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Craft is Not a Commodity

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The thing about craft isn’t the craft. Everyone practices craft, whether you’re a grandmother making quilts for the church bazaar or you’re a sewing blankets in a factory in Vietnam. No, the thing about this phenomena we call ‘craft’ is that it’s an entirely new way of doing business. It’s a melding of the best practices of the Old World with the technological advancements of the New.

There is a reason I chose the name MicroShiner. It was because, like the moonshiners, whose moniker is believed to have been derived from the early English term "moonrakers" and resulted from the clandestine nature of illegal Appalachian spirit makers, this new breed of distillers were fucking rebels. This was the new Whiskey Insurrection, except that, instead of simply resisting a tax, these cats were wresting an entire industry back from those who had stolen it. They weren’t going to be satisfied hiding up some holler, or in their basement, sneaking out to sell a jug here and there or giving it away to their friends as Christmas gifts. No. They were about changing the paradigm. Regardless of the prefix - whether “moon” or “micro” - they were definitely shiners, and I thought they were badass.

But now it seems, sort of like its contemporary, the blockchain, that has, remarkably, grown up alongside it, this rebellion has been appropriated. Like the original Whiskey Rebellion, the real basis for this one has been re-authored, twisted to some other intent, and threatens to be given over entirely by the very same people who initiated it.

What I’m talking about is acquisition and the reconsolidation - worse yet, recentralization - of the production capacity that was distributed across the landscape by the craft movement. It’s a travesty, and I don’t care whether you’re a consumer, producer, distributor, or investor, you should have no part in it.

Here’s the thing folks. If it can be centralized, it can be automated, and should. Don’t get me wrong, I have nothing against passable drink at near zero marginal cost. But it has nothing to do with craft.

Craft production provides intangibles that almost cannot be quantified and certainly cannot be understated. Read Small is Beautiful by E.F. Schumacher and you’ll understand what I mean. And go ahead, send me your Hayek and Ayn Rand. But I’ve already read them too. They both agree.

I understand that you don’t care about economics. You just want to make, or enjoy, a good drink. Maybe you want to escape from the 9 to 5 and do something with your hands. Leave me out of this, you might say. No problem, you and I are on the same page already.

Perhaps you’re an investor, who got into this to get some ROI on your money. Really? That’s pretty last century, but okay. I hope you also bought some Bitcoin and shares of MGP. You might want to exit those now, too.

See the thing is, an independently owned distillery, appropriately scaled to meet the needs of a specific population, is not the same thing as a brand. And the demand for the thing I just described will always be there. The other thing, its a fancy label on some commodity whiskey. But you knew that. It’s why you got into craft in the first place.

The genie is out of the bottle people. Leave the past where it belongs. We are never going back.

 
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Maybe it's late, maybe those few drams I had after dinner leave me unable to process the written word adequately, or maybe I'm just a bit dense, but I'm having a little trouble figuring out your point here. 

If you're saying craft trumps brand and craft is here to stay, I'm 100% behind you although I do believe that independently owned craft distilleries also need to build strong brands and compelling stories to compete in the marketplace with commodity products.

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If you've read my other post on value propositions then you'll know that I don't believe micro-distilleries can compete with commodity products, nor should. My opinion is that over time automation will reduce the marginal cost of producing beverage alcohol at scale to such a point that it will be impossible for micro-distillers to be competitive on price, which is the only concern for the cohort of drinkers who account for the vast majority of sales by volume. Craft and commodity are diverging at a rapid rate, and there will be very little middle ground.

But what I am more getting at is, whether they intend it or not,  craft distillers are a part of a global movement toward decentralization. It is a massive redistribution of capital and production capacity, and it has only just begun. That is what is driving this thing, and those who have gotten into this thinking they are going to build a brand, scale, and exit are in for a surprise. It will work for a little while, but not for long. As commodity brands continue to lose customers even as they acquire the biggest, most successful 'craft emeritus' (as  ADI calls them) brands, they will quickly wise up. The future of the beverage conglomerates in the craft market lies in what Jeremy Rifkin calls 'performance contracts' not in the acquisition and ownership of actual operating distilleries.

