. Again these can be run true or fake, or a hybrid of both which is quite popular wherein they rebottle bulk with the "premise" that at some point they will produce their own.

Because distilleries come in so many shapes, sizes and models, and are governed by so many different state laws, you really need to drill down to find the reasons for success or failure of any given brand.

None of this by the way touches on the plethora of fake "Big Liquor" craft offerings which are sucking up shelf space with the same old products they have been making for 50 years. 

prost

 

 

[kleclerc77]

[Stumpy's]

The industry is definitely doing some strange things. While the OP is a bit of a rant, it is certainly based in valid claims. The leadership council at the 2nd largest spirits distributor in the country said last year, that they expect within 10 years, 80% of existing craft distilleries will close their doors. Whether that is "gut feel" or based in statistics, I don't know, but it was brought up when "craft" became a topic in their meeting. Also, when you see a brand like Death's Door sell its equipment (200k cs/year capacity) and a 20k case per year brand for 2.5 million to the highest bidder, you have to wonder what is going on in the industry.

[bluestar]

47 minutes ago, Stumpy's said:

The industry is definitely doing some strange things. While the OP is a bit of a rant, it is certainly based in valid claims. The leadership council at the 2nd largest spirits distributor in the country said last year, that they expect within 10 years, 80% of existing craft distilleries will close their doors. Whether that is "gut feel" or based in statistics, I don't know, but it was brought up when "craft" became a topic in their meeting. Also, when you see a brand like Death's Door sell its equipment (200k cs/year capacity) and a 20k case per year brand for 2.5 million to the highest bidder, you have to wonder what is going on in the industry.

The distributors are probably right. They saw the same thing first time around with craft breweries, and craft distilleries look more like craft breweries the first time around, not like the renaissance of craft breweries today, which have a much higher success rate. But the example you raise of Death's Door is interesting, too, because it shows that a poorly run business can fail even with a great brand and decent product. What we need to be doing now as the first few craft distillers fail and new ones evermore start up, is getting info out on those failures so that we can do lessons learned. I am less concerned about how many new craft distillers are not good distillers than how many are not good business people.

[Foreshot]

26 minutes ago, Stumpy's said:

The leadership council at the 2nd largest spirits distributor in the country said last year, that they expect within 10 years, 80% of existing craft distilleries will close their doors.

Bull. Shit. They don't understand what is happening. The liberalization of distilling laws is changing the dynamics of the market. However uneven it will be, those areas that encourage it will lead the charge. In 10 years there will be cheap enough distilling equipment and enough training that new entrants to the market will have incredible market knowledge and experience. You can, even now, open a distillery for similar costs to a brewery. What you'll see is a proliferation of distillery brewpub style restaurants. Most likely you're going to start seeing more brewery/distillery or winery/distillery or triple brewery/winery/distillery. The hardest part will be distribution. If you plan on that for your business plan you're going to find it very difficult.

Think of it from a perspective of an existing brewery/winery. You can extend your product line for $50-$250k. Why wouldn't you? It's already many examples, and it's growing. There's ~7000 breweries, ~7500 wineries. How many distilleries will there be? 10k? How many stand alone vs combo? No idea. But when the equipment isn't that expensive and you only need to add 1-2 people a year, it quickly makes economic sense for a reasonable extension of the business.

Distribution will be come a mess. You can already see the trend - large players take bites of smaller players to see what takes off. Nearly the only way to get distribution outside of your region will be that way - or collective sales groups. Distributors will become overloaded and refuse most small players - or take them in and do nothing with them to placate the bigger brands. If it fails it won't be a huge loss to them. It's called portfolio effect for the VC crowd.

A tough business will only get tougher.

[Foreshot]

51 minutes ago, bluestar said:

 I am less concerned about how many new craft distillers are not good distillers than how many are not good business people.

That's the key. Like many have said before: We're all in a marketing business that happens to sell booze. If you don't understand that, you're going to have a very difficult time.

[Silk City Distillers]

Can't imagine how upset the OP will be when some kid becomes a multi-millionaire overnight by rebubbling GNS into CBD Vodka.

[EarlPins]

This is a great general discussion. Nice to see the wheels turning & to spread minimal awareness. I figured a few would be triggered. 

[Southernhighlander]

14 hours ago, bluestar said:

 I am less concerned about how many new craft distillers are not good distillers than how many are not good business people.

