Buying spirit in barrels, age, bottle and sale.

[Winnie the Pooh]

Hello, I am interested in starting my hard spirits/ distillery business and I am researching and learning different sides of this business as well as technology. And I understand that as in any other businesses, business is about sales, not about making or technologies. So, my main goal is to focus on sales. But how to sell without making or having a product? The biggest problem as I see, people invest thousand of the dollars into the equipment when they do not have organized sale. A couple distillery, I have talked, already have huge loans, loans with collateral houses and they just start working on sales. And it is hard to organize sale (hard to promise to deliver box of spirit today and deliver it by next Friday), because it would require 1-2 years to get federal/state permits (and at least some of the equipment should be there), make spirits and age it, so real sale start after 3 - 4 years of investing th initial money.

Idea that I have is to not invest into equipment, invest into already made product. So, buy whisky in barrels and age it. Once they will be reasonably aged, I will bottle them and will work on real sales with realistic promises.

For example (numbers are quite generic and may be even too conservative), I can buy 50 gallons barrel of whisky for $2000 that would be about $40/gallons. In order to MAKE this ONE barrel (in big scale), conservative, I would need about $5 in materials, $5 in utilities (electrical, water, sewer), $3 in federal taxes, $1 in labor (salary, taxes) and about 2$ in equipment (300K spent for the equipment paid in 3 years making 100 gallons per day 200 days per year plus possible loans). So, I would already pay about $15 per gallon that is obviously less than $40/gallon, but it would require almost nothing from me, especially controlling the distilling process, buy ingredients, and all these actions it will be almost impossible to keep with full time job, family. Especially if location of the distillery/aging facility would be in hour or hours to drive from home/work.

I do not need much investment into equipment (mostly shelves), so I will spend portion of the saving ($60K) to buy whisky and rent/utility for the facility will be paid from my regular paycheck. Plus, part of the paychecks will be used to collect money for buying next barrels.

With the assumption that my aged spirits will increase the bulk price 10% per year (double the price for 10 years aged spirit), I will have about 30 - 50% of the covered monthly expenses (obviously, when I sale barrel or bottles), the rest I will try to cover from certain extra services like age/store somebody else's private casks, store other people stuff (as public storage with limited access), rent it out as a photo studio (high ceiling), etc. It will require some extra work, but not as much as be involved in real distilling every day (supply, accounting, actual work, etc).

In two years, after I buy first barrel, I will have a product (bottling does require a lot of expenses), and will start deeply working on sales and marketing. Most likely, I will not get a lot of profit, so I will be initially working on covering expenses. But learning to sale should be priceless. If sales is not good, I will be sitting with barrels that keep aging and increase their value every day with reasonable expenses.

And only when I will have a strong sale, I will start investing in distilling equipment and will start to make my own spirit.

Any comments, suggestions, critics, etc? I will appreciate any feedback. If this plan has certain chance to pass, I will start working on detailed plans with accurate numbers.

Thanks.

[John McKee]

Good morning,

  Some of your assumptions are a little off, but in general the approach you're thinking of taking has some merit in this industry.  This approach is "Start a Brand, make sure it actually sells and makes money, and THEN build out a distillery to continue operations once I'm cash positive".

  On the whole, this approach has just about the same ratio of success/failure as any new business, but does have a lower CAPEX expenditure and thereby a smaller amount of money to potentially lose.

  However, the big issue is the sales.  If you're intending to keep your day job, this model might take off some of the production work, but here are the things that will still occupy your time:

1. Processing and Bottling operations:  You'll be dumping, proofing barrels for bottling.  Running a bottling line.  Following all the CFR guidelines for Proof and Fill Checks, record keeping etc.
2. You'll still have to have a DSP:  Even if you're not distilling, in order to store barrels, fill and label bottles, etc, you'll still have to get a DSP and follow all of the record keeping and just day-to-day work of running a DSP...even one without a mash/ferment/still operation.
3. Sales:  50% of your time should be spent on sales....as if you're FTE.  So...keep your day job, run a non-distilling DSP, and set aside 20 hours a week to call on accounts to buy your products.

  Please don't read this as pooping in your punchbowl.  I want you to open and make a lot of booze and join our community of distillers.  You just may want to revisit some of your core assumptions.  Quick new mantra....."You're opening a marketing company that happens to make hooch".  Or mantra 2, "Concentrate on selling the 2nd bottle, selling the first is easy".

Good Luck,

McKee

[Falling Rock]

As just said, " Please don't read this as pooping in your punchbowl."

Can you afford to buy a warehouse full of FULL barrels, bottles, other equipment and set on them for two years plus? Few could do that!

As for using your Bonded Storage area for other purposes, the Feds will not allow that.

Or just get a Rectifier License, no distilling equipment necessary! An alcohol rectifier is someone who buys different alcohols or wines, creates new and different blends, and then packages and resells the product under their own label. They do not manufacture or distill the alcohol, but rather just blend products from other manufacturers.

Why wouldn't someone in this mind frame just become a Distributor?  What's the tier system in Hawaii? Spend about the same time and money getting the license, less equipment (forklift, truck,...) but sell the day after you get the license. You're in the glamorous booze business without the mess and not professing to be a distillery. You could find your potential distillers right here.