So plan accordingly. Remain a rebel. Set a ceiling. Stay the course. Your business and your community will be better for it.

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Hiya MS, you might be interested in this Canadian perspective on 'peak beer' ( http://www.cbc.ca/news/business/beer-craftbeer-toolshed-labatt-molson-draught-sleeman-sapporo-abinbev-1.4439295 )which, generally bolsters your point of view. I think 'craft' as known in the beer world is pretty big. Even small breweries can cost millions to start and often the 'craft' of the original intent is further crafted to make sure the product can support a hefty overhead consistently. There are lots of mid-sized distilleries that would also fall into that category and if they have built a strong local market and they can keep the product flowing, they are excellent businessmen and probably understand the market in ways I sure don't.

As, I've mentioned in the past, I live in a land awash with craft booze of every kind and so I view the role of the "micro-distillery" as different than trying to service a mid-mass market using the craft term. Instead, I prefer the term 'artisan', suggesting a more 'hands on, locally sourced' approach. I think this gives the very small distiller a fighting chance on the local level, but offers little long term growth potential. Call that sustainable!

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18 hours ago, microshiner said:

 

See the thing is, an independently owned distillery, appropriately scaled to meet the needs of a specific population, is not the same thing as a brand. And the demand for the thing I just described will always be there.

 

I really like your post.  It is very well written and  I think that you are spot on with what you had to say.

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Great article @Glenlyon. Thanks for sharing!

So much good stuff in there but the key is: "I don't think the [growth] is sustainable"

Of course not. It's a closed system, and liters/yr is static (X liters/yr = Y producers x Z liters/yr). Therefore, if Y goes up and X stays the same, then Z must go down.

However, there is another factor at play, which is price. This creates a point of inflection, based on marginal cost. On the one side you have commodity, on the other side craft. A significant cohort (I say 75% by volume sold) will not pay more than the minimum marginal cost. The buying decisions about the other 25% are based on the strength of their value proposition, because that is what accounts for the added marginal cost in the mind of the consumer.

I agree with you - the mid/mass market is a no-man's land.

 

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Here is a follow up story on craft beer. The video that is embedded in the story is quite insightful visa vie the discussion around craft and why one may or may not choose to open a new venture. Although it does focus on beer, I feel many of the points can be applied to the distilling biz as well.

http://www.cbc.ca/news/business/beer-craft-brewing-1.4455032

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I enjoyed your thoughts. I've just started a small distillery and I really resonate with what you are saying about the middle ground being nonexistent.  We are basically serving the immediate local market of locals willing to pay extra to support their own and tourists willing to spend extra for something unique.  We are just selling from the distillery because we get to keep the distributor and retail cut.  Our first batch sold out in 3 days, but it was Christmas.  We hope by keeping the product scarce, it will have higher demand and price.  It will be extremely hard for us to expand to a larger market because of the higher distribution costs and the lack of adequate product supply with our small batch methods.  If we can sell it here and keep more $ per bottle why not.  But I sure don't expect to be hearing from the big boys with million dollar offers.

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So, I was very confused by what the very first part said.

Personally, I don't ever see the big distilling companies going out of business. Do you think the owners of Coors brewing is awake at night because of people craft brewing in there garage??? NO, And that person should not be. Unlike brewing that actually serves a local portion of a community acting much like a funnel serving so many square block radius. A distillery with its high powered drinks should not rely on the same system for support. A brand with several products must be established because a much farther reach of there said products is the only way this so called distillery will remain to exist. In this industry I am just floored by people who claim to be hard core craft, and would spit on the feet of who is not a purest have "special" shipments of GNS, whiskey, name your poison. Heck I have been a lot of places and done a lot of consulting on my projects, and all I can tell you is there are so many people out there that are so TWO FACE about these things. I really don't think when they started they thought they where going to end up there in any combination of the following= to much invested, takes to long to make, can't make it, don't want to make it, can't meet demand, needs a new line of products, ect. I see so many people that have so much money invested in there distillery come and visit my distillery and all tho they don't say it I know they are thinking how much better there place is than mine, and how great and better they are going to make there product. But the truth is there place is super cool, but they also have to sell about 5000 bottles a month to keep the lights on. These are distilleries where craft goes out the window because being craft will not keep there lights on, thats when they come over to the dark side.

