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Melkon Khosrovian

Branding idea: certified micro spirits

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With the recent Moon Mountain discussion here and the growing interest by large producers to create brands that look & feel like they're crafted by small producers, I recently spoke with Bill Owens about simple, cost-effective ways we could help consumers and the trade identify the genuine article.

The idea I mentioned involved branding bottles of spirits produced by qualified micro spirits makers -- e.g., those who sell less than 60,000 PGs per year -- with a sticker that would clearly identify them as "certified micro spirits."

This approach, where ADI would issue certification of each producer's "micro" status, would offer us a number of advantages:

- easy marketability to consumers and trade buyers for our brands and the category and

- a more defensible barrier to entry against big producers than trying to claim terms like "craft", "artisan" or "small batch" for micro spirits producers' exclusive use (though that would be great, too).

There would be some costs, as well, for instance:

- obtaining certification as a micro spirits producer from ADI

- buying and placing the stickers on our bottles

- changing our label art (for simpler production down the road)

I invite all to comment on this approach to promoting and protecting our turf (as well as my attempt to create the stick art). The next ADI meeting is a few months away and, if we get consensus that this is a worthwhile idea, I'd like us to have a more formal discussion there about implementing it.

Melkon

MicroSpirits_Logo.jpg

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First thought: this sounds like a very good idea. I also like the label art; simple, hand drawn look that speaks to the "micro" idea.

I do have some questions.

Why do you feel it's better to use "micro" than the "artisan" label that seems to be the most common identifier being used for small distilleries? In a related question, where does the 60,000 Proof Gallon number come from? This seems like a fairly rational number, but what happens when a successful small distillery that we all enjoy and admire surpasses that number? Do we suddenly pull the "certified micro spirit" label away from them, even if they continue to make a quality product in much smaller numbers than the large industrial distillers? The craft beer industry at some point switched from using the term "micro" to the term "craft" for this reason, as breweries like Samuel Adams, Sierra Nevada and New Belgium can hardly be called "micro" anymore, they still share a level of quality and an attitude that places them in the same category as smaller breweries, rather than the large industrial brewers.

Also, what would "obtaining a certification" entail? Would distilleries who make vodka from NGS qualify? How about those who blend and bottle spirits made by other distilleries, or have their brand distilled under contract by someone else? Or a distillery who is using NGS or blending other spirits while waiting for their spirit to age?

Again, I like the idea, but I'm curious about some of the specifics.

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Good starting thought, although I'd be interested in knowing how many are in the under 30k pg production class instead of the 60k figure.

And I expect others would agree this should not be a 'chargeable' item for ADI to do. If ADI were to charge for it, there's nothing stopping us from printing and promoting the same thing with our own label.

Again, good idea, but this really needs to come from the TTB with a new classification from them. And that classification should stipulate something about the owner of the distillery not owning ANY single or group of distillerys, nor import distilled spirits, to exceed the given amount. In other words, if they own a 20kpg distillery but import another 100k, they would be disqualified.

IF they import 20kpg and don't distill anything, they shouldn't qualify. This should be for actual USA distillers only. Why not get the government to try promoting their own home-grown product? We have 'certified organic' so why not 'certified artisan distilled' ?

Something does needs to change so there's some real truth in labeling.

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I support this concept in general, but we need to keep the cost/effort to a minimum. Would it be possible for ADI to create a sub-group for the real artisan distillers, who produce less than say 30k pg per year, based on a reasonable review of the business, perhaps including the data they have provided to TTB. ADI simply registers the brand "Registered Artisan Distiller" or something like that, and allows all members to use the brand as they see fit. Use it on you label if you want, ignore it if you so desire.

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Sam Adams is what this sticker is supposed to protect against. Sam Adams was brewed, bottled, and shipped by large breweries for a good ten plus years before they started brewing a fraction of the beer themselves. They still don't make 100% of the beer that they sell.

Which leads to the obvious question: I'd like to think that the very lowest bar for this kind of certification is that the owner of the bottle/label in question actually has a DSP, and actually crafts the bottle in question. Is this the case? If so, I'd suggest adding a minimum of 5 PG's per year to your criteria.

