Month: October 2019

By: Donald Snyder, Donald@TimeAndTasks.com

Another distillery conference season has come and gone. Distillers, weary from their travel across the country, are unpacking their conference tote bags filled with business cards and supplier goodies. The follow up vendor emails are slowing trickling in while the distillery owners dread their upcoming credit card bills. But for now, conference attendees reflect on everything they learned and have taken away from their adventures. The first quarter of the year contains some of the biggest craft distillery relevant conferences and expos including the American Craft Spirits Association (ACSA) Annual Distillers’ Convention & Vendor Trade Show, the American Distilling Institute’s (ADI) Annual Craft Spirits Conference and Vendor Expo, and the Wine and Spirits Wholesalers of America (WSWA) Convention and Exposition.

  The ACSA Convention and Vendor Trade show is usually the first major distiller conference of the year in either February or March. This year’s conference was in the wintery city of Minneapolis, Minnesota and appropriately themed “Distillers on Ice”. Next year’s conference will be in Portland, Oregon March 29-31, 2020. The conference is three-day opportunity for distilleries to connect with suppliers, attend educational breakout sessions, collect their awards from the spirits judging competition, and discuss the issues “du jour” such as lobbying efforts to continue the Federal Excise Tax reduction. The conference leadership is made up of elected volunteer board members and committee chairs from across the country.

  Mike Blaum, Co-owner and Chief Distiller at Blaum Bros. Distilling Co. in Galena, IL brought his entire distillery team to the ACSA conference this year and was very pleased with the show. Mike had several takeaways from the conference. “Besides the educational content and being exposed to new ideas, the networking with industry colleagues and opportunities to discover new vendors is always a highlight.” The travel and entrance fees for the conferences can add up but Mike believes there is significant return on investment for him and his team. “If we can all come home and apply the concepts we were exposed to, cut our costs or improve the value from suppliers, change our way of thinking or doing business, and improve safety, it’s easy to feel good about the ROI.”

  The ACSA conference entry fees for 2020 have not been announced but they are anticipated to be close to the 2019 fees. For the Minneapolis conference, the prices for ACSA Members were $625 per person (with additional attendees at $425 each) and non-members $825 per person (with additional attendees $625 each).

  The ADI Craft Spirits Conference and Vendor Expo is usually in March or April following the ACSA show. This year’s conference was in Denver, Colorado and had over 1,800 industry members in attendance. Next year’s show will be in New Orleans, Louisiana in April of 2020. The American Distilling Institute (ADI) is privately owned with conference leadership positions filled by full time employees. The ADI show is a week long event with several hands-on workshops, such as whiskey and rum distilling classes, before and after the three-day conference. Like the ACSA show, distillers can meet with suppliers on the vendor expo floor, attend educational sessions and paid workshops, and attend the Gala dinner to receive their awards from the spirits judging and tasting panel.

  Matt Beamer, Distiller at Sagaponack Farm Distillery in Sagaponack, NY attended the ADI Conference this year. Matt enjoyed the one-on-one interactions with industry members. “I would say the biggest takeaway from attending would be listening to the panel discussions on several topics. Being in these discussions with distillers discussing their personal experiences makes a huge difference. The face to face interactions go beyond a phone call or email. It takes theoretical knowledge and adds a personal experience to it and makes understanding the issue much more effective.”

  Matt spent time on the vendor expo floor as well. “Being at ADI and having face to face discussions with vendors is very helpful.  Phone and email conversations pale in comparison to direct conversation.” When asked about making the long trip to Denver, he reflected on being part of a bigger community. “There is nothing like being in the community of distillers. When we’re at ADI, we get a sense that we’re not on an Island, but instead in the very thick of the journey of being a craft distiller.”

  Matt and his team’s time away from the distillery, travel expenses and conference fees were high but he felt it was a sound investment. “As for return on investment, we come back excited, invigorated, and ready to incorporate what we learned to take us to the next level. Totally worth it.”

  The ADI Full Conference Pass fees for 2019 were $550 per person for ADI members (with $350 per additional attendee) and $750 per person for non-members (with $550 per additional attendee). The ADI Awards Gala dinner is an additional $50 per person. Additional paid workshops are also available. It is anticipated that the 2020 conference will have similar fees.

  The ACSA conference and ADI conferences provide many similar benefits such as a vendor and supplier expo and diverse educational workshops but there are many reasons to attend both. Some distillers choose to attend one versus the other while many distillers try to attend both conferences each year. Jared Himstedt, Master Distiller of Balcones Distilling in Waco, TX is one of the many distilleries who send teams to both conferences. “For me, the value falls into a couple of categories. The most enjoyable by far is the time with industry friends and colleagues. Every year there is always a new connection made or chance to deepen old ones, whether it’s serious discussion on the trade or just good laughs over drinks. Opportunities to discuss and brainstorm around legislative issues are super valuable to me.”

  Jared and the Balcones team are experienced distillers who have had some disappointments with the technical educational sessions at the conferences. “I always look forward to technical and research sessions with high hopes, but I feel like only a few deliver. There are only a rare few that live up to the expectations of delivering actual research. A lot have anecdotal and uncontrolled ‘experiments’ that leave me a bit disappointed. I look forward to those getting more dialed in over the years.”

  The Balcones team believes that the price to send the team to these conferences is an investment more then an expense. “We have no problem investing in the professional growth of our crew as long as they see the value in the experience. The   team does a good job of attending sessions relevant to their role at our distillery and bring a lot of good info back to the table.”