If you are not a good distiller than being a good business person is not going to matter very much.  Having owned many successful business, one of the first things that I learned was that if you don't have a good product you are not going to get very far.  However the reverse is true as well.  If you are a shitty business person or if you are dishonest you will never succeed, no matter how good your product is.  

I have never taken a business course and I have started every business that I have ever owned on a shoe string budget.  I started ADE with zero money, zero investors and ADE has never borrowed a dime.  The old adage that it takes money to make money is not true.  It takes brains, imagination, ability to take risks, organizational skills, hard work, perseverance, integrity, passion and love for what you are doing, and most importantly, gut instinct and intuition to make a successful business.  One of the hardest things about business is dealing with an ever changing environment. Things are almost always in flux.  You must be able to see where things are going to go and you must make adjustments before the changes occur.  Also you must be able to understand what you are not good at and what your weaknesses are and you must be flexible enough to change your mind and your plans in mid stream.  Being too rigid and stubborn is just as bad as being indecisive.  Also you must be good with people and be a good leader.  If you treat your employees badly, they will leave or worse yet, they will resent you behind your back and stay.  At the same time, you must distance yourself from them, be able to lay down the law in no uncertain terms and not be a pushover or they will never respect you and of course you must be able to fire those who are not up to parr.  If they cannot do their job it does not matter how many kids they have or how far they are behind on their mortgage.  If you keep a weak link you jeopardize all of your employees jobs.

Also having a big fragile ego and not being able to correct your own mistakes will lead to your downfall.  Admit your mistakes and learn from them, and then move forward.  I have the imagination, drive, intuition, integrity, love for what I do and fortitude, but I don't have the best organizational skills and I know that, which is why I have a COO who has those skills in spades.  Also because I sometimes work from gut instinct and reserve the right to change my mind at anytime. I would never have a partner or investor of any kind. 

 

[Huffy2k]

15 hours ago, Stumpy's said:

The leadership council at the 2nd largest spirits distributor in the country said last year, that they expect within 10 years, 80% of existing craft distilleries will close their doors. 

Wishful thinking on their part I'm sure...

[Silk City Distillers]

Too bad the alcohol retail and distribution model is prime for disruption and disintermediation.

Young consumers have zero desire for brick and mortar retail, especially undifferentiated retail.

We know these new generations are heavily motivated by experience, and that plays a major role in the brands they associate with, and buy from.

That said, the destination distillery, brewery, winery, cidery, or meadery represent a major threat to both retailers and distributors.  This is disintermediation.

I live in a major metro, I can buy from Amazon in the morning, and have it on my steps in the afternoon, even on Sunday, yes Sunday.  I have to drive to 5 different stores to find the bottle I want?  That's just f*cking stupid.

I don't have cable TV, I don't watch any of the channels they want to shove down my throat with their packages.  I want what I want, when I want it.  This applies to everything today, it's not just cord cutting.

If you don't have the beer I want, when I want it, I won't ever come back.  I don't care that you have 300 cases of Bud and Coors stacked up, or that you have 100 other craft brews.  I'll drive two hours, stand in line for two hours, get what I really want, post about it online, and not give a crap about your corner store ever again.  This is disruption.

Spend 15 minutes on the secondary market forums/communities online.  You'll see everything you need to about how passionate consumers can be about products.  Bourbon, beer, rum, wine, etc etc.   You'll also see everything about why alcohol retail will die.  Limited allocation, you need to spend thousands of dollars at a store to even have a chance at getting an allocated bottle, retailers charging absurd markups.  If you aren't lucky enough to live in a major metro, with a good retailer, you don't stand a chance at being able to purchase many products. There are dozens of large distilleries that would be immensely more profitable if they could sell direct to consumer.  There are probably hundreds of products that would  be wildly successful, but can't make it there, because the distribution and retail model will never allow for it.

Wineries are making a major push for direct to consumer, I suspect breweries will as well.  Recreational pot is passing around the country.  Sorry, but the protectionist, prohibitionalist, monopolistic alcohol distribution models are not long for this world.

[Southernhighlander]

13 minutes ago, Silk City Distillers said:

 

Wineries are making a major push for direct to consumer, I suspect breweries will as well.  Recreational pot is passing around the country.  Sorry, but the protectionist, prohibitionalist, monopolistic alcohol distribution models are not long for this world.