Respectfully, I think you're dealing with pretty sticky problems that I've outlined previously. This would throw quite a few companies, and personal friends, off the bus.

You've got all your contract labels where they don't own a DSP.

Then you've got all the smallish companies who are buying juice from others and sticking it in a bottle while making a token amount of their own spirit.

Then there's the recent distilleries that were bought out by the big guys and are no longer small at all.

How will you handle all of these groups?

I've stated before that I believe that it's a mistake to divide houses like this. Small vineyards and breweries have thrived just fine without any such certification (outside of maybe Guild mentions) on any of their marketing efforts. And the big distilleries are, in my opinion, doing the exact same things that we are.

This is only my opinion, and I respect your efforts here, Mr. Khosrovian.

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Would there be a fee for this service? Who pockets the profit?

Isn't this like making a privatized COLA? What would the TTB say about these addendum labels?

What is to stop Brown Forman and others from spinning off Small LLC,s that make the small batch and limited production varieties that meet this criteria. At the moment Brown Forman registers an LLC for each brand. The criteria is flawed.

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Guest Bobcat Hill

Truly like the concept, but only if we can add the certification to the label. Perhaps ADI can wrangle some key folks together to further explore the idea.

But with TTB's approval, we would prefer using a sticker promoting the local agriculture growing area where we distill. We believe identifying our spirits with ingredients expressing our unique terrior will hold more sales value for us. Yep, we'll be the only distillery operating on a thriving wine trail.

Our state, as many states do, has a state-made product certification program, too. Their standard is only 75 percent of the product must be from state sources. It's free, and includes free listings in all kinds of media. We'll be sure to do that, but we don't necessarily want the sticker on the bottle. We plan to go micro-local to emphasize a truly unique product and we are striving for 100 percent agricultural products from within our growing district.

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Melkon:

Count us in. It will probably need a little "refining" as per some of the suggestions posted here, but obviously the entire rules and stipulations of your proposal could not have been illustrated in a single posting on this forum.

Napa Valley Distillery will be applying for ADI membership and we look forward to participating in your proposed idea. BTW... love the label.

Let me know if I can help you with anything before then.

Cheers!

Arthur

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Thanks all for your quick responses. Here are a few comments to your points:

- Why "micro" vs craft or artisan?

That's what many of us agreed to as an objective, definable term for our community of spiritsmakers as part of our ongoing discussion about establishing a small producers' (e.g., micro) federal excise tax (FET) tier. We're still sticking with the term in that discussion because it's an easily definable and verifiable term and I thought it would make sense to stay consistent across all public communications -- whether for policy or marketing -- about us.

- Why 60,000 PGs vs 20,000 or 30,000 (or 5,000)?

Again, this figure dates back to our discussion about creating a lower FET tier. At the time the majority of participants in that discussion felt that 60,000 PGs (or was it 65,000?) would fairly well define small producers (e.g., micro) from startup to fairly well established status and let us build our businesses to critical mass more quickly with some combination of better pricing or better sales & marketing than we could otherwise afford. The 60,000 PG figure is similar in economic value to the volume that micro brewers and small wineries can reach before losing their beneficial FET treatment. For these reasons -- and because it's in all of our interest to establish a lower FET for us asap vs re-hash this discussion -- I'd suggest we put this aspect of our discussion to rest. Everyone who runs a smaller operation that is intended to stay small can help establish even smaller designations for their spirits size -- e.g., certified nano or pico spirit -- once we've established the micro category.

- Why not wait for the TTB to establish a micro spirits category?

The TTB has not established a micro brewer category and it's not likely to help create an official micro spirits category for labeling purposes. This is more the purview of marketing and a trade organization like ADI.

- Will ADI charge for these stickers or the right to use the designation on our labels?

My feeling is that any qualifying spirits maker who wants to use the designation of "certified micro spirit" should pay something reasonable for it. The monies will provide ADI with enough resources to ensure that: 1. the designation is clear and consistent (by defining and monitoring its use), 2. the designation is valid and credible (by certifying and monitoring its users) and 3. the designation is valuable to our audiences (by promoting it in cost-effective ways).

Please continue to add your comments...