  The last major show that craft distillers attend in the first quarter of the year is the Wine and Spirits Wholesalers of America (WSWA) Show. The WSWA show is an opportunity for wineries and distilleries, big and small, to reserve a booth to showcase their products to distributors from across the country. Distributors walk around the show tasting products and meeting up-and-coming brand owners. If distributors like a product, they can decide to add it to their portfolio for distribution. The WSWA show is one of the biggest wine and spirits show in the country. Impressing a large distributor could mean a huge increase to sales for a growing craft distillery. This year the show was in Orlando, Florida and next year the show will be in Las Vegas, Nevada. The show alternates between these two cities every year.

  Nick Ladig, VP of Sales of Hotel Tango Whiskey, Inc. in Indianapolis, IN. attended the WSWA show in Orlando, but did not attend the ADI or ACSA conferences this year. Nick’s biggest take away from the WSWA show as both the opportunity for new   sales and keeping up with industry trends. “It was interesting to see the proliferation of new products chasing the trends (ex. canned cocktails, low abv) and the emergence of the new web-based tier in alcohol distribution and wholesalers becoming more disciplined when adding to their portfolios.”

  When asked why Hotel Tango Distillery did not attend the ADI or ACSA conferences, he felt increasing sales was priority for them right now. “We opted not to attend ADI/ACSA because they are more educational and internally focused versus WSWA which is more likely to lead to new business partners.”

  The WSWA pricing for distilleries, wineries, and brand owners to get a booth varies. For WSWA Members booths start at $2,800 for a 10’x10’ booth but go up to $11,900 for a 20’x20’ island booth. Larger suppliers may opt for a private suite or reserve entire conference rooms to showcase their brands. Distillers can pay for additional attendee tickets such as $275 per model and $675 for each additional non-member or spouse to attend.

  Tyrone President and Co-Founder of Islamorada Distillery in the Florida Keys attended both the WSWA and the ADI conferences this year. At the ADI conference Tyrone and his distillery team was able to take away education on good distilling practices. At the WSWA show, Tyrone was able to expose his brands to distributors of all sizes. “The WSWA show opened us up to industry contacts and smaller distributors that we wouldn’t have been able to connect with before. We got to talk to people in the industry that gave us excellent advice like not to be in a rush to get out of your home state and don’t grow too fast. We are a small startup distillery and competing against the large brands can be incredibly difficult.”

  Whether distillers are looking for hands-on workshops, educational breakout sessions, panel discussions with industry experts, connections to vendors, or exposure to distributors, the first quarter of the calendar year has multiple resources. Distillers who can raise the funds to travel to the ACSA, ADI, or WSWA shows, will usually find a considerable return on their investment.

By: Donald Snyder, Donald@TimeAndTasks.com

August/September 2016 Issue – Beverage Master Magazine

What do apple pie moonshine, birthday cake vodka, blueberry liqueur, absinthe, spiced rum, and cinnamon whiskey have in common? All are distilled spirit flavors, and they make up one the fastest growing segments in the industry. 

  The growth of these flavored varieties isn’t necessarily indicative of market expansion.  Vodka, with entries that include pumpkin pie, marshmallow and cookie dough, has seen stagnant sales in the U.S. since 2003.  Sales of vodka’s flavored varieties experienced steady growth for the same period, according to market research firm Euromonitor International, but not enough to grow volume overall, and new flavor releases started to decline in 2013.  Around the same time, flavored moonshine hit it big and a surge of new brands began vying for a piece of the Mason jar craze.  Now moonshine growth has slowed and flavored whiskey is on the rise, led by cinnamon whiskey and the new fruit and honey-flavored bourbons.

  The bottom line is the flavored spirit market offers opportunity, as consumers are always looking for something new.  But, this also makes it volatile and risky, rewarding the producer who can innovate and move to market quickly to benefit from the success of a new trend or flavor.  The good news is that small craft distilleries have a significant advantage over the larger producers in their ability to just that.

But, before considering an entry into the flavored market, let’s review some basic concepts that will improve your chances of success: flavor development, avoiding shelf-life problems, complying with the TTB, and leveraging a lower effective tax rate.

Flavor Development

  Many distilleries begin by mixing their spirits with flavors, juices, fruits, or any other unique and natural mixers they have on hand, and then market test with their friends, neighbors, and local bartenders. It’s not an easy or quick process, but many distilleries find success using this method. Several regional craft coffee-flavored liqueurs and vodkas were developed in-house by mixing two beverages their distillers were passionate about: coffee and alcohol.

  Another option is to utilize the services an experienced flavor house like Flavorman, Wild Flavors, or Mother Murphy. These flavor blenders and producers have decades of experience in testing and developing new flavored spirits, and they have it down to a science. Ask for a specific flavor and their teams of scientists and researchers will give you exactly what you are looking for.

  For example, the creators of cookie dough-flavored vodka didn’t soak vodka in freshly mixed cookie batter. The flavor essences were developed by an experienced flavoring company, and then shipped to the distillery to be blended and bottled.  They can assist you in creating a blending procedure, or provide you with distillery finished flavorings ready to blend. And, they can conduct shelf stability testing as a way to help ensure your product looks good on the shelf, or after being exposed to extreme temperatures.

  A third flavor development option involves partnering with an established craft distillery with experience launching a few of their own flavored offerings.  They can bring expertise in blending sugar, flavorings and colors with distilled spirits, and can help you develop your recipe.  They may also be able to source the blending ingredients, manage the government compliance and application process, and even bottle for you to help get your product out to market as fast as possible. Once you have the capacity and expertise to do it yourself, you can bring the process in-house.

Avoiding Shelf-Life Problems

  Introducing foreign objects like whole cherries, strawberries, cinnamon sticks, or other non-liquids has the potential for serious shelf-life issues. Before shipping anything with a foreign object, make sure the bottle sits in sunlight and in extreme temperatures for at least a month before you manufacture a large batch. You need to see what the product looks like over time, as fruit may oxidize and other ingredients can change in color.

