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opinions on location, foot traffic/direct sales expectations


kckadi

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Hi again,

I'd like some opinions on a location I'm looking at. It's a 4300 sf building (drains are already installed!, propane, 3-phase power and front office for tasting room) located on major urban route with daily traffic count of 25000 cars (during tourist season its much higher). My state allows direct sales at full retail price(with 8% tax). The catch is its $3K/month. A bit pricey for a startup (at least for me) but when I run the numbers I believe this location can get the needed numbers of direct and impulse customers to cover the additional cost. Other buildings I am looking at are in the $1100-$2000 range but are well off main routes and lack the "Hey look a distillery lets stop" effect.

Or is the average building lease for a micro in the $3K/month range and maybe I'm just whining?

I'm curious what others have seen in the way of direct door customers. I know that without knowing my exact cost per bottle, overhead etc its not possible to guess a specific number. I'm really looking to find out what kind of monthly foot traffic others have seen to see if I'm being realistic or just wishful.

Thanks

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You're paying for location, which could be a very good thing. But, remember that you'll have a good 5 months (if not more) of paying rent while you can't make anything. That's $15,000 out the door while you're waiting on the TTB, state, city and DOA approvals. FYI, I'm paying $750 for a 2400 sf. place, but it has little traffic and is in an industrial area.

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Yea, the 'downtime' till production is a bit daunting. I'm going to try to cut a better deal (cheaper the first year, full price the second year, etc). Its been empty awhile so I might have some leverage. I'm looking at it later today. Thanks for the feedback!

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Yeah, if you can cut the deal you describe, that should work for you. We did something similar, but we haven't gotten our tasting bar in yet, and the rent was not predicated on doing so.

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I'd say $3k for that much square footage in a high traffic area is pretty good based on what I have been looking at. It's a bonus if the drains are already there. Are you paying NNN on top of the $3k?

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At first NNN was on top of the $3K. In the first round of talks the owner said he would include it. I meet with the town on Friday and if they give it their preliminary blessing Ill be meeting the owner in person later that day. I think I might be able to work a "less the first year, full the second year" type of deal.

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Good luck with your negotiation. One thing you may want to add if it applies to you, is a desire to stay in the location long term if you are successful. Many landlords will take this as a sign of sustained income and little hassle on their part and be willing to help you out. That said if you are near a large urban center $8.73/sq ft is not a bad rate. When I was looking at places in Iowa I got pretty comparable numbers and found a willingness by most to cut the lower rent deal.

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Yes, I certainly want to stay long term in it, I'll definitely mention it when I meet the owner tomorrow. A potential hurdle may be the town fire inspector as the building does not have a sprinkler system but it is solid block construction and should be grandfathered under another town clause. I have seen several examples of distilleries without a sprinkler system so it might not be as big an issue. My mash kettle uses a burner but my stills are electric and steam so if there is an issue with it maybe it will be enough to state "no open flame while distilling". I'm going to stop at the fire dept today and talk with him. I'll post progress as it happens.

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No sprinklers? Sorry, but that's a deal breaker in my book for a distillery. You'll only be able to have 30 gallons of greater than 60% spirits or 120 gallons of less than 60% spirits on the floor at one time for an F1 rating. Plus, just knowing that a fire could be suppressed with sprinklers helps me sleep at night. There's been too many fires lately in this industry, so the safer the better.

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Depends on how the building is rated under code. For a block/cement (4-hour rated) building, completely isolated from other structures, etc., you can be rated as a high hazard building and would be able to operate without sprinklers at very low occupancy, and not hit some of the limitations of an F1 rated structure. The idea is basically that the structure will simply burn itself to the ground in the case of a fire. The sprinklers are not really there to put a fire out, but to suppress smoke to allow occupants to escape. That means, you won't be able to have a tasting bar or other public facility in such a situation. So, looks like a Catch 22 here: sure, you want to direct sales location, but in THAT case, you need the sprinklers.

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Check with an architect, fire marshal and or planning/zoning. You'll find different laws in every city, county, state or whatever. Where we are, a sprinkler was mandatory for square footage greater than 5000 sqft. You may not need it. If so, it could make startup costs much higher.

Todd

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Still having some arguing with the town about the sprinkler but so far looks good. Hoping to have a lease this week contingent on town approval with no sprinklers. Owner is giving me a reduced rate for the first year and the first 3 months free so I can apply for my TTB asap. Hopefully the fed license will not take longer than 3 months.

