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microshiner

To the core consumer, craft means local

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I was sad to see the recent news about the closing of Cooper River Distillers. Here is a link for those who haven't seen it: https://www.courierpostonline.com/story/news/2018/04/04/cooper-river-distillers-announce-closing/485693002/

While the experience at Cooper River is wholly their own, and I don't pretend to speak for it, I do believe that it is emblematic of two tendencies in the space that put a lot of craft distillers at risk of a similar fate.

No matter what the business, there is a sweet spot between what the fixed and marginal costs are to operate and the amount of the market you can reasonably expect to capture. I haven't done the math to know exactly what that is for craft distilling, but I know it exists. I also know that if that percentage of market isn't big enough to cover your amortized startup costs, well ... you either started too big or you aren't putting the appropriate focus on marketing.

My opinion is, when it comes to craft distilling, oftentimes it's both.

My motivation for pointing this out is driven entirely by self-interest: I operate a content marketing platform for craft spirits. But I also sincerely want to see every one of these small producers succeed, because I believe their continued viability is tantamount to the future of civilization. I don't presume to tell them their business, but rather share some insights from a great deal of time spent looking at it from another perspective.

"I would've liked to see things grow bigger, but at the scale we're at, it's not easy,"  said James Yoakum (distiller at Cooper River). "Growing (production) to the next level would have meant millions of dollars that we just couldn't find."

In craft, the decision of what scale you are going to attain has to be determined at the onset. It is a function of the market you can reasonably expect to capture - in other words, the local one. Every decision about the business follows from this initial determination. The capital required to start a distillery is significant, much greater than that for beer, on par with planting a vineyard. To premise that initial investment on an assumption that the enterprise will capture anything more than the local market, more often than not, is to expose a fundamental flaw in the business plan.

Why? Because the core customer of a micro-distillery doesn't care about craft, they care about local. If they wanted "craft", as in other than local, they would buy commodity. Which is why you see so many former Bud and Jim Beam drinkers flocking to such "craft" brands as Samual Adams and Bulleit. But you don't see craft drinkers asking for them. No, those drinkers are asking for local. Or at least micro.

Which leads us to the next tendency, which is to under-invest in marketing; specifically, in content marketing that encourages consumers to ask for local, wherever they might be. Anyone who would drink a craft product wants to only drink craft products. But when they find themselves staring at the backbar in a crowded tavern, searching frantically for the labels they would love to try but can't find while the bartender glares at them impatiently, they default to Tito's. The entire difference? Content marketing that encourages them to ask "what do you have that's local?"

So how much money has gone into a collaborative content marketing campaign to that end, knowing that, if only 1% more commodity drinkers did "ask for local" then every micro distiller would see a 1% increase in sales? Exactly zero.

Now obviously I can't say whether having this knowledge would have saved Cooper River. Most likely not. But I do know that it is key to ensuring the future success of the micro-distilling industry as a whole.   

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41 minutes ago, microshiner said:

No matter what the business, there is a sweet spot between what the fixed and marginal costs are to operate and the amount of the market you can reasonably expect to capture. I haven't done the math to know exactly what that is for craft distilling, but I know it exists. I also know that if that percentage of market isn't big enough to cover your amortized startup costs, well ... you either started too big or you aren't putting the appropriate focus on marketing.

My opinion is, when it comes to craft distilling, oftentimes it's both.

I read the story and and I don't think size was the problem. And, marketing is important. However, business failure factors can come in all forms for all different sizes of business. Economic theory dictates as soon as you start a business, you are by default, now going out of business. It simply a matter of time and management skills which, will ultimately decide whether the business lasts a few weeks or centuries. 

Who dosen't want to be in the craft booze biz? All the media reporting from wine to beer to spirits has made it very attractive, especially, from a 'fantasy' vision of the idyllic craft lifestyle.  But operators with actual distilleries know, in reality, this is a really tough business. I think a lot of people are attracted, then dismayed to realize that its hard work from a paper perspective and its hard work from a labor perspective. No sitting around watching the sunset sipping on superior spirits. Those days disappeared when you packed up your illegal basement operation.

Identifying your market, regardless of the business size, has always been a challenge for business. Not to mention, even if you get a customer, what's to say the next time that customer is thirsty, they simply stop into the liquor store? Or, while in the store, they pass your bottle in favor the the usual brand name swill? After all, its much more convenient either way. So getting people to be loyal and come back for that second, third, or fourth bottle is very difficult. Even, if they openly profess to support local.

How do you boost that 1%? One customer at a time. The best advice is freely given by the ADI - 'Win Your Backyard'. That may mean hand selling a lot of locals for a few years before you can rely on the word of mouth to provide that steady business you are trying to build. 

Also, just because you are successful dosen't mean you can maintain that. I'm dealing with an accountant. They have provided excellent service for my businesses for many, many years. But this year? Off the rails. Dysfunction, costly mistakes, high fees. They are about to lose us. So, you always need to have a firm hand on the tiller, no matter the business and craft alcohol is no different.

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21 hours ago, Silk City Distillers said:

Easy to armchair quarterback.  Dont be so quick to judge or assume.

True, but a boring perspective when trying to get a conversation/debate stared :)

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I get where the OP is coming from.  We made almost all of our equipment from scratch which has saved us money and none of us rely on income from the distillery as our primary source of income.  We pay the bartenders and our part-time distiller. I tell people all the time that this is not a glamorous industry and I think they tend to get it.  We are very slowly ramping up to be able to pay the bills and let the business act as such without having to ante up. 

After almost two years we are finally seeing word of mouth spread.  We are also fortunate that we are in Tempe (Phoenix) and have one of the largest metro populations in the US to get customers from.  It's not an easy business for sure and we make all of our products from scratch.  At any rate, we are very sensitive to marketing and Groupon has actually done us a lot of good.  We set out to grow organically and have (mostly) been able to do so.

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