I believe that "CRAFT" is over done. I get it, I take a ton of pride when I knock out another batch of spiced rum, or what ever. But the thing is, if everyone says it then it has no real meaning. Just like dating a girl.... she tells you she loves you but after she tells you like 1,000,000 times it has no meaning and she becomes a stages 9 clinger. My point is craft is craft yes but to much craft is not craft at all. To play in this game of distilling you have to be more crafty then craft, you have to be smart with your money, smart with your head, and quick on your feet.

Some said in a post somewhere that don't quit your day job to bottle commodity whiskey. I don't believe that all. I believe the general public does not give a crap about so much over priced craft products. You can totally make huge money bottling pre made products. I paid $84 for a bottle of High West that is not really made by High West. Should I crucify them? Heck no, that is there business plan, and good for them. What about Titos?,what about hundreds of other brands?? Should they be bashed? I think not. My lesson is craft is a choice, a craft distillery can support a community, but the average community can't support a craft distillery.

Thats my 2 cents.

I am just expecting to get some very juicy feedback for this one. Bring it on I have broad shoulders.

 

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Joe - Luv ya, and it was me that made the comment to which you refer,. I find your business logic completely wrong.  I feel your advocation of minimizing the value of craft is an absurd and destructive model.

You seem to have no problem selling into the craft market so that pretend craft distillers can charge exhorbinate prices for your commodity products, and you claim that because some fake distillers do this, that everone should, or at the very least everyone is complicit in the scam. 

Let me make this perfectly clear : NO, every craft distiller does not buy your or anyone else's cheap bulk commodity spirits and pass it off with some nuance of marketing trickery as thier own. In fact your entire  business model and the model of bulk commodity spirits producers desperately need a significant portion of real craft distillers to NOT buy your products, so the fake distilleries that you sell to in bulk can continue to dupe their customers into thinking they are buying real craft, for which they pay a higher price.

if the craft brewing industry had followed the model you support ( buy the majority of their beer from a few suppliers and flavor it, but pretend the made it) the only brands would be Budwiser and Coors. Fortunately that industry was full of hard working creative entrepreneurs willing to put in the work to give their customers and local communities real craft made products and the customers don't mind paying extra for it.

So please don't paint this industry with your myopic personal profit view. It's bad enough that companies dump commodity product on the market making it harder for actual distilers to remain price competitve without economy of scale, but to at the same time say that we are all fakes is blatantly offensive. 

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5 minutes ago, Roger said:

Joe - Luv ya, and it was me that made the comment to which you refer,. I find your business logic completely wrong.  I feel your advocation of minimizing the value of craft is an absurd and destructive model.

You seem to have no problem selling into the craft market so that pretend craft distillers can charge exhorbinate prices for your commodity products, and you claim that because some fake distillers do this, that everone should, or at the very least everyone is complicit in the scam. 

Let me make this perfectly clear : NO, every craft distiller does not buy your or anyone else's cheap bulk commodity spirits and pass it off with some nuance of marketing trickery as thier own. In fact your entire  business model and the model of bulk commodity spirits producers desperately need a significant portion of real craft distillers to NOT buy your products, so the fake distilleries that you sell to in bulk can continue to dupe their customers into thinking they are buying real craft, for which they pay a higher price.

if the craft brewing industry had followed the model you support ( buy the majority of their beer from a few suppliers and flavor it, but pretend the made it) the only brands would be Budwiser and Coors. Fortunately that industry was full of hard working creative entrepreneurs willing to put in the work to give their customers and local communities real craft made products and the customers don't mind paying extra for it.

So please don't paint this industry with your myopic personal profit view. It's bad enough that companies dump commodity product on the market making it harder for actual distilers to remain price competitve without economy of scale, but to at the same time say that we are all fakes is blatantly offensive. 

Someone is angry. Maybe you will cheer up when you start using bulk spirits like your competition is already doing?