  The same foreign objects that give your flavored spirit its unique qualities may also be visible in the bottle.  Many consumers are not used to sediment or objects floating in their bottles, as many large distilleries use chill-filtration to remove every last bit of sediment, barrel char, and haze from their spirits. Educating consumers on the role of residual sediment in full-flavored spirits may be challenging, but your continued success could depend on it.  Consider addressing the subject on your packaging or display, as well as in your other consumer communications.

  And, finally, do your blended fruits or juices have an expiration date, requiring bottling within a short period of time?  This is a shelf-life issue as well, albeit an internal one, and it is an important issue to address with purchasing, storage and quality control procedures before going into full production.

Tax and Trade Bureau

(TTB) Compliance

  Next on the agenda is ensuring compliance with the TTB. Your formula must be submitted for approval, along with the detailed list of ingredients, blending steps, and batch details. TTB approval may take 20-40 days and the agent may ask for a sample to evaluate, although this is not common. After the formula is approved, you can then apply for approval of the bottle label which may take another 30-50 days. The bottom line is that earning TTB approval is not a quick process, so be sure to allow for it in any product launch timeline.

  Compliance requirements continue beyond the approval of your formula and label, as each batch must be made within tolerance of the approved formula.  Meticulous batching records must be kept and should include the DSP/Plant Number, the TTB Formula Approval Number, the ingredients used, blending tank name, proofing notes, and other batch details.

  Each batch must also be proofed to ensure it is within tolerance before being bottled. The TTB requires that, if a flavored spirit contains solids in excess of 600 mg per 100 ml, the true bottle proof can be no higher than the stated label proof, and no lower than 0.5 Proof (or 0.25% ABV) below the label proof.  For flavored spirits, this may not be as easy as just measuring with a traditional hydrometer, as the spirits can be “obscured”.

  Spirits are considered obscured due to the change in density from the sugar and other solids, requiring an obscuration test utilizing a small desktop still to distill off the liquid from the sample, leaving only the syrups and solids behind. After the recovered distilled spirits are collected, water is added to make up for the original solids left behind, and it can then be proofed accurately with a hydrometer or density meter. The entire process can take anywhere from 2-4 hours per batch.

  An alternative is to send a finished sample to a TTB-approved lab to do the proofing, but it can take a few days to get the results. And there are some desktop density meters that can do obscuration testing, but these can be very expensive.

  It is crucial that a craft distillery proofs their flavored spirits correctly and in full compliance with regulations. TTB agents randomly pull spirits off liquor shelves across the country, and then test for proof and fill tolerance, and to ensure the approved formula was followed. If a bottle is found to be out of tolerance, the TTB will ask for the distiller’s batching and proofing records, and may issue fines, penalties, or additional taxes.

  Leveraging a Lower Effective Tax Rate

The final and most important consideration for flavored spirits is the opportunity to pay a lower effective tax rate. Distilled spirits are taxed at a standard federal excise tax rate of $13.50/proof gallon. However, with flavored or blended spirits, there are methods a distillery can use to lower that tax rate.

  The most common example is OTS (Other Than Standard) wine. This high proof wine can be transferred into a distillery and blended with spirits. The portion of the alcohol contributed from the OTS wine is taxed at the much lower rate of $1.57 per gallon. Another option is to use tax-paid flavorings that contain some alcohol, where up to 2.5% of the total proof gallons in the batch contributed by the tax-paid alcohol are taxed at 0%.

  An important warning: these calculations are not simple and managing a lower effective tax rate can be challenging. A craft distillery interested in developing a flavored spirit with a lower effective tax rate would be wise to consult with an experienced flavor house or supplier for guidance.

  In summary, the flavored spirits market continues to expand and innovate, but the same demand for innovation also introduces volatility and risk.  A distiller looking to compete in the category should spend time in research and preparation, so that its sour pitfalls can be avoided, and the sweet rewards can be enjoyed.

By: Donald Snyder, Donald@TimeAndTasks.com

April/May 2016 Issue – Beverage Master Magazine

What do a former chef, police officer, wine taster, lawyer, home brewer, fireman, general contractor, and farmer all have in common? They all have become award winning distillers. With new craft distilleries opening every month, how does a startup find the right individual to run their stills? Given the shortage of experienced distillers, looking for the right candidate outside the industry may be the only option. What core skill sets would make a good distiller? What skills are crucial to running the day-to-day operations of a craft distillery? After the right candidate is found, how does this person begin a lifetime of learning?

  A quick scan of the American Distilling Institute (ADI) Online Forums shows “Help Wanted” posts looking for distillers outpace the “Job Wanted” posts by almost 3 to 1 (http://adiforums.com/). Individuals with distillation experience, or even fermentation and brewery experience, are in high demand right now. Given the shortage of available experienced distiller candidates, some craft distilleries are connecting with professional recruitment services normally only used by larger distilleries. Even then, finding someone with real-world (and legal) distillation experience can be a challenge. 

  In the end, most startup craft distilleries will not be able to recruit an experienced head distiller. However, there are some key skill sets to look for when selecting this crucial member of the team. The most important and fundamental skill an aspiring distiller must have is a good palette. The ability to taste distilled spirits and identify subtle differences is critical. All the most advanced automated control systems in the world cannot replace the importance of being able to taste and smell spirits to make the correct cuts. The head distiller must also be able to evaluate the quality and flavors of spirits during barrel aging, determine what batches to blend, and even ensure the correct profile before the spirits are bottled. These skills sharpen with experience and training but must build on a core ability to taste and smell. Sherman Owen, Distillery Consultant and Owner of Artisan Resources LLC, says, “If you can taste the difference between Hunt’s and Heinz ketchup, you can learn to be a distiller.”

  Besides having a strong palette, an aspiring distiller must be driven and have a strong work ethic. Eight-hour work days are a rarity in most craft distilleries. If there is an equipment breakdown, it may take twelve or more hours to distill a batch of spirits. Distilling vodka or gin may take a full day or beyond to completely finish. A distiller must be willing to stay with a project no matter what.