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The issue of the actual title "micro" vs "artisan" has been well discussed in the forum over two years as we refined the definition to maintain the "smallness" without making the definition so narrow it stifles creativity. The term "artisan" does not imply "smallness" or "craft", it is a term of art which refers to a person with technical knowledge on the production of goods and could apply to the chief distiller at a Brown Forman plant as much as to any of the "craft" producers. And the term "craft" was decided to subjective and undefinable to be acceptable.

It is not the job of the TTB to create a certification program, this is typically the job of the industry association. The way into Federal recognition is, as Melkon points out, to get the FET reduction bill in place which will, de facto, define the category, regardless the name attached to it. That qualification is the 65K proof gallons agreed among those involved in the discussion on the definition of our category. It is reflective of the general top figure in most of the States where they have small batch distillery licenses separate from the general distillery category. The number is arguable, but it was generally accepted and is the number used in the lobbying effort to get the reduced FET. It allows for growth without tripping over into the category of "factory". I can foresee no prohibition against noting membership in the Industry Association on a label, so COLA should be no problem.

I'm not sure that charging for a sticker or a designation as "craft" or whatever is necessary. Once the ADI had undergone the changes hoped for and takes its place as THE representative Industry Association for the small distillers, the fact of membership qualifies the distillery as a Craft spirits maker and should be enough. It is the job of the new ADI Board and the members to promote the difference between Association members and the big producers. I see no benefit in further qualifying the membership, or breaking out certain members as more-crafty than others. We're either a membership organization of small distillers or we are not. The proposed qualification for a "micro spirits producer" and membership in the new ADI will be the permit and an operating licensed DSP; that pretty much covers it. And if a producer qualifies for the discounted FET rate, that qualifies that producer as "micro".

R

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Hey Melkon,

Really like the idea.

We are working on something similar and have a lot of people on board by now. Q1 of 2011 we will launch a certification group for distilleries. However, we will be focusing on grain/fruit producers and exclude the usage of NGS.

I've talked with Bill about it as well and agree with you that these things need to come from within the industry.

All the best,

Robert

KOVAL Distillery

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I make fantastic absinthe and gin using NGS, and you want to relegate distilleries such as us to the sideline? This is the definition (from Ralph) we should be looking towards "The proposed qualification for a "micro spirits producer" and membership in the new ADI will be the permit and an operating licensed DSP; that pretty much covers it. And if a producer qualifies for the discounted FET rate, that qualifies that producer as "micro"."

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This has nothing to do with relegating you to the sideline. I have no problem with people using NGS. You also have to grant people who don't use NGS though to use that as a marketing tool similar to organic and kosher.

Please also watch your language.

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Hey Melkon,

It is something that started out of discussions with a number of other distillers that were looking for another marketing angle. Bill knows about it and we have talked about our project. We are definitely going to work with the ADI on it but I think it will only be associated with the ADI and not serve as a certification from the ADI.

That's why I think your micro idea is quite interesting as well. This could be something actually from the ADI and be broader than what we have in mind.

All the best,

Robert

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If this is ADI's position to exclude distilleries such as mine, send my membership fee back. And I'll speak anyway I please.

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I don't think you quite understand the discussion. We are talking about 2 different things. No one is trying to exclude you. Please re-read the posts.

Since this is a public forum, I think a tad of netiquette would be in order.

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......and it begins. Welcome to the slippery slope, fellas.

And respectfully, Mr. Khosrovian, unless I missed it, you didn't answer any of my questions.

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@robert

You have to be very careful exposing marketing ideas to the ADI staff. I feel I have been denied profits in excess of $200K to the ADI Bill group et. al. due to the marketing ideas I divulged. I got involved in ADI hoping for help developing my ideas, not being completely ripped off and not given any credit or monetary benefit.

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Respectfully, Marc's comment shows why this isn't a good idea. Dividing ADI up isn't a smart or helpful marketing strategy, particularly when you have limited resources. Essentially, you're saying that the biggest marketing project for ADI is to divide up the group, rather than sending a single unified message.

I ask again: do you seriously think that faux Craft labels by the Corporate (or otherwise) distillers is the single biggest thing that stands in the way of your success? I sure don't. They are of zero concern to me.