We make our own whiskey, but the vodka, gin, spiced rum, and liqueurs are all 100% GNS or sourced spirit. If you don't think 9/10 distilleries are doing this, you are absolutely wrong.  Shure their website says they are completely craft and grain to glass but if you believe that, you also believe Titos is made by hand in a tiny pot still.

Since we made the switch we have higher margins, hired more employees, offer them better benefits and also increased our sales.  So why hate on others who actually decided to start making money?

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In our area, we're not allowed to use GNS if we have the craft license, so we have to make everything onsite. That's ok for a small guy like me, who caters to the local market, which in itself is very small. Because we live outside the Lower Mainland (Vancouver) we can get away with this low key approach. That's why I call myself 'artisan' rather than craft. However, if I wanted to start a distillery in Vancouver or any of the surrounding municipalities, it would be pretty much impossible to operate with a simple craft designation. If you wanted to open in Vancouver for example, the equipment and start-up costs would be the least of your worries. Instead you would be languishing under a TON of oppressive property taxes and rents. It can cost anywhere from $250K to $1M a year just for rent and property taxes. There is no way you could produce enough product (well) to meet the need to pay those kinds of fees. So I would use GNS without hesitation and most of the existing distilleries do so. So, I don't think it's a great idea to say one approch is better than another. It really boils down to the kind of business environment you operate in.

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We weren't planing on making a vodka for sale as a bottle, but wanted to make some, bottle it, and have it for cocktails in our tasting room. So, we made some from the feints off of one of our rums. The result was fantastic. People are always commenting on how unique it is, probably because they are so used to drinking the same GNS. We don't have a huge line up yet, but it is one of our top sellers, and we have to do dedicated runs of it now.

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Waaahhh Mom, it's really hard. Do I have to really do it if I can scam the customer instead?  Please don't make me?

I've got an idea, lets encourage Amazon to apply for their DSP and then the totes can be shipped right to their warehouse where they can add the drops of flavor and ship it direct. They can brand it "One Click Craft". Lets just eliminate the middle man all together : You !

 

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2 hours ago, Glenlyon said:

So, I don't think it's a great idea to say one approch is better than another. It really boils down to the kind of business environment you operate in.

This statement, to us, highlights the crux of the matter. @Glenlyon is correct - it is not for producers to say that one approach is better than another. That right, or responsibility, falls to the consumer.

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the problem is, that labeling does not clearly show the consumer who made the product.  So they can not make an informed decision.  I have many customers who have no idea that a distillery can buy alcohol and package it.  

I am no against people selling GNS or sourced whisky, just don't try and convince the customer that you made it.  Be truthful and say you bought it, then let the consumer decide.  

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@Roger - no need to wait for Amazon (although that is definitely coming)

https://www.huffingtonpost.com/entry/a-trio-of-new-whiskeys-from-the-legendary-mgp-distillery_us_5a5e2bf8e4b01ccdd48b5fc8

BEST line in the whole piece: "Probably better than if it really had been bearded, tattooed dudes in a garage."

All credit to Ryan Montgomery at Montgomery Distillery for calling this one on our webcast last month. I'd encourage you to listen to the whole thing but his prediction about MGP is right around the 30:00 mark.

https://www.stitcher.com/podcast/microshiner/life-distilled

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I hear everyone hear, I do. I feel that every single distillery is not the same. Yes, we have a lot of the common problems. But no 2 distilleries are truly the same. We each have demons we are fighting. It may be in the form of not the right equipment, or to small of a space or, or no paper towels on the towel holder. We all are different. Each of us has an idea of a business model. How we work our distilleries is up each and every one of us. It is not for one to judge another. 

I am sorry, I have been around the block a couple times and I can tell you on certain product 99.99% of the public does not care where it comes from. It is about how much it cost, and does it taste good?... Craft is just not for everyone. When I first started I was Hard Core Craft, I was the hardest of hard core. But there was a point when I about went out of business, and at that point I broke. I had to decide if I wanted to stay in business or do something else. I love this industry more than anything in the world (but for my family). I choose to stay in it but I had to change up my plan. I went in to contract bottling and have never looked back. What started out as $28,000 (yes, thats what I started with) has boomed into what I have today. We have our own line of spirts and provide bulk and contract bottling for people all over the USA, along with a equipment building division. We have developed new never seen before technology with the help of Iowa State University to process & treat our GNS vodka, rums, creams, and our bourbons & rye to some of the best in the world. My clients range from small MOM and POP distilleries, to the BIG BOYS. I am so very proud to do what I do. I found my niche in this market and I am running with it. Also, there has been hundreds of people call me to ask question about all most anything to do with a distillery. I try take time out of my busy day to help out a person in need because I was there at one time or another. I may not be hard core craft but I am still a nice guy.

