Making Bitters Question

[acdanger]

Howdy,

I'm interested in making small-batch bitters either as a hobby and maybe as a business down the road.

As I understand it, bitters are nationally classified as a food product and not regulated or taxed as spirits are. And so I'm wondering: would be it be possible to purchase wholesale amounts of a neutral spirit from a distillery if it was intended for bitters production?

Anyone know of anyone doing anything similar in the country? Would that even be legally possible or make financial sense? I'm really not prepared to start my own distillery with all the associated taxes and bureaucracy just for the production of bitters.

Any insights would be greatly appreciated.

I'm currently based in the Virginia-DC area if that helps.

[Jonathan Forester]

There's lots of folks doing this. I personally have friends with six different bitters businesses. You don't need to be a DSP to make bitters. You can buy 190 proof neutral spirits, but you have to pay the tax on it and then apply for a federal rebate to get that back after you have sold the bitters.

One thing to consider, is the market for new bitters still growing? My friend Greg, who runs www.cocktailkingdom.com, a site that sells more types of bitters than anywhere else, currently carries 46+ types of bitters, up from 10 two years ago. And he doesn't carry the Bitter Truth line anymore, which is a good dozen more. And I know of more bitters businesses coming along within the next year, add another dozen types of bitters. Can you make a good enough product to compete with 70 bitters? Will you be able to get enough bars to carry your products? That's where the money is. Most home bitters buyers only go through a bottle a year or two. And bitters fanatics may have dozens, but they buy one once, and a few others 1-2 times a year.

The money outlay for equipment, a facility, etc. isn't huge, but still it isn't petty cash. You can't make bitters commercially in a residence, major fire hazard. So you will need a real business plan, and start up a legitimate business, with proper zoning, permits, etc.

But let's take a look at the profit potential: I am only running quick figures, and not including the botanicals, which are expensive! The botanicals for this one batch could be easily $5000 or much, much more.

A 55 gallon drum of NGS runs from $300-700, delivered. But the tax on it is around $1400. If you are a licensed DSP able to buy in bond you don't pay the tax. So you are paying around $2000 per 55 gallon drum.

Most bitters are sold at 30% abv. So when you take that 55 gallons of NGS, make your botanical tincture, reduce it to 30%, you end up with around 174 gallons of bitters. (Actually number will be less because of loss during botanical extraction.)

Then when you put that, let's say 160 gallons of bitters, into 4 oz bottles, (32 bottles per gallon, so 5120 bottles of bitters) and sell them for $12 each (let's say $5 wholesale is what you will get), minus bottle cost, (let's say 50 cents per, $2560)You end up with around $21k profit, (not including the botanicals, your time, equipment, facility, etc.) and another $1400 in rebate at some unknown later time. I have friends who make bitters and they say getting the rebate is slow. (like months or years.)

The profit looks good so far, but how much will your botanicals cost? Equipment, facility, employees? And you have to sell those 5120 bottles of bitters!

So it is doable. But you have to figure out if it is doable for you.

[acdanger]

Thanks for the great response. Lot think about.

[daveflintstone]

holy crap, just do it.

If you like your bitters, and you like making it, you're successful. If some bars and restaurants and other people like it too, you're outstanding.

You don't have to buy 55 gallons of neutral at a time. You can make this in many places, no need to go get your own premises just to make wee batches of bitters. How about someone's bar or restaurant? How about your kitchen, since you want to start as a hobby? That seems ideal.

Can you make a going concern of this? Who knows? But you certainly won't if you don't get started. carpe diem

[Denver Distiller]

Nice post, Mr. Forester.

[Melkon Khosrovian]

I think Jonathan has pretty much covered all the bases. The business model for bitters is very important. Do your math well before getting in too deep.

Melkon

[Gwydion Stone]

Dave and Jonathan are both right, but the first thing to do is find out if you have a viable product. Just go buy some Everclear at retail and make a gallon or so. Give bottles to every bartender you know to take for a test drive and get their input. If the response is mostly favorable, you can think about making larger batches.

Good luck!

[Guest Liberty Bar - Seattle]

Dave and Jonathan are both right, but the first thing to do is find out if you have a viable product. Just go buy some Everclear at retail and make a gallon or so. Give bottles to every bartender you know to take for a test drive and get their input. If the response is mostly favorable, you can think about making larger batches.

Good luck!

My only caveat to Gwydion's post that I will add is that in some cities, bartenders may not know what to do with bitters, so trading them around in some cities would be different than in Seattle.

At this point, I think that starting a bitters company is a good way to work really hard for very little. There are so many bitters out there at this point that to get a market share worthy of the effort would be very, very difficult. You'd have to run loss-leaders for years before you had enough market share to really see this as a viable, long term, profitable product. Alex & Stephan from Bitter Truth made it (so far) because they were the first to really have a quality, 'craft' product. Since then? How many have joined the fun? Well...lots.

My suggestion? Have some fun, make some locally but do not mortgage the house just yet...