You want to do something positive that will get us all pulling in the same direction? Put in a call to the Brewer's Association (I'll do it if you'd like), and ask for a sit down with their board to discuss marketing strategies. Why reinvent the wheel, when they've already demonstrated the way to get it done? They may turn you down, but it doesn't hurt to ask.

Brewer's Association Board of Directors

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The fact that most of us use our micro/craft status in some sort of marketing strategy shows that we all value it. I don't know if I would necessarily put a sticker on my products from ADI though. I have a "Colorado Proud" logo I use on my shelf talkers, so i feel there is some value in somebody else endorsing our products as local or artisan.

I get the feeling that the whole point of this is to try to differentiate us from large scale producers who try to say they are artisan or craft. They have more marketing dollars than all of us together and will market their own certified version of whatever we come up with,

as we see with "Moon Mountain is a registered trademark and "Crafted. Not Made." is a trademark." & "please enjoy moon mountain artisanal vodka responsibly." Those are words we like to use...

Membership in the ADI and our state guilds ought to be enough. Let's be one group not many.

I would rather focus on lowering the FET, allow me to use that money to market my products the way I see fit.

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Let's be one group not many.

I would rather focus on lowering the FET, allow me to use that money to market my products the way I see fit.

Bingo: one group.

And this began as a discussion of tax reductions for us little guys. That's where it should stay. In my opinion.

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Okay folks, let's just un-twist the knickers and clear the air.

The purpose of nearly two years of open discussion on this very site Forum on the topic of defining a category representative of the developing small distillery industry in the US was and remains to be INCLUSIVE of all the various expressions of small batch spirits. That does include a very broad range of goods, and certainly includes gin or any other GNS product that fits within the definition which was accepted at the last ADI conference. That definition specifically calls for the micro spirits producer to substantially change the character of the alcohol if they are starting with GNS.

I support a single category of voting member, not distinguished by WHAT is produced, but by how much. It is the only neutral method of determining what "micro" means. A distillery can be a craft distillery or a micro distillery or a Scientologist-Gay-One Armed-Organic-pico distillery. Attempting to gain consensus on the defining characteristics of a small producer proved to be nearly impossible. It launched a rhetorical, philosophical discussion on the meaning of "craft" and "art" which pointed the debate in the direction of volume as a single overriding criteria. It was agreed (by me anyway) that the "craft" comes from close intimate contact with the production process and the product throughout the process by the maker. There are a growing number of folks who make infusions and cordials and such with great care, unique materials with singular character but started out as GNS; it was agreed there may be as much "craft" in these undertakings as making whiskey or brandy.

The only divisions of membership, "categories" if you will, are between DSP holding members with the right of vote, and Non-DSP Associate Members without right of vote. This is proposed as a membership association representing small DISTILLERIES, licensed DSPs. There has been discussion on the concept of voting Affiliate Members like the cooperages or the Wholesalers. The Wholesalers have an organization. They don't need a vote on a Distiller's Board of Directors, though they should be heard and as an Affiliate Member they would be heard. But ADI is headed toward recognition as THE association of small DISTILLERS and in Fed law that means a DISTILLED SPIRITS PLANT permit holders (which includes producers of beverage spirit products starting with GNS).

The only qualification for an ADI (or whatever the name ends up being after the transition) member to be recognized as a Micro Spirits Producer is the defining characteristics recognized by the Fed and the Industry Association. The DISCUS CRAFT DISTILLERY ADVISORY COUNCIL uses the figure 95,000 proof gallons as the upper limit. It is unfortunate DISCUS defined the category before getting a handle on the consensus of entire micro distilling community before setting that figure. (By our own humble calculations 95,000 proof gallons is one helluva lot of alcohol and among us here at TTown that seems more like a factory than a micro distillery, all things considered, but that's our opinion.)

The bill being prepared to introduce to the Federal Congress that would discount the FET for Micro Distillers uses the figure proposed by the ADI definition, 65,000 proof gallons. The final determining factor will likely be, for all intents and purposes, the figure which is written into the Tax Code. That figure will be the baseline according to the Fed. It will trump all else when it comes to precedent at the Fed level. It will also mean an annual savings of over half million dollars in FET paid by some small distillers.

