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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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