  Another key skill set is to have a reasonable mechanical aptitude. If something is not running correctly, can they start to investigate what went wrong? Does the aspiring distiller have any experience fixing basic mechanical issues? Most craft distilleries do not have a full time maintenance staff. Instead of making the expensive call to bring in a mechanic or equipment vendor, can the distiller safely grab the right tools to troubleshoot the issue? A distiller doesn’t have to be able to completely rebuild a pump motor, but they should be able to identify if the pump stopped working because of a clog in the hose. 

  A distiller must not be afraid to get dirty. Distilling can be strenuous work, even with automated handling equipment and forklifts. Over half a distiller’s time will be devoted to cleaning and sanitizing. Commercial brewers can make good distillers not only because of their understanding of fermentation and alcohol regulations, but because of a brewery’s rigorous cleaning requirements. Grain left in an unrinsed fermenter is a magnet for bacterial infection. Once a distillery gets a bacterial infection, it can be very difficult to eliminate. If a bad bacterial infection gets in your fermenter due to a lack of cleaning discipline, it can stall your fermentation and kill your yeast. A distiller must be diligent to balance their time between running the distillery operations and cleaning up after each day. 

  Distillers must be open to learning new things. A distiller is going to learn something new every day. If a distilling candidate does not have distillation experience, they will be inundated with new experiences for the first several months. However, the learning never really stops. New distillers need to be like a sponge, learning as much as possible about all aspects of the industry. They should be open-minded about experimenting with new materials and tools. If there are issues with fermentation, they should learn what variables can be tweaked. Even the most experienced distillers will make mistakes, but the most successful distillers will learn from them and prevent them from happening again. 

  One of the many things that makes the distilling industry unique from most other small businesses is that it is highly regulated and taxed by the federal government, specifically the Tax and Trade Bureau (TTB). Distillers must be organized and be able to keep copious notes. They must be able to learn and understand federal and state regulations to ensure compliance. If a distillery is audited and the distiller did not keep sufficient notes, the business could be heavily fined or shut down. The distiller’s role is crucial to ensure everything is organized and audit-ready. There are online systems to help track distillery production and federal excise tax liabilities, but the distiller needs to be disciplined and organized enough to enter the day’s transactions. It is also critical that an aspiring distiller who is thinking about getting into the industry knows that stealing or “bootlegging” cases from a distillery is a felony. This is a very important conversation to have with anyone thinking about getting into the business.  

  An aspiring distiller must be a leader. Owners and managers will lean on the head distiller to keep the pace of the team and distillery operations. Upstream, the distiller must ensure they have enough raw materials to cook, mash, ferment and distill. Downstream, the distiller must ensure they have enough empty tanks to hold the spirits. The distiller will drive the supply of spirits for filling barrels, batching recipes, proofing and blending, and even preparing for bottling. Each operation requires coordination, planning, materials, and labor. For many craft distilleries, it is the head distiller that provides the leadership that keeps all the working parts in sync. 

  A distiller must have charisma. Tourists, fans, locals, and other customers will patron a distillery for a chance to meet the distiller. When there are tastings at bars, liquor stores, distributors, or other events, the distiller should be there. To have a drink and chat with a head distiller is a highly coveted event along the bourbon trail in Kentucky. Consumers seek this unique experience from their local craft distilleries as well. Having a head distiller who is approachable and accessible will go a long way to create raving fans. They also must be passionate about what they are making. That passion and excitement will carry through when consumers come in for a tour. 

  Finally, a new distiller must completely understand the competitive landscape. Visit as many distilleries as possible, large and small. Build a good relationship with the surrounding craft distilleries. Go to a large liquor store and buy as many distilled spirits as possible and taste them all. Identify what is good and what can be improved. Find where your products fit into the mix regionally and potentially nationally. How do you want your product to taste? Can you tell the differences between similar product types? Subscribe to magazines with tasting notes of spirits. Research the award winning distilleries. Make the rounds and learn about the industry. 

  After finding the right candidate, where to begin a new distiller’s training? The best place to start is at a class focused on craft distillery operations. There are several classes available throughout the year including Six & Twenty’s Distillery Management Course in Piedmont, SC (http://www.letsdistill.com/), Camp Distillery at MB Roland in Pembroke, KY (http://mbroland.com/camp-distillery/), various American Distilling Institute’s (ADI) Workshops across the country (http://distilling.com/events/distilling-workshops/), and many others. New distillers should attend the two major annual distillery conferences; American Craft Spirits Association (ACSA) and ADI. The ACSA conference is a great opportunity to network with established distillers and learn about issues impacting the industry. The ADI conference is a great source of education about the distilling industry for all levels of experience. Talk with vendors to see what the latest technology can offer the distilling world. Can the new distiller mentor or shadow at another distillery for a week? This could be some of the best education available. 

  With hundreds of new craft distilleries opening every year, it will be a long time before there are enough experienced distilling professionals to fill every need. However, if a passionate, hardworking, organized, and eager individual with a strong palette has the drive, they can make a fantastic distiller. The head distiller is the true face of the distillery so they must be a team leader. Once the right individual is found, the lifetime of education begins. Taking classes, networking at conferences, and meeting fellow distillers can give a new distiller the foundations to grow on. After a lifetime of education, fine tuning your skills and experimentation with new techniques, you too can become a master of your craft.

By: Donald Snyder, President, Donald@TimeAndTasks.com

June/July 2017 Issue – Beverage Master Magazine

With the passing of the 21st amendment, the prohibition of alcohol in the United States was officially repealed. Each state was given the power to regulate and control the distribution of alcohol within their borders. Today, every state handles the sales of alcohol a little differently, including setting limitations on what craft distilleries can do in their gift shops and tasting rooms. Some states are more “craft friendly” than others by allowing sampling, cocktail and bottle sales, direct distribution, paid tours, and other profitable options. However, every state imposes some restrictions. When the state imposes restrictions, how can distillers work within the laws to increase their bottom line?

