Contract Distilling: Potential Win/Win Situation?

[hessma]

I would like to know if anyone has contemplated the use of a distillery's excess still capacity to launch their own products, and if so what the pros and cons are of doing so.

This would differ from a typical DNS because the plan would be to have as much hands on control of the process as legally possible and to create and carry the products recipe while having a licensed distiller produce the product.

This could be another source of revenue for a distiller who may have excess capacity on their still. This would also assume there would be sufficient margins for both parties when all is said and sold.

As an example:We owned a C&C machine at my previous business and we're able to sell time on the machine to help pay for the high costs of purchasing and maintaining the equipment. This got me thinking that there may be a similar situation present in the distillery industry, and that an additional revenue stream could help offset many costs for craft distillers.

If this is being practiced already I would be interested in obtaining more info and if not I would like your feedback on the idea.

Thanks,

Matt H

[Scott @ Twenty2Vodka]

Contract distilling is a great idea, if you can find the customers to contract to. If you are interested in contract micro distilling in 50 gallon batches, send me a personal message. We have some great quality water in northern maine, and some one of a kind american made equipment.

Also, I'd like to point out there is a difference between contract distilling and contract cooking / fermenting / distilling. Then there is bottling, packing, delivering.

[Guest Liberty Bar - Seattle]

Hey there, Matt.

Yes, lots of people do this, and there are a number of businesses set up for this express purpose.

In fact, I often wonder why people will go to the great expense to build an expensive distillery if they really don't have the real budget to take their product from idea to marketing. So many people will scrape together enough money to build their distillery, but become quite surprised that it takes a lot of money then to actually market and SELL their product. A shocking revelation to some.

I am going down this road, actually. If not for the damned 'fill height' issues for bottles, I'd be all over it already.

Andrew

[will]

Matt,

You do not need to cross-post to different sections of the forum. Most of us get notifications of new topics.

As you've pointed-out, the benefit is that the client company does not have to put the capital investment for the physical plant ahead of the larger cost of marketing the product. Yes, the cost of building a brand in the market place is often larger than the cost of building the plant that makes it.

The challenge is that it's going to be difficult for the DSP to devote his limited time to your problems. Time is the one thing that none of us can get more of. A DSP that loses focus on his brand by concentrating on yours is diluting the energy put into marketing his own product, so where's the real gain for him?

Next is the challenge of splitting-up the relatively small amount of margin allocated to production. As a generally accepted rule-of-thumb, half the retail price of a bottle on the shelf is allocated to the wholesale and retail efforts. The other half is for production and marketing (and profits). It's clear that if you do the work, you should get the reward, so it should be easy to divide the dollars to everyone's satisfaction. Trouble is that when you do that, the remaining dollars on the production side times the number of bottles produced may be too small for the DSP to justify the effort...it's a distraction.

Nonetheless, several small DSPs are in this business of private brand production. Among them: ColoradoPureDistilling.com, SFvodka.com, and I believe Stillwater Distillery (hosts of ADI's distilling classes). I'm sure there are more...perhaps many more.

[hessma]

My apologies to everyone for the cross posts, and thanks again to Guy for merging them.

I would like to say thanks to all of you for your insightful feedback, and I hope many others will continue to share their experiences and suggestions regarding this idea.

In the next few weeks I will contact several of the outfits that responded to this post and expressed an interest in providing these types of services. I welcome additional contacts with parties that may be interested in providing contract distillery services, so keep them coming!

I'd also like to reach out to some of you that are interested in starting your own venture through contract services like these to see how things are going. You may be getting a personal message from me soon regarding your response to this post.

Thanks again for the info, and please continue to respond if you have feedback or any other information.

Matt H

[Guest Liberty Bar - Seattle]

Yesterday, I was speaking to two budding distillers. Both have put a tremendous amount of energy into their business plans and business, and they both took differing tacks on this specific issue.

One is starting his own distillery while the other has chosen to go the contract route. I'll tell you, it was very interesting to stand and talk with both of them as each gave their reasons for their choices. The main issue of course in the end is quality. No question about that - will the contract company be able to match the quality expected? Will a new distiller match the quality that they are looking to reach? All good questions.

I anticipate in the future more and more contract distilleries opening up, or more likely - more distilleries that have excess capacity in time and storage to turn to this method. When the price/bottle for contract distilling is 'only' a few dollars more if not LESS in some cases compared to doing it oneself? Well, I'd not surprised to see many more contract opportunities opening up in the future.

(Hmm...I should maybe think about my "Interests" quote to the left of this post, 'eh?)