I think you hit the nail right on the head with this.

[bluestar]

9 hours ago, Southernhighlander said:

If you are not a good distiller than being a good business person is not going to matter very much.  Having owned many successful business, one of the first things that I learned was that if you don't have a good product you are not going to get very far.  However the reverse is true as well.  If you are a shitty business person or if you are dishonest you will never succeed, no matter how good your product is.  

We will have to agree to disagree on some things, and can agree on others. The last sentence above I certainly agree with the first clause, but maybe not the the second. And the first sentence I am not sure I agree with. I think there are plenty of successful small producers of spirits out there with low quality product, but marketed well and the right price point, can still be successful, if we define success as making a profit. You don't even have to be a distiller at all, just repackage product appropriately. And there are people that go to the grave having conducted business dishonestly, but successfully. Too many sadly.

[whiskeytango]

2 hours ago, bluestar said:

We will have to agree to disagree on some things, and can agree on others. The last sentence above I certainly agree with the first clause, but maybe not the the second. And the first sentence I am not sure I agree with. I think there are plenty of successful small producers of spirits out there with low quality product, but marketed well and the right price point, can still be successful, if we define success as making a profit. You don't even have to be a distiller at all, just repackage product appropriately. And there are people that go to the grave having conducted business dishonestly, but successfully. Too many sadly.

  In this industry great branding and marketing can (and often does) compensate for sub par product.  And on the flip side the best product in sub par branding will often fail.  

[Southernhighlander]

19 hours ago, bluestar said:

 And there are people that go to the grave having conducted business dishonestly, but successfully. Too many sadly.

I have owned successful businesses for over 40 years in several different industries.  I have never seen a truly dishonest person succeed in the end and I have seen a bunch of them try.   Dishonesty and business do not mix.  If you cheat people the word gets out, your business fails.  I have seen it time after time after time.  A low life piece of shit cheat who rips off their customers and suppliers as a matter of course may make money in the short run but not in the long run.  Corson is a prime example.  I can't think of any business person who screwed people who was successful in the end.  If they screw me or anyone I know, I do my best to personally put them out of business.  There may be a few that slip through the cracks, as there are always outliers in any situation, but I have never seen one that did. 

 

A great distiller produces great spirits.  A good distiller produces good or okay spirits.  A distiller that is less than a good distiller produces shit spirits. As far as shit spirits produced by someone who is not a good distiller, if I buy a bottle of craft spirits that taste like methanol and fusel oils, I will never buy that spirit again and I will tell everyone about it.  No matter how great the marketing, very few are going to come back and buy something called craft that is produced by someone who produces shitty tasting spirits.  The same goes for food.  If you go to a restaurant for breakfast and your hash browns sit in a pool of grease and your eggs are runny and the gravy taste like a soured iron skillet, you are not going to go back no matter how great their advertising and marketing are.  

As far as marketing goes.  You do not necessarily need to be great at marketing if you produce a great product.  The product can market itself. I did not pay for a single ad for the first 3 years that I owned ADE and I sold millions of dollars worth of equipment, but then again I started the business with zero monetary investment from anyone.  

 

 

[Southernhighlander]

15 hours ago, bluestar said:

 You don't even have to be a distiller at all, just repackage product appropriately. 

 I was referencing shitty distillers, not repackagers.

[Glenlyon]

On 4/22/2019 at 7:09 AM, Roger said:

Retirement / heritage distillery where an individual has left their primary job or business and has a million or more to invest in a new field.

This is sort of where I came from... I had harboured the concept of a distillery since the late 90's. When it became possible to build my own, I went for it. Coming up to a year later, I am in no danger of going out of business and I can barely keep up with the demand. This summer will be extremely busy and I'll be working flat out until Christmas. I do not use the term 'master', I think it sounds a bit stuffy and I have found the clients don't care. 

I don't have partners or investors, I started with a lot less than a million and the only company debt is a line of credit that ebbs and flows. The equipment and building are paid for. Even if I went out of business today, the increased value of my real estate with the rezoning, and distillery building, far exceeds the money I originally invested. I like the business a lot - and a lot more than the TV business. 

It helps for sure if you have prior business experience. People say running a distillery is complex and it is - but - nothing compared to the TV biz where we come from. So, for us, the transition has been relatively straightforward. What we didn't expect, is that we're actively competing with much larger distillers than we planned for or even considered. That's keeping us on our toes. 