Florida

  Recently the state of Florida passed a bill to increase the number of bottles craft distilleries can sell out of their tasting rooms; from two bottles per person, per brand, per year to six. Other restrictions in Florida include no drinks or cocktail sales by the glass, no direct sales to bars or retailers, and all products must be distilled on site. How does a new craft distillery in Florida get consumers to experience their brand? St. Augustine Distillery has developed a unique business model to work within the state laws.

  Philip McDaniel, CEO of St. Augustine Distillery has focused on foot traffic.

  “We’ve located in a high-traffic destination which allows us to get a high volume of visitors,” he said.

  Because the law limits sales per brand, Florida craft distilleries are also focusing on new product innovation. If a Florida distillery has 10 different brands, they can now sell up to 60 bottles per person per year. 

New York

  In contrast, New York offers far fewer restrictions on craft distilleries with their Farm Distillery license. As long as 75% of the spirits come from New York produce and grains, craft distilleries can do on-site tastings, serve cocktails, and sell bottles of their spirits in their tasting room.

  Jason Barrett, President and Head Distiller of Black Button Distillery in Rochester, New York enjoys the flexibility the state offers.

  “We can only make cocktails with New York labeled spirits but overall, we are very lucky,” Barrett said.

  Black Button Distillery has built a bar in their tasting room to take full advantage of cocktail sales and is one of the most popular happy-hour spots in Rochester.

Texas

  Texas has some very interesting restrictions that limit bottle sales from the distillery gift shop to two bottles per person every 30 days. The time limit doesn’t reset every calendar month so every consumer has a different 30-day rolling window. Craft distilleries are responsible for maintaining a database of every consumers’ purchase to stay in full compliance with the law.

  Texas recently passed a law allowing cocktail sales in the distillery, which has been a big benefit for distillers like Robert Likarish, founder of Ironroot Republic Distillery in Denison, Texas.

  “The cocktail lounge was integral to our survival the first couple of years. We relied on it heavily while we built our distribution network and waited for our whiskey to age. It is still an important way for us to connect with our community and visitors to the distillery,” said Likarish.

  Ironroot Republic Distillery was recently awarded “Best Corn Whiskey in the World” at the San Francisco International Spirits Competition, which has helped draw new customers into the tasting room.

South Carolina

  South Carolina allows for sampling and bottle sales from a craft distillery with very specific restrictions. Distilleries can provide undiluted, unmixed samples in the amount of 1.5 ounces per person, per day in their tasting rooms. Samples can be free or the distillery may charge for them, which can be a decent revenue generator in an area with heavy foot traffic. Customers can purchase up to three 750 ml bottles per day at distilleries but the products must have a higher price point than the surrounding market. Distilleries cannot serve food or make cocktails, and their business hours must mirror those of retail liquor stores by closing at 7 pm.

  David Raad, owner and distiller at Six & Twenty Distillery in Piedmont, South Carolina is generally positive about the state laws.

  “South Carolina is a fairly forward-leaning state when it comes to distillery tastings, sales, and customer engagement,” said Raad.

  As an additional source of revenue, Six & Twenty offers classes for aspiring distillers to learn the art, science, and challenges of running a distillery before they start their own.

California

  Until recently, California was one of the most restrictive states in the country – forbidding all bottle sales out of craft distillery gift shops. Recent legislation has softened the restrictions considerably making it much easier for distillers to get their product into consumers’ hands. Distilleries can now sell up to 2.25 liters (three 750ml bottles) per person, per day and charge for tours. Self-distribution is prohibited, but craft distillers can open an offsite tasting room as long as it is also a restaurant. There is a cap of 100,000 gallons a year (brandy excluded) and 65% of their spirits must come off of their own still.

  Jim Harrelson, Owner of Do Good Distillery in Modesto, California, and President of the California Distiller’s Guild, has helped shape recent legislation regarding bottle sales and off-site tasting locations.

  “The old method would require the distiller to sell their product to a wholesaler and buy it back.  I know several people who were required to do this and their product travels hundreds of miles on a truck to make a five foot journey,” said Harrelson.

West Virginia

  West Virginia allows bottle sales to customers from a craft distillery’s gift shop with an interesting catch. Distillers must pay a percentage of their gift shop sales directly to a local liquor store called a Market Zone Tax.

  John Little, CEO of Smooth Ambler in Maxwelton, West Virginia explained how recent changes to the Market Zone Tax have improved his bottom line.

  “We used to pay a 28% markup to the state and 10% of all retail sales went to the local retailers via a tax called a market zone tax. Now, we only pay 5% markup to the state for items sold in the gift shop and only 2% for the market zone tax. It’s changed our retail business.”

  Distilleries in West Virginia cannot charge for samples or sell cocktails. But, distilleries can rent the facility and serve samples as long as they abide by the three ounces per person rule. This allows distilleries to have private parties which can be a nice source of revenue. Micro-distilleries have a discounted state license fee but have lots of regulations related to the percentage of grain from West Virginia and have a limit on production.

  Little is happy with his choice to pay for the full distillery permit.

  “While we’d meet the percentage of grain out of West Virginia, currently about 90% of our grain is from West Virginia, we didn’t want to have a cap on production. So, we have a full distillery permit. The West Virginia ABC treats us very well and is eager to help however they can, legally,” Little said.