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Kckadi -

In the same boat as you regarding sprinklers, we want to keep our day jobs and start off under the limits mentioned above, and then go to a 250-500g Vendome/Kothe (and sprinklers) once we have product sold (and, more importantly, at that point, can start expensing against our regular incomes) but fire marshal is currently insisting on 'high-hazard' with or without sprinklers, which means no tours or tasting room in the same area as the distilling equipment... We own the building (in a high traffic area like yours, 3880ft), and are trying to politely get the OH2 occupancy that NFPA directly states... here is the latest attempt at showing them the codes to counter their statement:

"This operation is classified as high hazard occupancy per LSC101 due to the type of commodities produced and stored. (Flammable liquids) See LSC101 Ch 3.3.178.8.2, A3.3.178.8.2":

Our response:

NFPA 101 LSC Section 6.2.2 "Classification of Hazard Contents" - identical nomenclature is used to that in NFPA 13 regarding occupancies.

NFPA 101 LSC 6.22.3 "Ordinary Hazard Contents" - "ordinary hazard contents shall be classified as those that are likely to burn with moderate rapidity or to give off a considerable volume of smoke. - this describes the product we will be dealing with..

The
NFPA
101
LSC
references the
NFPA
13 in section 2.2 -
While the
NFPA
13 document does address sprinklers, it does address many other things, like stacking of tires and cartons, packaging that is less fire prone, etc.

NFPA 13 Section 5.3 is clearly titled "Classification of Occupancies and Commodities" so it does, in fact deal
directly
with occupancies.
Furthermore, the document uses the word 'occupancy' in reference to the exact same hazard levels as the
LSC
, (General, Low, Ordinary, and High).

NFPA 13 5.3.2.1 defines Ordinary Hazard(group 2) as "where the quantity and combustibility of contents are moderate to high" - this describes the product we are dealing with.

NFPA 13 Annex A is 'Explanatory material", which means that it is uses to explain things, and one would think that this is when a discrepancy or question arises, such as we have here, one would go to here to clear it up.. In the beginning of the annex, it states that this explanatory material in not actually part of the code, but is there to help explain.

NFPA 13 A.5.3.2 specifically calls a distillery an OH-2 occupancy.

I am extremely confident that these documents classify a distillery as an Ordinary Hazard(group2) occupancy.

If it can be shown where a "Distillery" is referenced specifically as a High Hazard occupancy, we will agree. We are confident that this does not exist, and we are providing where it is specifically, by name, is an Ordinary hazard(group 2) Occupancy.
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Hi, sorry to jump in on this and turn the conversation a bit... but I'm curious about the original question about foot traffic and direct sales...

I know it probably really varies a lot from distillery to distillery - but I'm wondering if people would share what percentage of their sales come direct from the distillery vs no-direct sales. I'm hoping to get an idea of the range out there...

Thanks

Tom

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Obviously that depends upon the state you are in and the laws... Here in FL we have a bill in the works, but the big money distributors and stores have whittled it back to 2 bottles per calendar year, which if you are a tourist destination like we are is not so bad. WA is 2 bottles per day I think, which helps keep a local eclectic crowd frequenting your place...

That being said, if you have a decent on-premise sales law, it could start of 90/10, but if you make good stuff, you could flip that and have 90 going to the distributor real quick...

Or if you start with a big system and have the volume to keep your gift shop stocked and still send 90% to a distributor, why not start with that...

bottom line.. when you can make enough to distribute, you do it...

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Sorry to jump into this thread a little late. I have heard several prospective breweries and distilleries use fire code as a selling point for their location instead of seeing it as a crutch. This is completely unofficial, but I've heard of three different cases where the location was "sold" when the city agreed/offered to install the fire suppression system to get the business in their city limits. If your location really wants you (Sell yourself. Make others want you. Flip the customer/seller relationship. Show the win-win relationship.) let them work to get your business.

Food for thought: Remember, good business means good business for all involved. Ask who wants to be a part of your winning team.

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That's a great point. My town meeting got pushed to May and my lease is contingent in town/state/federal approvals. If they push on the sprinkler as a 'must have' issue I'll see if they will cover it. A possible counter issue might be that the town I am trying to get into has the enviable position of a very positive economy. I have to position the distillery as a better proposition than a gas station, chain restaurant or convenience store. More of a 'local business' that is unlike (in a good way) anything else in the area.

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