In fact, back in the TV biz a decade ago, the same OP sentiments often went around. But, look at the business today! It's huge and growing. The same with the coffee business. So, I think there is plenty of room for growth and yes, some will fail - I'm watching one slowly imploding from a comfortable distance. As the industry continues to de-regulate, the boom and bust cycle will become more apparent. As in the TV biz, smaller companies will grow and consolidate into medium companies which in turn, will be swallowed by big companies. Hopefully, someone will want to buy me one day!

[Patio29Dadio]

Great topic and comments...

Quote

You can, even now, open a distillery for similar costs to a brewery.

Not where I live... not by a long-shot.  Start a craft brewery for $1MM.   Start a craft distillery for $3MM.  Anything less and you are fooling yourself, IMO.

Quote

the alcohol retail and distribution model is prime for disruption and disintermediation.

Agree with this.  But a problem is that there are too few craft distilleries and too many are not really that interested in or willing to do the work to collaborate and push the legislation forward.  There is strength in numbers and strength in money.   The craft distilling industry is struggling with both and hence falling behind.

Quote

If you are not a good distiller than being a good business person is not going to matter very much.  Having owned many successful business, one of the first things that I learned was that if you don't have a good product you are not going to get very far. 

I would expand on this a bit.  I think being a good distiller is not that difficult for many people to learn.   Not all, but many.  You have to have a multi-discipline, problem-solving type brain and personality, and great interest to learn and get better at a craft.  How have to have a passion for producing great things.  I think being a great distiller is an order of magnitude more difficult and takes almost a life-time to accomplish.  But I think the market is such that most consumers don't even know the difference between a great spirit and a good spirit.  Do you know how many people I know that tell me Fireball is their favorite whiskey!?   I agree that you will fail if you don't become a good distiller.  And when we say distiller, that means distillery operator.  You need to be good at all the process steps to get a final product that is good... better than average preferably.   But I think there are many people out there with the stuff required to become a good distiller.

And then the rest is business.   And there is where the real challenges are, IMO.  If you don't have a business brain, experience, contacts, etc... it is going to be very, very difficult to have a sustainable and successful craft distillery business... unless you get lucky creating some product that sells itself.   The actual business target is to grow a brand or brands.  The world is filled full of people that loaded up on expensive shiny things to do something they had a passion for but that never amounted to much business success... because the business acumen/talent was not there.   I think if you are passionate on the making side and not the business side, you better have a partner that fills the gaps.   If you suck at making things, then get real in your plans to hire a professional distiller and find something else to do in the business.   Trust me, there will be plenty to pick from. 

[Southernhighlander]

15 hours ago, Patio29Dadio said:

And then the rest is business.   And there is where the real challenges are, IMO.  If you don't have a business brain, experience, contacts, etc... it is going to be very, very difficult to have a sustainable and successful craft distillery business... unless you get lucky creating some product that sells itself.   The actual business target is to grow a brand or brands.  The world is filled full of people that loaded up on expensive shiny things to do something they had a passion for but that never amounted to much business success... because the business acumen/talent was not there.   I think if you are passionate on the making side and not the business side, you better have a partner that fills the gaps.   If you suck at making things, then get real in your plans to hire a professional distiller and find something else to do in the business.   Trust me, there will be plenty to pick from. 

I agree, if you are a good distiller or even a great distiller it won't matter if you don't have a head for business.

[Southernhighlander]

17 hours ago, Patio29Dadio said:

Great topic and comments...

Not where I live... not by a long-shot.  Start a craft brewery for $1MM.   Start a craft distillery for $3MM.  Anything less and you are fooling yourself, IMO.

 

That may be true where you live, but where I live you can start a distillery for $250,000.00 including the building and property and produce enough to make a good living.  You can rent a decent 3 bedroom 2 bath house here for $500.00 per month and you can buy 100 acres of beautiful wooded property, with pasture for $150,000.00  

It's like paradise for people like me. Castle state, stand your ground state, carry concealed with, no permit, no building permits required, no building inspections or inspectors to deal with, great Wild Boar, Turkey and Whitetail hunting, trophy trout stream 2 miles away, and best of all, no needles and human feces on the side walks and parks, like a western city I just visited.