Tennessee

  One of the states with the loosest restrictions on liquor sales in distillery tasting rooms is Tennessee. The current limit per person per visit is 25 – 750ml bottles. This limit is hardly ever reached by most individuals, but, if a consumer does their daily limit and want more, they can always come back the next day. The catch for the distiller, however, is that the bottles must first be sold by the distillery to a distributor and then bought back. This takes a small bite out of the distiller’s margin, but it is a relatively small price to pay for almost unlimited bottle sales at full retail price.

  Sampling is also permitted in Tennessee, and many distilleries take advantage. Consumers who visit the Ole Smoky Moonshine Distillery in Gatlinburg, Tennessee can sample 0.25 oz of up to thirteen different spirits.

  Tennessee recently passed legislation to permit cocktail sales, a law which took effect in July 2016. Andy Nelson, owner of Nelson’s Greenbrier Distillery in Nashville, Tennessee is happy with the change.

  “The State of Tennessee just passed a law allowing distilleries to sell cocktails out of their tasting rooms and that is very exciting for us. Any alcohol contained in the cocktails must be produced on the distillery premises so it can be a bit limiting but great progress nonetheless. We are right in the middle of trying to figure out a cocktail program for the distillery. We know that we may only get one chance at a first impression so we want to be sure we do it right from the beginning,” said Nelson.

Ohio

  One of the most notoriously restrictive states for distilleries is Ohio. Bottles can be sold from a distiller’s gift shop but there is a significant catch.

  James Bagford, Distiller at Flat Rock Spirits Distillery in Dayton, Ohio, described the process.

  “When a state agency store sells a bottle, they receive six percent of the retail price. When distilleries sell a bottle, the state gets to keep that six percent. So, we actually lose money when selling a bottle from the tasting room after we pay for credit card processing fees, bags, etc. The main advantage of having the tasting room is being able to connect with customers, tell them about making our product, and provide a sample before they commit to purchasing a whole bottle.”

  In November of 2016, Ohio passed legislation to allow distilleries to obtain an A1A permit, previously only available to breweries and wineries. The permit allows distilleries that produce under 100,000 gallons per year to sell their spirits, spirits produced by others, beer, and wine for on-premise consumption, as long as they have a kitchen and the ability to serve food during normal business hours.

Montana

  Montana is a growing craft spirits market spurred by craft-friendly laws. Distilleries can sell and serve two ounces of distilled spirit samples per person per day, which can be in the form of cocktails. They can sell up to 1.75 liters per person per day for offsite consumption, and self-distribute to state liquor stores. In addition, Montana distilleries can provide free or paid tours. 

  Distilleries are not responsible for paying the state mandated 20% markup on products moved through the tasting room. The only real restrictions placed on distillers are that of the spirits sold in the tasting room, 90% must have been produced in-state and can only be served between the hours of 10:00 am and 8:00 pm.

  Courtney McKee, Founder and Owner of Headframe Spirits in Butte, Montana is very happy she’s located her distillery in the state.

  “All in, being a distillery in Montana is fantastic. We’ve had a lot of influence over expanding the privilege of having a tasting room and we don’t think there’s a better state to do business in than Montana.”

Colorado

  Hands down, the state with the fewest restrictions on craft distillery tasting rooms is Colorado. Distilleries in dsColorado have every benefit they could ask for including unlimited bottle sales, no limits on sample or cocktail sales, permission to sell directly to retailers and liquor stores (direct distribution), can offer paid or unpaid tours, can have two separate offsite tasting rooms, and now get a “distillery pub” license.

  In exchange for these benefits, the state imposes a $2.85 per proof gallon excise tax (roughly $0.48/bottle) which is relatively insignificant when selling bottles and cocktails at full retail price.

  Kristian Naslund, owner of Dancing Pines Distillery in Loveland, Colorado enjoys all the benefits of being in Colorado.

  “We can sell anything that contains alcohol that we make, in any form – samples, cocktails, etc. We can sell to anyone and self-distribute. Overall, Colorado is a great state to run a distillery.”

  When it comes to operating a craft distillery tasting room, every state has their unique advantages and restrictions. No state is perfect, although some states are more craft-friendly then others. Whatever the restrictions are in a state, there are always opportunities to tweak the business model to drive a profit. Whether it is building a visitor-friendly distillery to maximize bottle sales from foot traffic, developing and innovating new brands to work within sales restrictions, building a bar to maximize profit from cocktail sales, designing an inviting tasting room to serve samples, or just focusing on efficiency and cost reductions for a pure distribution model, there is an opportunity to make money in every state. If the state gives lemons, make lemonade flavored vodka and sell as much of it as possible.

By: Donald Snyder, Donald@TimeAndTasks.com

June/July 2018 Issue – Beverage Master Magazine

In the story “Rumpelstiltskin,” the miller’s daughter has a seemingly impossible task; turn a room full of straw into gold. With the help of a little magic, the abundant straw, which has little or no value on its own, is turned into gold, a much more valuable commodity. For most craft distillers, they are surrounded by the copious amount of data that they would like to spin into business intelligence gold.

  From raw material reordering strategies, to cost per case, to sales trends, there is ample data available. Without an easy to use data dashboard, many decisions are made on the fly. By tracking the right data and filtering it into appropriate metrics, a distiller can make smart, data-based decisions to bring their distillery to the next level.

  The idea behind business intelligence and data dashboarding is simple: measure and track appropriate data points. Distillers can then use technology to filter and sort that data into metrics, charts, and summary dashboards; visual controls to identify when trends are out of acceptable ranges, and summary data to make smart decisions that drive the business in the right direction. For example, a list of all a distiller’s current raw materials on-hand isn’t the best way to re-order raw materials.

  However, combine current raw material inventories with vendor lead times, volume price discounts, average daily usage, and safety stock levels, and a distiller can be armed with a visual go/no-go strategy to order materials and ensure minimal out of stocks. Better yet, after setting up the dashboard, raw material reordering can be safely delegated to employees, meaning one less thing on the head distiller’s or manager’s to-do list. 

