Business Failure Factors

[Glenlyon]

Just got off he phone with a nearby distillery, who's owner informed me they were suffering from a lot of creditor problems and were being forced to close.

It got me to wondering how the distillery business is doing over all. After five years of solid growth for us, this year has been very slow - no doubt, thanks to tough economic times.

The owner attributed the business failure to not being able to project the brand effectively - which, speaks to the need for distillery owners to really understand how much it costs to get the message out to the customer. As I've often said, its easy to sell your product to a liquor store of restaurant - it very difficult to get customers to come in to buy your product.

In the beginning we felt handicapped because our zoning would not allow us to serve food or cocktails. Bottle sales only. In retrospect, this has turned out to be a competitive advantage in some cases. But, now with increased local competition, we are feeling the squeeze and are actively looking for new ways to get our products and messages out. Now is the time to be innovative.

It will be interesting to see how the industry does in the next few years.

How are you doing?

 

[jocko]

Just opening ours now, but we've had a brewery for some time.  The brewery business is extremely competitive, and we have 5 breweries within a 2 mile radius, a hard kombucha place, a winery tasting room, cidery and another distillery.  There's also over 40 breweries in our metro area.  Population density is important, given that there's zero tourism where we are.

Key has been brand, atmosphere and a reputation for creativity and quality. 

The restrictions on distilled spirits will be a challenge. We are builing a "pilot distillery" in more touristy town nearby and will sell cocktails there and try to make that have a similar feel as the brewery.  Like with the brewery, we seek to sell almost 100% of the products directly to the consumer as the margins plummet via distro. Easier in a place where you can sell cocktails.  Not so easy when the customer is restricted to 1.5 ounces of free sample in a fairly subdued tasting/sales office, which is all you can do without a kitchen in California. So, kitchen or death. 

[Pofarmer]

So, as someone who's just looking to start up, here's what I'm gathering talking to local distilleries, what I'm seeing/hearing at liquor stores, and what looks to be a trend in the industry. Some of this may or may not be specific to Missouri. Sales are a little slower than normal. After the pandemic, people are drinking less and it's showing up in sales, even in the showroom/tasting rooms/ to some degree. There are lot's, and lot's, and lot's of products on the shelves. One local liquor store chain has a 20' row of scotch, 10' of Vodka, 10' of rum, and 50' of various whiskey's, bourbons, and rye's.  The majors and the non-distillery brands, have out LOTS of versions of essentially the same mashbill. Everybody is trying to look like a craft distillery. Whistlepig has 5 entries instead of one. Everybody has a cask strength, or a port aged, or a double oaked, or a single barrel serialized, or something or other, or 3 different ryes that are slightly different blends. The variety on the shelves is enormous. Which leads to the next thing, it's very hard to get noticed. In Missouri, at least, you aren't supposed to be able to pay for placement. So, unless a liquor store decides to have an "X State distillery section" (and some do) it can be very, very hard to get your product showcased in a liquor store. And marketing is expensive. How do you market against Jack Daniels or Beam Suntory or old established businesses with a lot of capital?  Also, the "majors" are expanding and scaling up production in a big way. Buffalo Trace, for instance, is just completing a huge expansion. The majors are probably over producing after decades of lackluster sales, and will probably about kill prices and the industry again. So how is a small distillery to survive? I would guess market in your local area. Sell cocktails if you can and desire to. Cocktails can turn a bottle of common whiskey into $150 bucks or more. Be in a high traffic location. Is having distinctive products enough? I don't know, I'm seeing some small distilleries with very good products having trouble moving product, especially through any sort of distribution chain. It takes personal sales it seems like, to get things going. Some local chains simply "Aren't buying any more bourbon."  To really advertise and get distribute widely you're probably talking somewhere in the 7 figures just for marketing.

[Kindred Spirits]

A lot of the distilleries that I have seen go under are due to poor planning and even worse allotments of capital.

Many new distilleries overburden themselves with expensive improperly sized and located pieces of equipment. This prevents future expansions in space as demand grows, or requires complete system additions such as new boilers and other things. The illustration I always use with clients is "you can put a master chef in a basic kitchen and he can make you a great meal, but even if you put the worst chef in the best kitchen possible, the result will never be good".

The main thing is not starting out with a huge mountain of debt you will need to earn back. If you make a good product and dedicate some funds for marketing you can earn back your outlay in time. The main thing I also ask is what your definition of success is. Covering your expenses, making enough to support yourself and make some fine spirits, is definitely doable on smaller budget.  Don't expect to win a war against some of the major brands out there.

Consultants exist in every industry for a reason, they save time, money, and give you the ability to proceed with confidence.

If you can open a tasting room/small bar, things get even better for being able to survive and thrive.

 

[Shaun.B]

Curious question, not to hijack thread.  

Does anyone know statistics of locations closing compared to places opening.  I know it's a loaded question and most of it is from word of mouth, but I seldom hear of anyone shutting down.  You always here the good stories but unfortunately never hear about the other side of things.

[Pofarmer]

On 8/22/2023 at 12:43 PM, Shaun.B said:

Curious question, not to hijack thread.  

Does anyone know statistics of locations closing compared to places opening.  I know it's a loaded question and most of it is from word of mouth, but I seldom hear of anyone shutting down.  You always here the good stories but unfortunately never hear about the other side of things.

80% of new restaurants close within 5 years, but you rarely hear those stories, either. Maybe check out "Brewbids" to get a feel for closeout auctions and stuff.

[jocko]

Places start with a bang and go out with a wimper.  I've bought lots of equipment over the years from places that closed down, and I didn't even know they were closed/closing.