To say "Craft is not a commodity" is a statement I would agree and disagree with. It is very easily a commodity in the since that anyone can put it on there bottle and some how it demands a higher price point or better quality standard. On the other hand "craft" becomes something that is perceived only by those doing this crafty thing, what ever that is. Example, treating GNS, or bourbon in a special way now makes that product "CRAFTED" by all definition. I may not have made the vodka, I did make the vodka better, and that is a craft in its self. 

I think one must decide for them selves what craft is. If craft is not just ordering GNS, and custom processing it, then a grain to glass distillery thats semi automated is not either, right? If a distillery does not grow there own grain, or build there own barrels is it only half craft? I think everyone offers a little craft somehow. Where? At what point does hands on or hands off become or not become craft. I think to me it is a skill set not a process. Example, I craft my GNS. You craft your whiskey, not process. Example 2, I craft the stills I build, not process.

I have a feeling this is like throwing gas on a fire, but thats what is great about all this. Just like the quote "Never ask a question you don't want the answer to."

I wish everyone a good day.

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joe as usual your bang on , good post . your second last paragraph sums it up perfectly . we buy grain , yeast , barrels ect that doesn't mean it doesn't take some skill to make use of them  . i think if your using the term craft on your label then you should be able to explain your own definition of the term to your customers if they ask . 

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7 hours ago, Dehner Distillery said:

one must decide for them selves what craft is

Our position is that the "one" who must decide is the consumer. However, in order for this to occur, there must be complete transparency throughout the entire process and supply chain.

That the majority of drinkers care only about price and taste is exactly our point in saying that craft is not commodity. The difference is, we disagree on the inference, as well as the number. Our research into the market places that number at 25% of all the alcohol that gets drank, not 99.9% of drinkers. We take it a step further, by saying that the consumers who make up the difference between those two numbers (which is, by the way, is a lot more than 0.1% of drinkers, seeing as 10% of Americans account for 75% of all alcohol consumption by volume) do not want to drink commodity spirits i.e. GNS or sourced whiskey. They are specifically targeting craft brands because they are looking to avoid commodity spirits and accomplish something altogether different with their dollar and purchasing decision.

To the question of whether a micro label needs to grow their own grain or make their own barrels to be craft, the answer is no. But they do need to source those products from other micro/local producers. The long term interest of the majority of craft consumers is to see an entire craft ecosystem, not commodity products rebranded and marketed as belonging to that ecosystem.

Again, this is not the majority of the market, nor the one with the highest margins, short term ROI, or greatest potential for a quick scale and exit. But it is the core craft market, which is why we encourage micro producers interested in operating in that space to loudly and transparently promote their commitment to its fundamental principles. It will be key to their success in the long term. Because craft is not commodity.

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2 hours ago, microshiner said:

But they do need to source those products from other micro/local producers.

I would be cautious around the idea that a small/micro business needs to buy from small/micro business to be authentic. That suggests that all big companies are inherently what? What is under suspicion?

I own a tiny media company and one day to my complete surprise, I got a call out of the blue from one of the province’s biggest companies and they wanted to hire me. I couldn't believe it and within days I was rejoicing over the big contract and the very creative work I was going to do. I wound up working with them for four fantastic years. I’ve had a relationship with another large company and have provided services to them for over 20 years. Working with these and other companies, I’ve learned just because a company is big doesn't mean they don’t work hard to create a great product. That's why they are big.

Joe is bigger than me - he makes GNS. If I were operating in the states, I might buy some from him. However, there’s always someone bigger and perhaps one day, Joe needs to turn to them to meet demand. Again, it’s all about the business environment one operates in. Good for Joe’s sales team if he can’t meet demand! The consumer has spoken! Don’t forget the big players make great spirits and they service a vast market.