  Collecting data is not always easy or free. Every time an employee writes down data or enters data into a spreadsheet or system that is time away from doing other tasks. Identifying the right data to track, as well as monitoring and recording TTB required production and batch data is critically important. However, for employees who are writing or logging non-compliance related data points, a challenge if the data collected is value-added and is part of a mission-critical metric. As an alternative to manually recording data, invest in technology to simplify data collection and archiving.

Common Metrics to Track

  Not every business or distillery will be tracking the same metrics or key performance indicators (KPI). For example, a distillery who sources finished spirits is not as concerned with fermentation conversion efficiency as they are about tracking their bottling and filtering loss. The best metrics and KPI’s to help drive business to the next level involve data that is easy to collect and accessible; can be visually tracked daily or weekly; and where owners can make data-based changes to the process that will have a meaningful impact. A fantastic KPI is fermentation grain conversion efficiency (proof gallons yielded per bushel of grain used). The data is easy to track, it’s easy to plot the data points and see trends, and owners can make meaningful impacts to the process for positive change. In the end, an improvement to mashing efficiency means more output from the same investment of grain, which will benefit the bottom line.

  The most popular metric that distilleries track is the cost per case, as it gives owners a clear visual indicator of the profitability of their brand. The challenge with this metric is collecting the input data, including tracking all the costs from grain, packaging materials, labor, and even taxes. Using a distillery management system or cost accounting system can simplify the data collection. Once the cost data is summarized, the metric is easy to plot, trend, and compare against a standard. If a brand’s cost per case exceeds the standard, an owner can make process improvements to make positive changes. Every dollar of cost removed from a case means another dollar in profit for the company.

  Sales trends is another metric that distillers use to track company performance. Raw sales by customer data are usually available, but can often be overwhelming to digest. How is a specific brand performing month over month? Are any brands decreasing in sales? If sales are seasonal, compare brand shipments year-to-year to get a better picture of growth this season versus the same season last year. Are any customers trending down on orders? Looking at every combination of brand and consumer sales trends month-to-month or year-to-year could be hundreds of charts. To save time and resources, leverage a data dashboard or technology that can send an alert when specific parameters have been breached. If a brand or customer is trending unexpectedly downward, stakeholders can take action to help steer the ship back on track.

  The most overlooked metrics are ones that impact a distiller’s supply chain and logistics. With so many suppliers providing goods and services to the craft beverage industry, distillers have the benefit of holding their vendors accountable for poor performance. How often are deliveries made late or received after the agreed upon due date? How often does a late material shipment impact the production schedule? What is the supplier’s defect ratio? On a pallet of glass, how many bottles are broken or cracked? Supplier reliability can be crucial to an efficient distillery. If anything, tracking this metric can open conversations with suppliers on mutual expectations.

  Tracking and monitoring adjustments to inventory is an excellent metric to determine losses to your bottom line. How often is a physical inventory taken that doesn’t match the expected inventory? Track adjustments made to raw materials, tanks, barrels, and even finished cased goods. Is inventory missing often? Are employees using more of raw material than expected? Did the supplier ship an order short? Are products being broken but not reported? Are operations being done but not logged? Is there an employee theft issue? Tracking how often adjustments are made to inventory doesn’t always answer the cause of the problem, but it opens the opportunity to investigate and make meaningful decisions to minimize losses. 

One Bite at a Time

  Once a distillery has decided that it would like to start collecting and tracking data, the task can seem overwhelming. But just like eating an elephant, take one bite at a time. Identify one pain point or in-efficiency in the distillery and identify data that can help solve the problem. For those distillers with a math background, consider taking a green belt Six Sigma class to learn how to collect data from a process, identify outliers, and make meaningful changes to improve performance. Also, consider the investment in technology, such as business intelligence platforms, that will help collect and aggregate data into useful dashboards.

  A distiller will have thousands of potential points of data to collect, but tracking everything is not possible. Surrounded by data straw, distillers should look for a way to turn it into gold. Once a distiller or business owner has identified metrics and KPI’s relevant to the business and set up automated dashboards, they can use the data to make smart, data-based decisions. No one has a magic straw-spinning wheel, but every dollar saved by making intelligent choices means potential gold for the bottom line.

By: Donald Snyder, President, Donald@TimeAndTasks.com

December/January 2018 – Beverage Master Magazine

Released in 1989, Kevin Costner’s character in the movie “Field of Dreams” plows his cornfield to build a baseball field motivated by one of the most iconic movie lines of all time; “If you build it, he will come.” Investing all his family’s savings into the infrastructure, he built something that not only had a special meaning to his community but drew in people from all over. The parallels to the growing craft distilling industry are striking. Aspiring distillers share the passion for building something special and making an investment in their community that will draw a crowd. After the corn is plowed and the lights installed, here are some ways craft distillers can bring in foot traffic.

  Every state has different regulations on what a craft distillery can sell to consumers, including limits on bottle sales, cocktails, samples, and food offerings. Those distillers that can sell cocktails have an advantage as people can come in for a drink or take advantage of happy hour specials. However, just having a welcoming and well-decorated bar does not guarantee boots in the door.

  Richard Stabile, owner of Long Island Spirits in Baiting Hollow, New York has a craft distillery with a tasting room bar off the Long Island Expressway. Part of his success bringing in customers is maintaining a vibrant social media presence and encouraging people to try a rotating list of craft cocktails.

  “People come out to see the local wine trail and stop at the distillery for a cocktail,” said Stabile. “Being listed on the expressway signs as an attraction is a big benefit. We get to show customers how to use our spirits in their own craft cocktails at home which encourages them to pick up a bottle while enjoying a drink.”