Any additional "certifications" of programs or individuals or distilleries are secondary to the Fed determination. However, this is not to say there should be no other qualifying bodies out there improving the industry and recognized as such by their "certification" program. The issue of credibility is a shared responsibility among the various "certifying" groups and ADI. These groups should eventually seek "approval" by ADI. ADI should not be certifying distilleries, thereby becoming the arbiter of what is an "acceptable" distillery and what is not. This is not the mandate the ADI membership has set out for itself. If KOTHE or any other group wants to offer a certification course and issue a nice handsome label we can apply to our bottles, and they can sell the idea and make money while maintaining a high standard, great for them and good for the industry. But it is not an ADI certification and its value has yet to be determined in the marketplace. I have no objection to, and in fact would support a fee paid to ADI by the certifying organization for the privilege of acquiring ADI certification; but for this to be effective it would also mean ADI has the mechanism and criteria and a protocol for testing the organization and their program, which it does not. This is not the same thing as charging individual DSP members for the right (note the use of the term "right", as in "a right of membership") to put an icon on their label which says they belong to ADI, which is a statement in and of itself: "We are a Micro Distillery".

By way of example, the AMERICAN MOUNTAIN GUIDE ASSOCIATION (AMGA)has a certification program for climbing guides. It is not a licensing necessity to be a climbing guide, one can take a course at any of a dozen or so schools across the US and qualify to get a State issued "climbing guide" license. The National Governing Body of American mountaineering is the AMERICAN ALPINE CLUB. It does not certify guides, but it recognizes the AMGA certification. It also recognizes the certification of other important mountaineering groups. But the AAC takes no part in the actual certification process of such as AMGA, leaving that to the groups who know it best, the Guides. And the AAC has a mechanism in place to certify those programs which seek its imprimatur. The same would seem to apply to our situation. The National Industry Association, in our case ADI should not be actually performing any certification, but merely qualifying the other groups in their ability to teach and certify the content and completeness of their programs and the quality of the instruction.

The distiller who sees value in ADI, value which ADI and its membership must CREATE in the minds of the consumers, should be able to take advantage of the growing understanding by consumers about micro spirits products by touting their ADI membership with a logo on the label or some such icon representing ADI. But again, this value will be determined by the marketplace and how we educate the consumers.

I can foresee no problems with adding a logo such as Melkon has proposed, and I quite like it, to our labels; at least not from a COLA point of view. It has potential to serve as the qualifying mark on the label which separates the micros from the Diageo products since it would be a trademarked icon and owned by ADI and anyone not qualifying as a "micro" producer would be prohibited from making use of it. And it will be up to us and all our other distilling cousins out there to educate the consumer what that means and why it's important, in the same way as any other private organization must do when establishing a reason for their existence.

R

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Thanks all for sharing your thoughts (and passion). To clear up the air a bit, this proposing is not at all about dividing our young group or excluding anyone (except maybe Diageo).

As Ralph has pointed out, many of us spent the better part of two years trying to define our membership and built a consensus around size as the most fair and objective way to describe craft/artisan/little-guy spiritsmakers -- which includes everyone from farm-to-bottle distillers to those who buy neutral spirits and add value to it by infusing, blending, redistilling, etc. In general, those who have DSPs and sell less than 65,000 PGs annually would qualify as "certified micro."

This consensus has enabled us to begin lobbying for a lower FET. (More on that front soon.) And it could enable us to promote our category.

With that in mind, branding our handiwork with a "certified micro spirit" sticker is all about promoting and protecting our mutual interests. The danger of NOT undertaking this effort (or something similar) is that our movement and our businesses grow more slowly, that we open ourselves completely to encroachment by big producers and that we fail to capture the interest and imagination of our audiences fully. "Certified Micro" addresses all of these issues simply and cost effectively.

To those who see great value in local, organic, small-batch, farm-to-bottle, mash-to-bottle, wort-to-bottle, NO GNS, et al -- I hear you. (We're in the same camp on many of these fronts and about to adopt mash-to-bottle processing, too.) But I see greater value for us all to champion one micro brand strategy that unifies us all and focus on touting the rest of our characteristics on our labels, neck and hang tags as parts of our story.

Melkon

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