Meanwhile, most small guys are thinking only state/province wide or citywide. I think by default, small players, craft players if you will, will buy from smaller companies - mostly because they are looking for something special. Stills, barrels, that special farmer’s super duper barley - relationships. Last night I went on an alcohol crawl to check out the local competition. Each place we went to had their own vibe. One place was pretty low budget, hand made, great product, hipster crowd. The next, was polished wood with trendy gray walls and a window into the big sexy brew room. It had a very yuppie 30+ crowd. Much more expensive. Underaged gin. The final one we hit was a large farm operation that produces a large amount of product for a provincial market. Comfy, wood fired pizzas, lots if locals just hanging out, great product. Lots of room for kids.

So each place makes a different product to attract the customers they need and want. Large or small, its up to the individual micro business’s marketing genius to find the audience that best suits the business and how it wants to fit in the community, both business and consumer.

All that being said, if I were young and getting into this business today, I would buy a shitload of GNS create whatever product I could dream up and export the lot to Taiwan. I have once met a man who does this and he is filthy rich.

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Joe - Sadly you completely misinterpret the data. While it could certainly be argued that 99.9% of your customers (those buying bulk spirits from you) do not care where their bulk products comes from, that is not the same as 99.9% of end customers "not-caring" about where the products originated. For example 80% of people who go anywhere on vacation bring home some form of Geographically branded merchandise. In the old days it was snow globes of the statue of liberty and T-Shirts, now it's more typically craft beer, wine or spirits. The wine industry is very strict about viticulture, fortification origin, etc and the beer industry is all local, but unfortunately Big Alcohol has embraced laws that obfuscate the actual origin of spirits to the detriment of the true craft / local centric culture.   You even appear to veil the actual origin of some of the bulk products you sell on this very site, I would assume  as an attempt to even further push the false narrative that what people don't know, won't hurt them.  A self serving and self fulfilling prophesy that goes something like " If I dump enough cheap Bio-Ethanol on the system by pretending that it's ok with the end consumer, eventually every distiller in the country will have to stop making their own alcohol, because they will not be able to compete with the price points and margins of fake craft products ". 

I completely reject your assertion that 99.9% of "end customers" are either too dumb, cheap, or non-caring, to pay a premium for a hand crafted product. In fact that's not even the argument of the fake craft distillers who buy bulk products which they pretend are their own craft spirits. That actual hidden argument goes something like, " if the end customer is actually so stupid that fake distillers can dupe them into paying more, regardless of where the spirits actually comes from, then it should be considered "craft industry standard". This obvious because otherwise all  " fake craft distillers" selling  NGS Vodka, Gin and flavored liqueurs would be pricing their products the same as can be found on the bottom shelf of any inner city liquor store.  Or better than that, at $1.20 +/- cheaper that "Barton'esq" Vodka, because "fake craft" distillers have the FIT reduction that large producers don't.

But they don't do that. Why ? Because as long as they can, the fake craft distillers will charge the absolute maximum possible for the products they spend pennies on, provided that the customer doesn't find out. The success of craft spirits, craft beer and farm wine, is dependent on our ability to actually charge enough to offset the higher cost of production to make those goods in-house. All of that is contingent upon the trust that the customer places in our industry to not deceive them. We spend a lot of time and energy educating our customers about the process of making our spirits, and we hear time and again how they hear exactly the same things from another local "distiller". The only difference is that on the back of their bottles in really fine print it say "100% NGS". We, and I use that collectively for all real distillers, unwittingly support the fake distillery industry, and we need to figure out how to fix that. 

I am sorry that your attempt at running a true craft distillery failed, even thought literally hundreds of us are thriving. and I appreciate the concept of you as a distiller selling your bulk products into the base of the 3 tiered system and to manufacturers who do not pretend to be actual distillers. That market place is very price sensitive, and your products obviously fit that bill. At the same time, try not to destroy the industry that we chose to operate in, by pushing the false narrative that end customers are too stupid or too cheap to care about their purchase decision. 

What's on your label ?

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