Community Engagement

  Some states don’t allow cocktails or mixed drinks on site, which means distilleries need to be creative on how to bring in foot traffic. Paul Tomaszewski, owner of MB Roland Distillery in Pembroke, Kentucky, hosts regular events to bring in a crowd and stay connected with the community. “Pickin’ on the Porch,” combines live music, drinks, and food trucks and is one of the most popular events in the area, drawing 1,500 to 2,500 people per night. Another big draw to the distillery is “Vintage, Crafts & Cocktails” where the distillery hosts a variety of vendors from jewelry makers to craft artists that embody the artisan spirit.

  “The Vintage, Craft & Cocktail event brings in people who normally wouldn’t seek out a distillery, and helps build strong relationships with the community,” said Tomaszewski.

  Hosting events has the potential to expose your brand to large crowds, but there can be significant risks and costs. Tomaszewski urges caution when planning a big occasion.

  “We have a dedicated person working on planning, finding music, and making sure logistics are lined up. It’s quite a process and a whole other part of the business on top of production and distilling. One rainout could mean a significant loss of money. In the end, it’s a balance between the risks and reward,” he said.

  A less risky and less costly way to draw in foot traffic is to engage with followers with a regular email newsletter. When visitors to the distillery check-in, collect email addresses. Add a link to the distillery webpage where fans can sign up for email updates. The newsletter can communicate big and small events, cocktail recipes, new releases, and any other exciting distillery news. Include links to purchase event tickets, get coupons or discounts, or engage with the distiller via social media channels.

  Travis Barnes, owner of Hotel Tango Distillery in Indianapolis, Indiana, sends regular newsletters to his customers and fans.

  “It’s a balance of keeping folks up to date on what is going on with the distillery, menu changes, and new projects. People want to stay engaged with the distillery but not get inundated. We have a distillery cat named Fletcher, and everyone looks forward to knowing what he’s up to. Keeping fans engaged keeps them coming back for more,” said Barnes.

Private Events

  Another way to get traffic is to rent out the distillery space for private events like weddings, business conferences, and parties. In addition to the revenue from renting the space and possible bottle sales, it provides brand exposure to people from outside of the immediate community. Weddings, in particular, provide opportunities for product recognition as they draw people from across the country. Special event spaces in a distillery could range from a renovated barn on the property to a portioned off section of the distillery gift shop.

  Branden Bumpers, co-owner and head distiller at McClintock Distillery in Frederick, Maryland rents out space in his distillery for a variety of events. “We have only been open for about a year, but money from our event space is 25% of our total revenue. The building is 106 years-old, and we spent over two years restoring it with the event space in mind. It has all the amenities for a wedding and corporate parties. So far the response has been overwhelmingly positive.”

  Bumpers recognizes that renting out the distillery space can mean less revenue from peak tour and tasting times. That can be mediated, however, by budgeting the revenue shortfall into the rental price. When asked about the risk from theft or damage, Bumpers notes the risk is always there. “We hold a security deposit, but so far people have been respectful and caused no serious issues.”

Unique Experiences

  The summer of 2016 introduced a unique way to draw crowds to specific points of interest, including craft distilleries. Pokémon Go, an augmented reality cell phone game by Niantic placed digital characters, poke-stops, and gyms across the country. Players must physically visit these locations to earn items or to battle other Pokémon Go players digitally. Many distillers don’t know they are featured in the game until several random players show up all at once. Some distilleries who know about the game openly advertise that they are a poke-stop or gym and encourage of-age customers to visit their gift shop to “collect them all.”

  One of the most popular ways to get boots in the door is to release special- and limited-edition bottles. Craft distilleries have the benefit of being able to experiment with new or unique ingredients in small batches. Small batches give them innovative strategic strength over larger distilleries who don’t have the resources or capacity for research and development. Not only are limited edition products a fantastic way to get customer feedback before launching a larger batch, but bottles are often seen as collectibles and in high demand. Lines for a new product commonly run out the door. Getting fans excited and hyped for a new or seasonal product can create raving fans in the community.

  Robert Dawson Jr., owner of Manulele Distillery in Kunia Camp, Hawaii, knows the benefit of special and rare bottles. “We release different limited-edition rum bottles through our Artist Series every quarter. We work with Kim Taylor Reece, a local photographer, who shoots traditional Hawaiian imagery. Each rum bottle is etched with Kim’s iconic images, labeled, and given a hangtag that is hand signed and numbered. Fans of Kim’s photography search out the bottles bringing foot traffic to the distillery.”

  A final way to bring attention to a brand is to offer  a personalized bottling experience. Bringing in customers to label, wax, or sign their bottles gives fans a chance to make a connection with the distillery and bring home a memory. Word of mouth often spreads quickly following these personalized experiences which mean little, if any, ongoing advertising cost. In states that permit volunteers to work at the distillery, bringing in a crew to run the bottling line also builds positive experiences for usually no more than the cost of pizza and some drinks. These bottling events are great for building up a social media channel to bring more people in the front door.

  Dan Garrison, owner of Garrison Brothers Distillery in Hye, Texas, believes marketing and branding are moving towards more hands-on customer experiences. “Customers are looking for outward-bound experiences that they can have with our brand. We have a 10,000-person waiting list to join the bottling parties at the distillery. Bourbon is a great way to share relationships, stories and create a bond. When they are here, we treat them like royalty and take care of their every need. In return, they become brand ambassadors.”

  28 years later, the original movie set for “Field of Dreams” continues to draw huge crowds as people from across the country travel to be a part of cinema history. Just like people seeking the movie experience, there are several ways craft distilleries can attract customers. Cost effective tools like keeping up an active social media platform and sending regular e-newsletters can keep your local community engaged and excited. Hosting events can be expensive but could bring thousands of people into your distillery. Offering people unique and firsthand experiences can quickly go viral. Even bringing in live and local musicians can keep the regulars coming back for more.